SINCE GREECE ENTERED a bailout programme five years ago, the main bone of contention in negotiations with creditor countries has been how to resolve the pension system. But why is it such a huge issue for Greece?
If one considers that there are currently only four working people for every three pensioners in Greece, it becomes quite evident. Greece also has an ageing population – by 2050 it is expected that just over one third of the population will be over 65. Going by these figures it is hard to imagine how they can sustain such a system with current policies. In fact, all over Europe we are facing demographic challenges which could turn into a pension time bomb if governments do not start taking action soon.
As one of my Greek MEP colleagues told me recently – there cannot be a solution to the Greek crisis without putting the pension system in order. Yet the pension system is an area where there has been a serious stalemate between Greece and creditor countries. And what will happen with the pension system now that an agreement is in serious jeopardy? The simple fact is that regardless of whether Greece is in a programme or not, it needs to make its pension system sustainable for future generations.
Greece’s pension system gets over 50% of its revenue from the state budget
Greece currently spends 4-5 percentage points more than the European average servicing its pension system. The pension system gets more than 50% of its revenue – €14 billion in 2014 – from the state budget. This €14 billion amounts to over 7% of Greece’s GDP.
Contrary to what has been reported in several media outlets recently, the creditor countries have not asked for pension cuts through negotiations with the Syriza government. Yes, they have asked for a reform of the pension system but there has been no demand for a reduction in pension benefits.
Pension reductions had been agreed previously between the Samaras government and the Troika but many of those reductions were postponed due to the electoral costs of such cuts.
In fact, in the run up to the Greek elections in January 2015, Syriza promised to get rid of all pension reductions. Interestingly, one of the main reasons why Syriza won those elections was due to a swing of a large number of pensioners from centre right and centre left parties towards Syriza.
It has also been a particular sticking point for the Germans that many Greeks were going into retirement in their 50s. Before the crisis, the Greek system required only 35 years of contributions rather than the 40 years which is generally needed to get a full pension. This clause contributed to a huge number of citizens retiring early.
However, there have been major reforms committed during the bailout programme. Firstly, the minimum retirement age was raised to 62 for both men and women. Secondly, the statutory retirement age was pushed up from 60 for women and 65 for men to 67. Under the current negotiations, the Syriza government has proposed to raise the retirement age to 67 by 2025 whereas creditor countries want that moved to 2022.
Huge advantages to certain sectors
Yet the Greek pension system continues to give huge advantages to certain sectors. The Public Power Corporation, which is the biggest electric power company in Greece was restructured in a way that left the State funding much of the company’s pension scheme. In 1999 the Greek government decided to partially privatise this company and for trade unions to agree to the partial privatisation, the company’s pension scheme was transferred to the state budget. The money that has been spent funding this pension scheme is more than double what the state received from the partial privatisation.
Additionally, the privatisation of Olympic Airways that took place during the Karamanlis government (2004-2009) was arranged in such a way that cost the taxpayers €1.5 billion, mostly due to beneficial early retirement schemes.
Of course, many Greek governments have come under serious pressure from different trade union groups and public sector groups to prevent certain changes to the pension system. In 2009, the Greek government gave big hand-outs to pensioners in December 2009 when the Greek state was already bankrupt.
The Greek judicial system has also firmly battled against any pension reductions – Greece’s High Court has ruled that many of the pension reductions are unconstitutional. It has been estimated that if the Greek government complies with the High Court’s rulings, then state subsidies for the pension system would be increased by €1.5 billion per year.
Governments have not taken ownership of the bailout programme
The broad problem with regard to pensions, VAT and other contentious issues in the current Greek saga is that successive governments have not taken ownership of the bailout programme. They have preferred to keep their political distance from the Troika instead of designing a workable programme that will benefit the country in years to come.
Now it is clear more than ever that a job needs to be done; the pension system urgently needs an overhaul and regardless of whichever government is in power, they need to take ownership and explain the importance of much-needed reforms to the Greek people.
Brian Hayes is Fine Gael MEP for Dublin and a former TD for Dublin South West.