Romania agrees to raise minimum wage by 19 percent to $300 a month

Romania's Prime Minister Dacian Ciolos arrives at a European Union leaders summit in Brussels December 17, 2015. REUTERS/Eric Vidal

BUCHAREST (Reuters) - Romania’s government agreed with trade unions and employers to raise the minimum wage by 19 percent to 1,250 lei ($300) a month before tax starting from May, sealing a deal with trade unions and employers after two-week talks, it said on Wednesday.

The move by the six-week-old technocrat government is seen by some as the first of a series of unaffordable measures in the run up to municipal and national elections next year.

The former leftist government, which quit in November after massive street protests over a nightclub fire that killed 63, had planned to enforce a minimum wage of 1,200 lei from Jan. 1.

Government spokesman Dan Suciu told reporters that 1.13 million employees, among European Union’s poorest, will benefit from the move, including 39,000 public sector workers.

“Negotiations began on December 18, we’ve been holding talks with unions and employers associations,” he said. “One of the important goals was to relaunch the social dialogue.”

Lawmakers approved a 2016 budget plan this month that incorporates wage increases and tax cuts, but also raises investment spending while keeping the deficit just below the European Union’s 3-percent limit.

The new government had to make room for already-approved fiscal easing including a 4 percentage point cut in value added tax to 20 percent form Jan. 1 and other tax reductions, public sector wage hikes of 10-25 percent and higher social benefits.

ING Bank analysts said in a note to clients, “... as we near next year’s local and general elections, we see risks of new populist measures being adopted by the parliament, without adequate budget resources,” noting that the move was not likely to have an impact on the Romanian leu currency short term.

“...we view it as negative for competitiveness over the medium term, as it will further drive up labor costs in a country that relies mostly on low wages to attract investments.”

Reporting by Radu Marinas; Editing by Louise Ireland