Romanian President backs hike in teachers' wages

Romanian President Traian Basescu signed a 50 per cent increase in teachers' salaries into law yesterday, in a move that may spark nationwide strikes in the public sector ahead of a parliamentary election on November 30.

The increase follows a series of pension hikes and payouts to state employees in a pre-election spending spree which has raised economists' concerns over Romania's ability to keep public finances under control.

A likely wave of wage demands from other civil servants may raise pressures on the budget and make the emerging economy more dependent on foreign funds in a time of global cash shortages.

Mr Basescu defended the Bill, introduced by the opposition Social Democrat Party (PSD), saying it was affordable and needed to help modernise the outmoded education system.

"The argument that there's no money is not real... It's a matter of wanting to finance education or not," he said. However, analysts said it would likely raise investors' jitters about bringing cash to Romania, seen as one of the most vulnerable economies in eastern Europe.

"It reinforces the idea that wage policy in Romania is too loose and contributes to imbalances in the economy," said Lucy Bethell, currency strategist at Royal Bank of Scotland.

Public sector wages are a key issue ahead of the election as thousands of teachers, doctors, nurses and other workers demand cash to match double-digit salary growth in the private sector.

It poses a dilemma for centrist politicians, including Prime Minister Calin Tariceanu as well as Mr Basescu and his opposition Democrat-Liberal Party (PD-L), as they struggle to square such pressures with the need to reform the creaking public sector.

Mr Tariceanu's Liberal party is trailing in public opinion polls and it has supported wage hikes proposed by Parliament in the past.

But he slammed the latest increase as unsustainable.

On the other hand, Mr Basescu has been a key proponent of fiscal restraint but changed tack this week.