Greece's economy is expected to contract by 7.5% to 10.5% this year due to the impact of COVID-19. Greek debt crisis: Greece takes axe to bloated pension system with ", European Stability Mechanism. The Third Memorandum, signed with creditors in 2015, provides for the introduction of ambitious reforms, further savings on pensions (0.5% of GDP in 2015 and 1% in 2016), policies to neutralise the budgetary impact of the Council of State decision (2015) declaring the pension cuts introduced in 2012 unconstitutional and a 6% levy on main and auxiliary pensions (healthcare and pharmaceutical contributions, Law 4334/2015). "Inside the Euro Crisis: An Eyewitness Account," Page 17. The Greek pensions system, after decades of political exploitation, state interference and crony capitalism, is close to collapse. A survey conducted by Alco polling agency for Open TV before news of the pension pledge, put the conservatives' lead at 8.5 points, while a majority of the respondents said they expected an election in September-October. "Tangled Governance:International Regime Complexity, the Troika, and the Euro Crisis." Greece could have converted its euro-based debt to drachmas, printed more currency and lowered its euroexchange rate. This means there are just 138 people in employment for 100 Greek pensioners. The current Greek Government has a majority of just three seats and opposition parties are opposed to the proposed reforms. A strong euro would convince other EU countries, like the United Kingdom, Denmark, and Sweden, to adopt the euro. From 1997, the pension funds were required to invest 77 percent of the funded portion into a common capital pool in the National Bank of Greece. googletag.enableServices(); Greeces creditors demand that Athens should cut pensions further. Widespread media reports about a looming Greek crisis began in October 2009 when the newly elected PASOK government was reportedly 'surprised' to discover that Greece's public budget deficit was much higher than previously calculated by the Greek statistical authorities. As part of a package of savings and tax increases, Greeces creditors are demanding the government cut pensions by the equivalent of 1% of gross domestic output, a more rapid clampdown on early retirees and for supplementary pensions to be financed by contributions, not by the state (which would effectively mean cutting them further). By definition, the Grexit refers to the exit of Greece from this monetary union. The social security contributions finance all branches(sickness, maternity, old age, invalidity, survivors, unemployment, family allowances). "IMF Halts Its Bailout Talks With Greece Amid Lack of Progress. This is around half the level observed in Sweden. However, the immediate consequences of a Euro exit could be disastrous. For example, Greece has a huge over-reliance on imports for raw materials and a trade deficit of $27 billion something difficult to sustain with a devalued currency that would make imports more expensive. In 2014, Greeces economy appeared to be recovering, as it grew 0.7%. Its 2017 debt-to-GDP ratio was 182%. Our retirement will not be quite as comfortable as wed thought. You have the right to update your personal data at any time or to ask further information on how your data is used by contacting dataprivacy@etui.org. On June 27, Greek Prime Minister Alexis Tsipras announced a referendum on the measures. Despite austerity measures, many aspects of Greeces economy are still problematic. The IMF owns21.1 billion euros of Greek debt, not enough to deplete it. In May 2017, Tsipras agreed to cut pensions and broaden the tax base. The pension system in Greece has predominantly been based on a generous public pension pillar, although the country's severe crisis has made this look increasingly unsustainable and led to severe cuts. The economy contracted 0.2%. The final reform also provides for the gradual abolition of pensioners social solidarity benefit (EKAS) paid to the most frail pensioners (by December 2019), an increase in social security contributions foremployees (1% for employers and 0.5% for employees) and for professional occupations, freelance workers and farmers (contribution of 20% of monthly income), as well as a further reduction in replacement rates. Workers werent thrilled paying contributions so seniors can receive higher pensions. At the same time, it reduced wages to lower the cost of goods and boost exports. The prospects for the sustainability of the system depend on certain factors in which there are worrying developments, particularly since 2010: the fall in GDP (26.4% between 2008 and 2015) and the employment rate (from 61.5% to 50.8%), the sharply rising unemployment rate (from 7.8% to 25%), the drop in the average wage (20%) and the minimum wage (22% and 32% for the under-25s in 2012 and fixed since then), the increase in precarious and poorly paid employment. The reform of Greeces tax collection system has also been poor. Greece - OECD Data Mitsotakis has repeatedly ruled out a snap poll and his New Democracy party is leading in opinion polls. Estimating the Impact of Alternative Policy Measures Designed to Spur Growth," Page 19. About 45% of pensioners receive pensions below what is considered the poverty limit of 665 per month. var googletag = googletag || {}; Greece may have to return billions of euros over illegal pension cuts But were luckier than lots of people.. The Wall Street Journal. In 2012, all pensions were cut by 15% due to the abolition of the 13th and 14 months.Other reductions were also made: a 12% cut in main pensions of more than EUR1300 in the private and public sectors, cuts of 10% to 20% in auxiliary pensions, a 7% cut in pensions for seamen, etc. Greece's creditors are also demanding faster and more sweeping reforms to the Greek pension system. They could expel Greece, but that would be disruptive and weaken the euro. But the risk is that by continuing to pull in different directions in search of a one-size-fits-all answer, the fabric of Greece, and with it possibly that of the wider eurozone, will eventually tear. For these reasons, a Greek default wouldnt have been worse than the 1998Long-Term Capital Management debt crisis. Austerity measures required Greece to cut pensions by 1%of GDP. ", The New York Times. Much of the debt didn't come due until 2020 or later. ARTICLE BY: a | Published: 7 July 2022. var googletag = googletag || {}; The EU had no choice but to stand behind its member by funding a bailout. The governments tax-revenue shortfall in January alone was 23% below its 4.5bn target for the month. (social security in Greece),http://www.inegsee.gr/wp-content/uploads/2017/01/ENHMEROSI_233.pdf. Almosthalf of the loans banks had on their books were in danger of default. PRINT Issue 224 June 2023 | Article of the Week, GRADUATING FROM WELLBEING INITIATIVES TO A WELLBEING STRATEGY HRDEBATE REPORT, Sarah Hayes, HR Director, Securitas UK and Securitas Technology, ET rules that male agency worker is victim of sexual harassment after witnessing female employees being sexually harassed, How to measure productivity in a knowledge economy. Greek pensioners began queuing before dawn at up to 1,000 banks around the country which opened on Wednesday to let them collect the 120 (85) they will be allowed this week. If Greece had defaulted, the ECB would have been fine. The 2010-2015 reforms (Memoranda I and II), The 2010 reform contains a clause limiting the rise in pensions expenditure to a maximum of 2.5% of GDP in the period 2010-2060 and providing foradjustment of the parameters to be triggered if that limit is exceeded. Only 104 migrants survived . All rights reserved. The deal means that no new measures would be created. As of January 2019, Greece has only repaid 41.6billion euros. Why was the EU so harsh? As a proportion of GDP, no country in the EU spends as much as Greece's 17.5% on pensions, according to Eurostat: What's more, in Greece the size of the deficit in the pension system is 9%. The implementation of these reforms and successive cuts in pensions is tantamount to a planned impoverishment of pensioners, without that making the system sustainable. In a country where the employment rate has risen dramatically (27.5% in 2013 and 23.4% at the end of 2016), 73% of the total are long-term unemployed, only one unemployed person in ten is entitled to unemployment benefit (of EUR360) and there is no guaranteed minimum income,[4] pensioners have become the safety net for many families and inter?generational solidarity plays an important role. Pensions will in future be calculated on working life as a whole and not on the five best years of the past ten. At the same time, a degree of unreality pervades these discussions: the Greek Government is saying that the reactions of the Troika have actually been positive. For decades pensions in Greece were known to be among the most generous in the European Union, allowing many pensioners to retire earlier than pensioners in other European countries. It lowered trade barriers, increasing exports. The economic crisis and the austerity policies operated for the past seven years have led to a 26.4% fall in GDP, which has also helped to inflate public pension expenditure as a percentage of GDP. They may also be illegal: the countrys highest court has already ruled that the private-sector pension cuts pushed through in 2012 were unlawful because they deprived pensioners of the right to decent life. Greece crisis: What it means for savers and holidaymakers 2015 But the German government wouldn't concede much before its September presidential elections. Greek pensioners queue at dawn as banks allow a 120 withdrawal PDF World Bank Document What comes next? She does not need to help him out. The Greek Government has tabled a package of pension reforms, which is currently being scrutinised by European Ministers. But pensions remained one of the main obstacles in negotiations between creditors and the Greek government in recent months. The Economic Fundamentals of the Greek Pension Crisis, Figure 1: Greek Pensioners and Pension Payouts, Figure 2: Pensioners by Number of Pensions, Figure 3: Employment Rate among 55 to 64 year olds, 2013 (percent), Figure 4: Projected Annual Privatisation Proceeds, faced an average cut of 27 percent across both State and private pensions, 17.7 percent of GDP on its pension system, Annual Report of the Greek Public Council, Psychological safety: time to take action, Salaries across white collar roles stagnate fears for talent exodus, Continuity is key in times of economic uncertainty, Supporting low-carbon business travel gives advantage in the talent war, Talent, productivity and profit all at stake without purpose, Discrimination is rife for overweight Brits, Senior HR Business Partner/Director (12 Month FTC) Amazing Company, How HR must power public sector digital evolution, The swinging power pendulum between employers and employees. Pension reform in Greece - background summary | etui Note that at the end of 2016 pension expenditure represented 18.26% of GDP (EUR 31.7 billion). The system remains mired in bureaucracy and the pace of change is slow. "Greece: Ratio of Government Expenditure to Gross Domestic Product (GDP) from 2014 to 2024.". Despite the name change, that money also came from EU countries. Further changes were introduced in 2012; in particular the various auxiliary pension funds were merged into a single fund, State financing of auxiliary pensions was abolished and the number of high-risk occupations was restricted. The private pension system is marginal. Our Standards: The Thomson Reuters Trust Principles. Greece developed a pension-heavy, clientelist, hybrid Mediterranean welfare state with many gaps in coverage. Reforms since 2015 (Memorandum III). The Grexit Explained by the Global Economic Dynamics Project The primary aim of the reform is to help achieve the objective of a primary surplus of 3.5% of GDP which the creditors require of Greece in 2018. Receive more HR related news and content with our monthly Enewsletter (Ebrief). In the paper Five Years of the Greek Crisis, the Greek Liberties Monitor points out that accountants would have had to implement one new directive from the Greek Finance Ministry every working day since 2011. It could just pay it over a longer time period. Domestic Greek data also provides an illuminating picture into a bloated system that is running out of control. The general social security system is funded by contributions from employers, insured persons and the State. EU leaders struggled to agree on a solution. That limited the power of socialist parties and unions. Understand the Greek Debt Crisis in 5 Minutes. But can the refusal of Tsipras and the Greek finance minister, Yanis Varoufakis, to comply with these demands simply be explained by a stubborn unwillingness to reform? Some comments and amplifications are in order. Pensions have become arguably the biggest hurdle in the tortuous, on-off negotiations between the leftwing government of the prime minister, Alexis Tsipras, and Greeces creditors: its eurozone partners, the European Central Bank and the International Monetary Fund. On July 15, the Greek parliamentpassed the austerity measuresdespite the referendum. . The contribution period, retirement age and the level of pensions have been extensively revised. Many were then asked to return on the following days. Before January's election, the man who became prime minister, Alexis Tsipras, campaigned with a promise not to cut pensions again. Since 2000, the Greek pension system has received 216 billion in subsidies to prop up an unsustainable system. Those who could withdraw money had to make do with the 120 - before this week, they could withdraw their entire pension at once. "You need to declare today that the country will head to elections in September". 2023 BBC. "One in Two Greek Households Rely on Pensions to Make Ends Meet. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the ETUI. The country revealed that the budget deficit had surpassed 15% of GDP. Between 2010 and 2014 Greek pensioners faced an average cut of 27 percent across both State and private pensions, yet in 2012 Greece was still spending 17.7 percent of GDP on its pension system the highest proportion of any EU country. The average Greek pension is 833 euros ($904) a month. The differences would be the scale of defaults and that they are in developed markets. Bureaucracy often delays commercial investments for decades. And Im one of the lucky ones. There were three reasons. However, it wasn't until the 2009 financial crisis that the extent of the country's financial troubles became clear; in 2010 Greece's debt-to-GDP ratio was 146%. June 24, 2023, 5:01 a.m. But with existing cuts, that figure has fallen to 16 percent, Reuters reported. THE ECONOMIC FUNDAMENTALS OF THE GREEK PENSION CRISIS Greek unemployment stands at around 25 per cent and youth unemployment is at nearly 50 per cent. And once or twice, not at all. The social consequences of unemployment remaining at around 25 percent and youth unemployment at 50 percent make for an even bleaker picture. Days before this Sunday's election in Greece, three young women with piercings and ironic T-shirts who sat outside a hipster coffee shop in an Athens neighborhood . (modern). The conservative court flexed its muscles. Original reporting and incisive analysis, direct from the Guardian every morning, 2023 Guardian News & Media Limited or its affiliated companies. ", One retired seaman, struggling to afford medicine for his wife, told AFP: "I worked for 50 years on the sea and now I am the beggar for 120. Reuters, the news and media division of Thomson Reuters, is the worlds largest multimedia news provider, reaching billions of people worldwide every day. Thankfully, my sister has a big garden. PDF Economic Bulletin - Centre for Policy Studies Greece and the IMF, the European commission and the ECB, legislation to reduce supplementary pensions, the size of the deficit in the pension system, by the equivalent of 1% of gross domestic output, 45% of pensioners receive pensions below what is considered the poverty limit, and claimed pensions when they werent allowed to, a third of what pension funds have lost since then. As a result, fewer people are paying higher taxes to receive less from the government than they did before the crisis. It also required a higher pension contribution by employees and limited early retirement. Exclusive news, data and analytics for financial market professionals, Reporting by Renee Maltezou Greece's Seniors Reveal The Harsh Truth About Nation's Pension Crisis googletag.cmd = googletag.cmd || []; Itloweredinterest ratesand brought in investmentcapitaland loans. It includes a freeze on public sector pay, raising the tax on fuel, and cutting pensions. See here for a complete list of exchanges and delays. When the Greek. Another important change is the gradual extension of the minimum contribution period for eligibility for full pension benefits, increased from 35 to 40 years by 2015. [6] http://www.bankofgreece.gr/BogEkdoseis/oikodelt201607.pdf. 1. To qualify for a national pension it is necessary to be 67 years old and have lived in Greece for at least 15 years (the amount of the pension is cut by 1/40th for each year below 40 years of residence in the country). Congressional Research Service. The Greek pension system has been costly, complex, and distortive, which has contributed to Greece's fiscal problems and discouraged labor force participation. On Wednesday, 1,000 bank branches re-opened to allow pensioners a one-off weekly withdrawal of 120: the equivalent of what those with bank cards could withdraw in two days. Greek Prime Minister Kyriakos Mitsotakis promised increases in pensions and the minimum wage as part of a 5.5 billion relief package announced Saturday that aims to cushion the impact of the energy crisis and inflation. In recent years, Greeces much-criticised pension system has seen a slight improvement. About 20.5% of Greeks are over 65 behind only Italy and Germany in the EU when it comes to an ageing population. On July 5, Greek voters said "no" to austerity measures. Losses would have threatened the solvency of other European banks, particularly in Germany and France. Unsustainable futures? The Greek pensions dilemma explained Im in the top fifth; 80% of Greek pensioners are worse off than me.. The Greek pensions dilemma explained, Original reporting and incisive analysis, direct from the Guardian every morning, 2023 Guardian News & Media Limited or its affiliated companies. Only 6 billion euros worth of property has been sold since 2011. One in Two Greek Households Rely on Pensions to Make Ends Meet. They, along with other private investors, held34.1 billion euros in Greek debt. However, they also had to continue with the unpopular reforms promised to the EU. The Greek welfare state in the age of austerity: anti-social policy and The Greek Government is expected to table the reforms to parliament between 20 January and 25 January. How to fix Greece's big pension problem - CNN Business On pension reform, the Troika demanded that pension funds should have a deficit of no more than 750 million in 2015 and a zero deficit for 2016. That scared off investors and raised the cost of future loans. They were reluctant to call in bad debt, believing that their borrowers wouldrepay once the economy improved. Pension system in Greece - Pension Funds Online It gave them the mandate to continue to press for debt relief in negotiations with the EU. Milda's monthly pension is 293 a month , well under half the current level in Greece. Latest data show that the current Greek pension payments are about 2.4 billion a month, equivalent to 29 billion a year in a country with a GDP of approximately 216 billion in 2014 (see figure 1). Greece (red) Net pension wealth Indicator: 15.4 Men Multiple of annual gross earnings 2020 Greece Multiple of annual gross earnings: Men Multiple of annual gross earnings 2014-2020 Greece (red), OECD - Total (black) Men Multiple of annual gross earnings 2020 Greece (red) Short-term interest rates Indicator: 3.4 Total % per annum Read about our approach to external linking. The Greek debt crisis is the dangerous amount of sovereign debt Greece owed the European Union between 2008 and 2018. These are initial proposals from the Greek Government, and the Greek Finance Minister is expected to hold meetings with European counterparts ahead of the Eurogroup meeting on Thursday, 14 January. HuffPost Greece spoke with eight retired Greeks across the country -- their stories show that for many Greeks, pensions constitute a fundamental element that keeps their lives from falling apart. These are primarily funded by German banks. 3. Output per capita is lower by one-quarter than at precrisis levels, and earnings by one-third - the product of Pensions in Greece have been cut several times in recent years and the latest proposal has sparked massive protests over the last few weeks. It promised to privatize more companies, and sell off nonperforming loans. Until the debt is repaid, European creditors will informally supervise adherence to existing austerity measures. Rapid change in the pension system since 2010. Some of the Reasons Greece Got Into Its Economic Crisis The rusting trawler was passing 50 miles south of the Greek coast when it capsized in the Ionian Sea. [2], 2. How bad are things for Greece's pension fund? Government decision-making is centralized, further slowing response time. The new measures made it more difficult for union strikes to paralyze the country. The country couldn't attract newforeign direct investmentin such an unstable situation. In all, she said, Ive lost 30% of my income. With a jobless rate of about 26% youth unemployment is at 50% and out-of-work benefits of 360 a month generally paid for no longer than a year, pensions have become a vital part of the social security net for many, many people, said Vovou. All went well for the first several years. The EUs most expensive, at about 17.5% of GDP, more than 90,000 entirely bogus claimants, large number of older Greek workers seeking early retirement.