How Romania sold out its workers to foreign investors for IMF and EU cash

Romania’s leaders sold off their citizens’ rights and kept their wages at rock-bottom to satisfy foreign investor lobbyists and billion-Euro lenders from the EU and IMF, argue labour experts and unions

Romania was used as a ‘guinea pig’ by foreign investors with the support of lenders, as a test case in the EU to weaken workers’ rights to bargain for higher salaries, details academic research

Romania is a country viewed as an economic miracle in the European Union.

Its unemployment hovers around five per cent, its growth rate is an EU best of over five per cent, and its GDP grows five per cent each year.

The statistics are clear: the country is booming.

But a closer look inside Romania reveals a shocking reality - crippling poverty, widespread labour exploitation, low purchasing power and a mass emigration by working-age citizens from all its regions .

How has the country become an economist’s dream and a worker’s nightmare?

A key reason is that Romania is a country of a cheap and flexible labour force, where most workers are defenceless in the face of their employers, and the minimum wage is a reference salary for millions.

With one in three Romanians trapped in a contract on the lowest possible salary, this country contains a dumping ground of cheap and desperate labour within the EU.

How did this happen?

Forced to liberalise its labour market by the International Monetary Fund (IMF) and the European Commission (EC), and following intense lobbying from foreign investors, Romanian officials demolished the country’s power to bargain with employers for decent wages, and pushed people from stable jobs into precarious circumstances.

Labour researchers believe over 40 per cent of workers in Romania are on the minimum wage, if unofficial jobs are factored into the figures. Meanwhile, the latest Government data shows that around 30 per cent of total contracts pay the national minimum wage or under. This is still a massive number, and contrasts with nine per cent in Germany.

“In other countries, the minimum wage is the ceiling below which you shouldn’t pay. In Romania, it is an orientation mark!” says Stephan Meuser, head of Friedrich Ebert Stiftung in Romania, a political foundation close to Germany’s Social Democratic Party.

So what is stopping the Government from securing a better than minimum wage from west European big business, who are shifting production and services eastward?

Its own laws.

The attack on workers’ rights kicked off in 2008. As the global financial crash hit Europe, Romania was in a cash-flow crisis.

Desperate for money, it agreed to a 20-billion Euro bailout package in March 2009. The lenders were the International Monetary Fund (IMF), the European Commission, the World Bank (WB), and the European Bank for Reconstruction and Development (EBRD).

The IMF put up the largest sum: 13 billion Euro.

But this was not charity. The cash came with conditions. The lenders wanted Romania to deregulate its labour market. The secretary general of the union Cartel Alfa, Petru Dandea, sat in the negotiations. In the meetings, he says that the EC and the IMF were keen to push for a flexible labour market, although the Commission did not specify how Romanian officials should loosen its labour laws.

But an IMF technical memorandum from 2010 shows their experts were involved in helping draft the country’s Social Dialogue policy - the process of negotiation between workers, unions, employers and Government - and review the existing Labour Code, to replace Romania’s old regulations.

“Before end-December (after consultation with social partners and with the IMF, the World Bank and the European Commission), we will send a revised social dialog code and an improved labor code to parliament,” reads a document written by then-Finance Minister Gheorghe Ialomiţianu.

Avoiding any public debate, Romania's leaders launched draconian anti-labour policies. These were aimed at attacking workers' rights and reducing its unionised workforce, which dropped from approximately 90 per cent in 1991 to 20 per cent of workers today, according to Conect Association, an advocacy group.

In 2011, the Democratic Liberal-led Government of Prime Minister Emil Boc axed Romania’s yearly bargained National Contract from the old Labour Code. This contract contained a salary grid that forced businesses to factor in a person’s education level, professional skills and experience when calculating their pay.

With this protection removed, employers only had to comply with one law: paying the minimum wage.

Leaders of Cartel Alfa union, the National Union Block (BNS), the Retail Unions Federation and Conect Association agree this was a blow to salaries, and opened the door to a country where around a third of contracted staff are on the lowest wage possible.

Behind this move were large multinationals. According to Petru Dandea and other union leaders, major corporate lobbying groups in Romania, the Foreign Investors Council (FIC) and the American Chamber of Commerce (AmCham) had been relentlessly lobbying for a more flexible labour market since 2002 - well before the crash.

But AmCham is proud to see the law move in a direction more favourable to its members. Today the group’s spokesperson Andreea Roma believes that the new code “has had a positive impact on Romania’s economic growth”.

Meanwhile the Foreign Investors Council (FIC) also admits that it was instrumental in proposing the new changes. It took part in “over 20 meetings with officials and other organisations” to discuss the 2011 Labour Code and policy on Social Dialogue, according to spokesman Radu Burnete.

The group submitted their labour-related proposals for the Government’s consideration in 2010. Among their requests, they asked officials to facilitate short-term hire, particularly temporary and zero-hour contracts.

This would allow companies to avoid full or part-time employment commitment and commission work for brief periods.

In other words, companies would not need contracts with their staff, and they could hire workers by text message the day before with the number of work hours available - this could be eight, or it could be zero.

The collective bargaining system was “smashed” due to the new law, complains Petru Dandea. Since 2011, four-fifths of all wage negotiations held at company level have been concluded without legitimate workers' representatives, he argues.

Now close to a third of the workforce receive the minimum wage - 1,846,498, if registered freelancers are included. “We are paid as if we were a country of unqualified workers,” complains the trade unionist.

The European Commission encouraged this practice. In 2012, a new government in Bucharest announced that it would undo the reforms and make country-wide collective agreements possible again. Officials for Olli Rehn - then EU Commissioner for Economic and Monetary Affairs - together with the IMF, attacked the proposal .

“We strongly urge the authorities to ensure that national wage agreements do not contain elements related to wages and/or reverse the progress achieved in the labour code in 2011,” they wrote to the government. The American Chamber of Commerce issued a similar letter of protest. The ‘troika’ lenders also called on officials not to introduce annual collective bargaining. The government gave up the plan.

With this intervention, Rehn and his officials staked a claim to a right to which they were not entitled. Article 153 of the EU’s Lisbon Treaty , which describes the tasks of the Union regarding social policy and work standards, states that the EU and its agencies have no competence to regulate wages. In the letter above, Rehn’s officials only ‘strongly urge’ - the text of which means ‘we are not telling you to do this’, the subtext of which most would understand to mean ‘we are telling you to do this’.

In practise, the Commission was more intrusive, argue witnesses. The leader of Romania’s National Union Bloc (Blocul National Sindical - BNS) Dumitru Costin, who was also part of many negotiations with Romania’s ‘troika’ lenders, confirmed that the European Commission discussed setting wages.

“Of course wage-setting was discussed! The only wage-setting topic the Commission is interested in is the mechanism behind establishing the national minimum wage,” says Costin.

Costin and Dandea say that during Romania’s meetings with the ‘Troika’ lenders, the Commission did not oppose the business lobbyists’ suggestions on how laws on workers’ rights should change. “They were accomplices,” argues Costin.

We approached Rehn, who is today a member of the board of the Finnish Central Bank, but he declined to be interviewed on these meddling allegations with the labour reforms of other countries, and whether the EU was acting outside of its jurisdiction.

Want to form a union in Romania?

It should be easy.

The Romanian Constitution says “Citizens may freely associate into political parties, trade unions, employers' associations, and other forms of association”.

And this has international confirmation.

The European Convention of Human Rights gives workers “the right to form trade unions for the protection of members' interests”.

But these two legal obstacles did not get in the way of Romania’s labour reform.

Before 2011, a minimum of 15 people from the same profession, working for different employers within the same industry could form a union.

The new Social Dialogue Act from 2011 said those 15 now needed to work for the same company, and they cannot include freelancers.

But even if workers can form a union, it could be powerless. If a union wants the recognition to bargain for higher wages within a firm, it must have a membership of 50 per cent plus one of all employees in that company - and big retailers in Romania employ upwards of 15,000. This is a vast number for a union to enlist.

“Every year, the bargaining power of workers is diminishing and you get into a situation where roughly half of the persons get or end up with the minimum wage,” says Stephan Meuser.

Romanian unions accuse the then-Boc Government of passing policy that barred their access to the negotiating table, leaving employees in precarious situations.

“I call it the Anti-Social Dialogue Act,” says Retail Union Federation president Vasile Gogescu. “It was passed to almost dissolve the collective bargaining contract.”

The numbers quoted by unions paint a grim picture of the impact of 2011’s Social Dialog Act.

This has hit the boom sectors of shops and warehouses.

There are at least 800,000 employees in Romania’s retail sector, which has been key in the last three years to fuelling the country’s consumer-led growth.

Of these, over 600,000 work for companies with fewer than 15 members of staff, according to Gogescu.

This means three-quarters of some of Romania’s most vulnerable workers cannot have access to union protection.

Workers also have little control over their job requirements. “Countless tasks and responsibilities are piling up,” says Gogescu, “and contracts [stipulating the requirements of the job] end with the sentence ‘And any other assignment designated by the line manager’. This means that you can never refuse a job.”

According to a report from Conect Association, in 2015, there were 468,374 enterprises with fewer than 15 employees, comprising 1.29 million employees. This reveals a huge number deprived of protection from a collectively-bargained contract.

The association’s president Rodica Novac says the Social Dialogue policy was passed without any assessment of its public impact, or consideration of the realities of Romania’s labour market.

“There are companies who don’t favour the unionisation of their workers,” argues Novac. “Japanese companies, for instance, are straightforward about it. Also, Auchan - a France-headquartered multinational supermarket chain - and the Schwartz group [German owner of retail brands Kaufland and Lidl] are anti-union employers.”

Cartel Alfa’s Secretary General said unions met ten times with the lenders in the ‘Troika’ loan implementation years and “explained to them what effects the legislation had: the [collective bargaining] contracts started to disappear, the [number of] minimum wages… was increasing rapidly.“

This is also against international labour laws. Needing 15 persons to form a union from the same company violates both EU laws and International Labour Organisation (ILO) conventions on the freedom of association. This law article is contested by unions and the case is being considered by Romania’s Constitutional Court. “We hope that this provision will be killed,” adds Stephan Meuser, from Friedrich Ebert Stiftung.

But could this method of deregulation spread beyond Romania? Corporate lobbyists were using the 2008 financial crisis to propose changes to the country’s labour laws in a move to create a ‘test case’ for a nation of hollowed-out workers’ rights in the EU, argues new research.

"Representatives of both employers’ associations and unions consider that Romania was used as a ‘guinea pig’ by foreign investors with the support of the so-called Troika (IMF, EC, World Bank), to decentralize collective bargaining radically,” according to a 2016 European Journal of Industrial Relations study by Aurora Trif , a social scientist from Dublin University.

Trif quoted a union official anonymously in the document: “All the labour market reforms [in Romania] were initiated and adopted at the recommendation of two players; one is the American Chamber of Commerce and the other one is the Foreign Investors’ Council. The Romanian model has been exported to other central and east European countries and foreign investors wish to extend it in western European countries.”

The result of the 2011 laws favouring business to the detriment of Romania’s workforce has been “catastrophic” for society says Vasile Gogescu.

“Take two employees both earning the national minimum wage - if they start a family, and say they have a child, they cannot pay their bills by working, or even afford everyday basic goods,” he adds. “We’re slowly becoming the working poor.”

Additional reporting: Harald Schumann, Investigate Europe and Michael Bird

In addition to Crina Boros, journalists Wojciech Ciesla, Ingeborg Eliassen, Nikolas Leontopoulos, Maria Maggiore, Leila Minano, Paulo Pena, Harald Schumann, Elisa Simantke also contributed to this investigation for Investigate Europe.

Investigate Europe is supported by Germany’s Hans-Böckler-Stiftung, Rudolf-Augstein-Stiftung and Stiftung Hübner&Kennedy;, the Norwegian foundation Fritt Ord and the Open Society Initiative for Europe.