Milatović: „Euro Model“ raises key questions about sustainability, wages and the Pension Fund; Vuković: A gamble with public finances, the hole will be plugged through borrowing

It has not been demonstrated whether the „Euro Model“ is sustainable. We do not know what wage policy will look like, while the third issue is that the model is moving towards the complete abolition of contributions to the Pension and Disability Insurance Fund. We all need to know what impact this will have, President of Montenegro Jakov Milatović said today at a roundtable on the „Euro Model“.

The roundtable was organised by the Office of the President of Montenegro Jakov Milatović.

He added that the Prime Minister and representatives of the Government, as well as the relevant ministers, had also been invited to the roundtable on the „Euro Model“, but none of them responded to the invitation, which he described as bad practice.

President of the Employers’ Union Slobodan Mikavica said that the proposed solution was surprising and unexpected.

- The proposal did not go through the Social Council and, as such, cannot be submitted to Parliament. Small businesses will bear the greatest burden of this programme. The burden would fall on those companies. An additional gap will emerge between large companies and firms that are just starting out. There is a risk to the survival of certain companies. We need to adapt, that is, the economy needs to be given time to adjust. We do not believe this programme is sustainable. We need to sit down at the table and negotiate a gradual system of wage increases - Mikavica said.

Analyst Zarija Pejović said that a significant number of entrepreneurs are deeply concerned about whether they will have to lay off employees or close their businesses.

- That would create instability in the labour market. Part of the revenue is planned to be taken away from local governments, which creates financial problems for them. Wages are being increased in the public sector, which is financed by the private sector, so once again people will want to leave and seek employment in the public sector. This model will result in further growth of public debt. This is political marketing at the expense of public finances and their stability - Pejović said.

„The Prime Minister spoke about the positive effects but did not mention the negative ones“

Milatović said that Prime Minister Milojko Spajić had spoken about the positive effects but had not mentioned the negative ones.

- This programme has many positive aspects, but we must also recognise the negative effects. Higher wages are a positive thing. An indirect result of that is stopping the outflow of labour. Those are obvious positive effects. The key question is what the cost of this is. The question is whether the timing is right - Milatović said.

Young people should be retained through inclusion on an equal footing, not through partitocracy

Analyst Zarija Pejović said that, as an employee, he would rather preserve his job than see wages increased in this manner.

- Young people should be retained by including them on an equal footing, not through partitocracy. I fear that our descendants will become a minority in this country because of transitional policies - Pejović said.

Economic analyst Vasilije Kostić said that the Pandora’s box of a consumption-driven economic model had been opened by the „Europe Now“ programme.

- I strongly opposed such a programme. Any programme, whatever it may be, should be assessed from the standpoint of its net effects. The Prime Minister certainly does not know the net effect of this programme. I believe the net effect will be negative. I believe the proposal of this programme was expected. On the eve of new elections, they have dramatically raised the bar compared with the previous „Europe Now“ programme. As the saying goes, „What the sheep sees while lying down is not far away“. We will see the effects of this programme as well - Kostić said.

Kostić believes that criticism of the „Euro Model“ will have no impact on the way it is implemented.

- The era in which we live is not an era of facts. The importance of facts is being marginalised. Basic economic categories are being redefined. I am completely convinced that the question is not whether the model is good or bad, but how we can protect ourselves from such models and decide what kind of economy we want to build - Kostić said.

Milatović asked Kostić whether the current situation was better than the situation under the announced programme, which includes an increase in VAT to 25 percent.

- I am against this programme. An economy can grow only through growth in production and productivity. This model promotes consumption without production. We are causing lasting damage to development. We are creating economic regression. If the breakdown is not happening before our eyes, that does not mean it is not happening - Kostić said.

Broader consensus needed for the programme

Mikavica said that he had been following pre-election coalitions for decades.

- „Europe Now“ brought benefits. We eliminated the grey area of employment and raised workers’ living standards. This programme requires broader consensus - Mikavica added.

Milatović said that independent institutions that receive public funds had also been invited to discuss the issue, including the Fiscal Council and the Central Bank of Montenegro.

- But they are not here, and that is the attitude of independent institutions towards citizens. It is tragic. The Ministry of Finance should inform the public about the details of this programme. The average wage has increased from €500 to €1,000 since 2022. Cumulative inflation stands at 35 percent. The calculation clearly shows that there has been a real increase in living standards. In January 2022, the minimum pension was €150, while today it is €450. We have to be precise - Milatović said.

Kostić told Milatović that this did not reflect the true picture and that his calculation was incorrect.

„The gap will be plugged through borrowing“

Executive director of Fidelity Consulting, Miloš Vuković, recalled that Finance Minister Novica Vuković had not voted on the model adopted at a government meeting held via WhatsApp.

- The minister has been reviewing the model for two weeks now. The real question is who is going to pay for all this. Pensioners will be hit the hardest. This is a debt-driven model. This is not economic policy, but a gamble with public finances - a gambling policy. The gap will be plugged through borrowing. The deficit will be €300 million, and next year wages and pensions will be paid from borrowed money. I have heard that seniority pay will be abolished, and I believe it is a unique case in the world that someone who has worked for 30 years would have the same starting salary as someone who has just started working. Then there is also the issue of contributions to the Pension Fund. I ask: why don’t they return the money I have paid in, so that I can pay it into my own account - Vuković said.

Economist Mladen Grgić said that all of this was based on economic superstition.

- The entire wage-band concept is harmful. Now a new wave of borrowing by citizens will begin. We had Jezda and Dafina. You have a prime minister who goes before businesspeople and tells them: „You need to make a long-term sacrifice so that people do not leave“. Yet he is speaking from the standpoint of a political leadership that, in four years, has not sacrificed a single official vehicle - Grgić said.

According to him, no one has ever increased wages so extensively through administrative measures.

- The only similar example was Singapore, but it simultaneously had a programme for restructuring the economy. Decisions there were made through the Social Council. Spain did this through an entire set of reforms and through its green agenda. A package of reforms must be proposed, and this should become a programme to be implemented over the next three to four years - Grgić said.

Marko Subotić, an economic policy adviser at the Union of Free Trade Unions, said pensioners had been affected the worst.

- We must stand on the side of workers and support wage increases. This will have numerous positive effects. The only dissatisfaction is among citizens with a large number of years of service - Subotić said.

President Jakov Milatović said that anyone who believes the programme can be implemented without tax increases is seriously mistaken.

„What is crooked at birth, time cannot straighten“

- What is crooked at birth, time cannot straighten. We have shaken the financial and economic system of this country to its foundations. Were we fools for paying contributions for decades? Coffee will cost €3, burek €4, and pizza €20. There will be layoffs and price increases. It is inevitable - Miloš Vuković said.

According to him, the Fiscal Council will say that the programme is unsustainable.

Subotić said it was important to raise living standards and achieve the goal, while Mikavica stressed that they were not in favour of postponing the Euro Model, but of completely changing the approach.

- The goal is to increase living standards and wages while minimising negative effects. And for that, we need to talk - Mikavica added.

Milatović said that, through this example, Montenegro had shown that its institutions were not functioning properly.

- No one can justify the Prime Minister for the way this model was adopted in a WhatsApp group without discussion and social dialogue. In Montenegro, the hardest thing is to be reasonable and find a reasonable path. I believe that today we sent a clear message that we need responsible institutions to state their positions on this programme - Milatović concluded.