Greece’s pensioners already have barely enough to live on

Letter from Effie Achtsioglou,
Minister of Labour, Social Security and Social Solidarity
published in Financial Times

February 17, 2017 Sir, As we prepare for next Monday’s negotiations to gain desperately needed debt relief for Greece, there is hope in the International Monetary Fund’s recognition that it is necessary for economic growth. We cannot accept IMF insistence on further cuts in pensions. As minister for pensions I must answer, hoping that IMF managing director Christine Lagarde will listen.

Among the claims made against Greece’s pension system are that the retirement age is too low and pensions too high, which act as a disincentive to work and enterprise. The narrative about Greek pensions is driven by demands of its creditors. They argue that the pension system is overgenerous and a drain on the economy. It is based on the crude statistic that pensions require annual transfers from the state budget of around 11 per cent of gross domestic product in Greece compared with the eurozone average of 2.25 per cent. This comparison is misleading.

Following the implementation of the new pension law last year, total state financing of pensions is projected at less than 9 per cent of GDP. Furthermore, the eurozone average relates solely to the cost of financing pension system deficits and not total spending. The comparable figure for Greece is around 5 per cent of GDP.

The difference is unrelated to an overgenerous pension system. It is primarily the result of the significant drop in Greece’s GDP during the crisis, alongside a substantial increase in unemployment, leading to a severe reduction in social security contributions. Nonetheless, the Greek government introduced a comprehensive reform guaranteeing savings of 1.5 per cent of GDP by 2018.

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The IMF needs to consider other areas of social spending, where Greece lags significantly behind the European average — healthcare, disability, family/children and housing benefits. Greek pensions act as surrogate for other parts of the social safety net, filling their gaps.

The bottom line is that Greece’s old people are much worse off than elsewhere in Europe because they do not have access to other benefits. Per capita income for individuals aged over 65 is about €9,000, compared with €20,000 in the eurozone. How could the major problem confronting Greece be overgenerous pensions, when 43 per cent of pensioners receive less than €660 a month?

At Davos Ms Lagarde alerted policymakers to growing inequality and poverty, urging them “to think about how to address public discontent”. Insisting on further pension cuts while Greek pensioners barely have enough to live on is definitely not the way to address public discontent.

Effie Achtsioglou
Minister of Labour, Social Security and Social Solidarity,
Athens, Greece