Figure 3 shows how the percentage of people from 55 to 64 working in Greece was just 36 percent in 2013. ???????? 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). That preventeddepositors from draining their accounts and worsening the problem. But my daughters husband has been unemployed for four years now. The amount of money held in pension funds has dropped hugely - down 25bn in the last five years. The chart below highlights in red the period when the 10-year government bond yield passed 35% until vast debt restructuring forced private bondholders to accept investment losses in exchange for less debt. Eleni Theodorakis, on the other hand, retired in 2008 from her job as an administrative assistant in a regional planning service, aged 55. The governments tax-revenue shortfall in January alone was 23% below its 4.5bn target for the month. Greece could have abandoned the euro and reinstated the drachma. The industry leader for online information for tax, accounting and finance professionals. Leaks of the proposals indicate that there will be significant problems. Pensioners play backgammon in front of closed shops in Athens, Greece. As a result, Greek debt continued to rise until the crisis erupted in 2008. It isnt easy. There are many like Theodorakis among Greeces 2.65 million pensioners. She does not need to help him out. googletag.cmd = googletag.cmd || []; googletag.cmd.push(function() { This would shut down Greeces ability to finance further debt repayments. Second, Greek society has a dependency on pensioners. She is one of the high numbers of Greeks claiming a pension - and is having to help a middle-aged son who is now one of many unemployed Greeks. However, will the Troika accept any dilution of the reforms? Before they will release 7.2bn in aid that Greece needs to pay public-sector salaries and pensions and repay 1.6bn in IMF loans, those lenders want further reforms to the pensions system, including penalties to put people off taking early retirement and more cuts to even the lowest pensions. That would debase the value of repayments in their own currency. Tangled Governance:International Regime Complexity, the Troika, and the Euro Crisis. The huge increase in unemployment since the financial crisis has, in part, led to a crisis in the ratio between workers and pensioners. ATHENS, July 6 (Reuters) - Greece's Prime Minister Kyriakos Mitsotakis promised pension increases for the first time in more than a decade next year, saying Greece had definitively turned a page from the financial chaos which required three international bailouts. There is also the example of the public telecoms company OTE where the Greek Government incorporated the cost for the retirement of 5,500 staff, of which 2,500 retired at an average age of 48 years, resulting in a loss to the state pension fund of around 1 billion. Insurers could scale back a 100 billion ($126 billion) pledge to invest in infrastructure and startups if the British government pushes pension funds to consolidate in its wide-ranging reforms . Any saving brought about by simply purging early retirees benefits, cutting supplementary pensions horizontally across the board, or revenue raised by squeezing a drastically depleted pool of taxpayers, would in the short-term allow Greece to unlock the 7bn tranche of bailout funds it needs to carry on servicing its debt (and not default). Despite the name change, that money also came from EU countries. The government must absolutely not give in, said Anastassios Georgiadis, of the retired postal workers association. There is a clear conflict between the economics, society and the politics, the immediate versus the long term. It lost a quarter of its economic output during its 10-year debt crisis. For example, the Troika has demanded a 50 billion privatisation target, but the progress towards achieving this goal has been painfully slow (see Figure 3). They have a baby I give them what I can. By definition, the Grexit refers to the exit of Greece from this monetary union. Government spending makes up 48% of the GDP while EU bailouts contribute around 3%. The Greek Government has recently embarked on a further 5.4 Billion Euros of fiscal consolidation, leading to Eurozone finance ministers announcing that an additional 10.3 Billion Euros of bailout money will be . Monthly pensions have gone down to an average of 833 ($924; 594) from an average of 1,350 in 2009, according to INE-GSEE, the institute behind Greece's biggest union. It is probable that reforms to pensions will pass the Greek Parliament later this month, but the underlying deep-rooted problems will not be addressed. 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 . The loansonly gave Greece enough money to pay interest on its existing debt and keep banks capitalized. We collect personal data from you only. Greek pensioners demonstrating against pension freezes in Athens. The system has been plagued by an unsustainable worker to pensioner ratio, endemic corruption along with major financial losses on investments in Greek banks and Government bonds. googletag.cmd.push(function() { Furthermore, the share price of most Greek banks has also collapsed: the National Bank of Greece has seen its share price fall from 21.75 12 months ago to 0.29 cents today, while those of Piraeus Bank have fallen from 95.50 to 0.24 over the same period. The image, taken in Thessaloniki by AFP's Sakis Mitrolidis, was widely shared on social media as soon as it was published. 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. It only shrank 0.2% in 2015, but the Greek banks were still losing money. Greece's economy is expected to contract by 7.5% to 10.5% this year due to the impact of COVID-19. It will be a slow road to recovery. British pensions have taken a hit and holidaymakers have been issued fresh warnings about travel, after Greece's rejection of an EU-backed austerity deal sparked financial and political chaos today. Just four months later, Greece instead warned it might default. EU leaders struggled to agree on a solution. People were losing their jobs, salaries were being cut, and there was so much uncertainty I just thought it was better to be sure of getting at least something. Konstatinidis has ended up getting nearly 40% less than he had counted on, however. It reduced incentives for early retirement. LSE Research Online. It threatenedthe tourism industry at the height of the season, with 14 million tourists visiting the country. Alexis Tsipras, the leader of Greek opposition party Syriza, has resigned days after his leftwing party was trounced in elections in which it won less than 18 per cent of the vote. In 2009, Greece announced itsbudget deficitwould be 12.9%ofitsGDP. Eurozone governments owned52.9 billion euros. Greek profligacy, pensions and perks cost nation dear This article is more than 13 years old Debt crisis is underpinned by fudges and fiddles that mean Greeks avoid huge amounts of tax Banks closed and restricted ATM withdrawals to60 euros per day. Greeces worker to pension ratio is an unsustainable 1.38 compared to UKs 2.75. Since the debt crisis began in 2010, the various European authorities and private investors have loaned Greece nearly 320 billion euros. Average age of retirement for men in 2012. In 2010, Greece said it might default on its debt, threatening the viability of theeurozoneitself. Share. Added to that are factors such as the fall in the fertility rate (worse since the crisis) and the increased emigration and brain drain undermining the country. The system has been changed radically and dramatically since 2010 by a range of reforms aimed at making the system more viable and limiting public expenditure on pensions. Until the debt is repaid, European creditors will informally supervise adherence to existing austerity measures. Greece remains between Scylla and Charybdis. The pension system is based mainly on a public scheme linked to pay and a basic pension. Greece attempted to reassure the EU lenders it was fiscally responsible. The pensions increase would be the first since the country's financial crisis erupted more than a decade ago. (modern). It could just pay it over a longer time period. About 45% of pensioners receive pensions below what is considered the poverty limit of 665 per month. Exclusive news, data and analytics for financial market professionals, Reporting by Renee Maltezou However, the pensions deficit currently stands at 1.6 billion for 2015 and is projected to be 2.19 billion in 2016. Much of the debt didn't come due until 2020 or later. It is against this background that the Troikas reforms must be considered. A strong euro would convince other EU countries, like the United Kingdom, Denmark, and Sweden, to adopt the euro. 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. Moreover, 45 percent of pensioners receive monthly payments below the poverty line of 665 euros, the government says. Far-right parties on the rise across Europe, The daring women standing up to troops in India. In recent years, Greeces much-criticised pension system has seen a slight improvement. 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. 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. (Other suggestions made by Greeces creditors would hit people like that particularly hard: a hike in the tax on electricity, for example, from 13% to 23%). And now theyre demanding we cut them even more? To qualify for a full pension of EUR384 it is necessary to have contributed for 20 years. The only countries that would have lent to Greece are Russia and China. But its not enough. Domestic Greek data also provides an illuminating picture into a bloated system that is running out of control. The Greek pensions system, after decades of political exploitation, state interference and crony capitalism, is close to collapse. EU leaders andbond ratingagencies wanted to make sure Greece wouldn't use the new debt to pay off the old. ETUI respects your privacy. "Financial Assistance to Greece. The proposals are therefore likely to be significantly watered down before being officially put to the Greek Parliament. It is estimated that compulsory pension contribution costs account for around 40 percent of an employers wage bill. Half of Greek households relied on pension income since one out of five Greeks were 65 or older. The United Kingdomdemanded the other EU members guarantee its contribution to the bailout. ????????? The EU and theInternational Monetary Fundprovided 240 billion euros in emergency funds in return for austerity measures. It is now ranked eighth lowest in the world. The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Several attempts to reform the system faltered due to lack of implementation, pushback by vested interests, and court rulings leading to reversals. ", Statista. Spain too agreed to raise the retirement age to 67 earlier this year as it aims to reduce . Public pensions were 9% underfunded, compared to 3% for other nations. Germany, Poland, Czech Republic, Portugal, Ireland, and Spainhad already used austerity measures to strengthen their own economies. Central Intelligence Agency. Greek unemployment stands at around 25 per cent and youth unemployment is at nearly 50 per cent. It is assumed that the Troika is, understandably, concerned about the absence of any feasibility study accompanying the proposals. In July, Greece was able to issue bonds for the first time since 2014. What comes next? Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. Photo Credit: REUTERS/Yorgos Karahalis PIIE Case Studies illustrate what happens when theories studied in classrooms collide with the real world. of GDP, although Greece's pension spending still remains the highest in the euro-zone. Pensions are a significant sticking point in the standoff between Greece and the IMF, the European commission and the ECB. 1. googletag.enableServices(); The Greek debt crisis began in 2009. googletag.cmd = googletag.cmd || []; They championed austerity measures. Despite the pension cuts since 2010 (over a dozen) and the major changes to the parameters (deferment of retirement age, extension of the contribution period, pension reduction mechanisms, calculation of pensions according to average wage for the whole working life, cut in replacement rates), which progressively reduce pressure on expenditure, expenditure linked to old age as a percentage of GDP still seems high. Government decision-making is centralized, further slowing response time. They, along with other private investors, held34.1 billion euros in Greek debt. Greece has worked to reform its pension system over the last few years, and to weed out corrupt claims for money. There would be no political appetite for an American bailout of European sovereign debt. Published. Reports said many pensioners waited outside branches from before dawn, only to be told withdrawals were being done alphabetically. But that left many pensioners who did not have bank cards in the lurch. In the long run, Greece would find itself back to where it began: burdened with debt it couldn't repay. The European Central Bankagreed torecapitalize Greek banks with 10 billion euros to 25 billion euros, allowing them to reopen. The country revealed that the budget deficit had surpassed 15% of GDP. [5] S. Robolis/V. "Greece Economic Policies.". This bureaucracy, combined with unclear property rights and judicial obstacles, has kept Greece from selling 50 billion euros worth of state-owned assets. The country couldn't attract newforeign direct investmentin such an unstable situation. However, it would do little to solve the underlying challenges in the longer term. First, Greek banks would have gone bankrupt without loans from the European Central Bank. In return, the EU loaned Greece another 86 billion euros. In 2009, Greeces budget deficit exceeded 15% of its grossdomestic product. Our Standards: The Thomson Reuters Trust Principles. In conclusion, irrespective of the reductions made to pensions and the further reductions demanded by creditors, the system will remain in deficit as long as insufficient contributions are received (due to the extremely high unemployment rate, the low level of employment, low wages and the increase in precarious and poorly paid jobs) and no effort is made to find more resources to shore up the system. Pensions in Greece have been cut several times in recent years and the latest proposal has sparked massive protests over the last few weeks. Pensions will in future be calculated on working life as a whole and not on the five best years of the past ten. The Financial Times has a useful background article on the debate about pension reforms in Greece, one of the main sticking points in the current showdown, which makes a number of important points. Greece sustained extensive economic damage during the two weeks surrounding the vote. In 2011, theEuropean Financial Stability Facilityadded 190 billion euros to the bailout. On June 30, 2015, Greece missed itsscheduled 1.55 billion eurospayment. In 2012, the last year for when statistics are available. The IMF owns21.1 billion euros of Greek debt, not enough to deplete it. "From Lithuania, a View of Austeritys Costs.". Despite this, analysts believe that a compromised Pension Reform Bill is likely to be passed by the Greek Parliament. And Im one of the lucky ones. It was the biggest financial rescue of a bankrupt country in history. The new method for calculating pensions (from 12May 2016)is based on the whole contribution period and it lays down lower calculation coefficients for the final benefit, which will reduce pensions for the recently retired(estimated at between 15 and 30%; the biggest losers will be workers with many years of contributions and large benefits). Greece also had a remarkable 580 professions deemed hazardous or strenuous enough to qualify for early retirement: firemen and construction workers, certainly, but also hairdressers (because of the chemicals), wind instrument players (gastric reflux) and radio presenters (microbes in microphones). They were reluctant to call in bad debt, believing that their borrowers wouldrepay once the economy improved. Some banks would go bankrupt. Editing by Alexandra Hudson, France riots: Minister deploys 45,000 police amid riots, Exclusive: US, Dutch set to hit China's chipmakers with one-two punch, Russia reducing personnel at Zaporizhzhia nuclear plant - Ukrainian intelligence, Satellite images appear to show build-up at Wagner base in Belarus, Israel no closer to attack on Iran nuclear sites, official says, Versatile Oscar-winning American actor Alan Arkin dies at 89, Exclusive: Ukraine brings first charges for deporting Kherson orphans, Analysis: French police, long unreformed, under scrutiny after teenager shooting, State Department review of 2021 Afghanistan evacuation critical of Biden, Trump. For these reasons, a Greek default wouldnt have been worse than the 1998Long-Term Capital Management debt crisis. But with 45% of retirees under the poverty line, many wonder how much more they can take. About 20.5% of Greeks are over 65 behind only Italy and Germany in the EU when it comes to an ageing population. Rapid change in the pension system since 2010. The age of pension eligibility rose from 60 to 65 for women, then to 67 for both sexes. As a result, hundreds of thousands of the best and brightest have left the country. For example, over the last decade, the Greek State has subsidised pensions for the Public Utilities fund with 600 million for approximately 22,000 pensioners, with an equivalent cost of 8 percent of income tax collected annually. Read about our approach to external linking. googletag.pubads().enableSingleRequest(); Few Greeks think further pension cuts will achieve anything. The EU wanted to strengthen the power of the euro in international currency markets. Smaller countries faced a more serious situation. Pension payments hadabsorbed 17.5%of GDP, higher than in any other EU country. 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 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%. 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. Despite austerity measures, many aspects of Greeces economy are still problematic. It planned to swap notes issued in the restructuring with the new notes as a move to regain investors' trust. Estimating the Impact of Alternative Policy Measures Designed to Spur Growth, The Greek Debt Crisis: Overview and Implications for the United States, From Lithuania, a View of Austeritys Costs. Like other eurozone countries, Greece benefited from the power of the euro. New proposals aim to cut government support by 1.8 billion out of system distributing just under 30 billion. Third, Greek pensions arent so generous. They cost 72 billion euros or 40% of GDP. Pension funds have lost at least 25bn since 2012. Without the austerity measures, the Greek government could have hired new workers. That'sin addition tothe 131 billion euros owned by the EFSF, essentially also eurozone governments. One-third of the population lived below the poverty line. According to Law 4387, the main pension is made up of two parts: the national pension (set at EUR 384 at the full rate and financed from the State budget) and the redistributive pension calculated on the basis of the average reference wage over the whole working life, the length of contributions and the replacement rate. Tsipras is so far refusing to implement the measures, aimed at shaving the equivalent of 1% of GDP off the countrys pension bill, arguing they will do nothing to help Greece emerge from a slump that has seen the countrys economy shrink by 25%, and may only deepen its humanitarian crisis. Pensions in Greece have been cut several times in recent years and the latest proposal has sparked massive protests over the last few weeks.
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