9/19/2013

A Promise to Protect Pensions Will Test Greece’s Red Line on Austerity

Teachers in Athens protested against job cuts and other austerity measures on Wednesday.
Πηγή: New York Times
By NIKI KITSANTONIS
Sept 18 2013

ATHENS — With a fresh inspection by Greece’s foreign creditors looming next week and labor unions leading a new wave of strikes, the government here has drawn a red line: it will keep pushing economic reforms but vows to impose no more austerity measures on Greeks already battered from three years of tax increases and pension cuts.

That could prove a hard promise to keep.

There is an estimated shortfall of 2.5 billion euros, or $3.3 billion, in the country’s social security funds for the year. And Greece is peering into an even larger chasm, an 11 billion euro financing gap that its international creditors have said the country will face as its debt payments come due over the next two years.

A third foreign bailout, on top of the total 240 billion euro in bailouts given to Greece since 2010, is now assumed to be necessary.

No wonder Greek trade unions and labor experts are warning that, despite the supposed red line, further pension cuts are likely. The concerns brought thousands of Greeks to the streets of Athens on Wednesday, calling attention to a two-day strike by civil servants, whose salaries and pensions have already been cut by 30 percent over the last three years. The strike was called to protest the government’s plans for thousands of forced transfers and layoffs in the Civil Service, but fears about pensions were in the air.

“Just let them try and cut our pensions again,” said Maria Vassilopoulou, a 45-year-old nurse taking part in the protest. “They’ll have a riot on their hands.”

The Greek labor minister, Yiannis Vroutsis, denied over the weekend that pensions would be withheld or cut. “I want to reassure people that their pensions will not be touched,” he said. “Families can make their plans feeling safe and secure.”

But retirees are on edge. Stathis Meltakis, a 65-year-old car mechanic who retired this year, has been counting on a monthly payment of 850 euros from the country’s biggest pension fund for private sector workers, IKA, which provides health coverage to 5.5 million people and pensions to more than 800,000. But last week, the union representing IKA workers warned of cuts of 10 to 30 percent in pensions next year.

“I’ve no idea when I’ll get it or how long the checks will keep coming,” Mr. Meltakis said. “You can’t be sure of anything anymore.”

With Greece still not meeting the financial targets set by its international creditors, labor unions and economists worry that public pensions and state social security spending, which this year will total 18 billion euros, could be reduced again.

“Basically, the pension system is collapsing,” said Savas Robolis, a prominent Greek labor economist who leads the research institute of the private workers’ union, the General Confederation of Greek Workers. He said that the funds’ decline was long in the making, after years of mismanagement, but that the country’s debt crisis dealt the final blow.

With unemployment at a record 28 percent, fewer workers are paying into the funds, which have been sapped, too, by the early retirements of thousands of civil servants scrambling to escape forced transfers and layoffs.

Mr. Robolis’s report called for growth-enhancing measures to increase the size of the Greek work force. Currently, only one Greek works for every two who do not. He also warned of the need to find ways of bolstering social security revenue.

Of immediate concern is how to plug the social security funds’ estimated deficit for this year of 2.5 billion euros.

Unlike the country’s banks, Greece’s pension funds were not recapitalized after a 50 percent write-down of private Greek debt last year, part of the country’s second bailout. The funds, as a result, came out of the bailout with a loss of 12 billion euros.

Debts owed to IKA — mostly by employers delinquent on their social security contributions — ballooned to 8 billion euros, from 4.8 billion euros in 2010, the union representing IKA workers said. The union’s warning was followed by reports in the Greek media that IKA borrowed 150 million euros from the state to pay pensions in October.

Mr. Vroutsis, the labor minister, acknowledged over the summer that the country’s pension system was “not viable” and “in need of a fundamental overhaul.” Among the proposed measures is the creation of an electronic system for employers to declare their contributions. An estimated half-million self-employed Greeks are thought to be illegally avoiding their obligation to pay into the system.

At the same time, a crackdown on social security fraud — a problem considered as pernicious as the country’s widespread tax evasion — has seen some results. A unified payment system started operating in June and identified at least 50,000 false claimants, many of whom had been collecting the pensions of dead relatives for years.

“In a short period of time, we managed to put sturdy foundations in an old and rotten structure,” the Labor Ministry’s general secretary, Panagiotis Kokkoris, said.

While larger countries in the euro zone with debt problems, including Spain and Italy, have also cut benefits, the impact of the changes has been less acute than in Greece, where three years of austerity measures have deepened a recession and brought political and social upheaval.

The Greek pension problem is expected to be on the agenda next week when officials from the European Commission, the European Central Bank and the International Monetary Fund meet in Athens. Other points of discussion are expected to include additional forced transfers and layoffs in the Civil Service, lagging tax collection and a slow-moving privatization drive. Hanging over the meetings is that 11 billion euro funding gap, which could necessitate another bailout, albeit one much smaller than the previous two.

Despite the bleak numbers, Greece is predicting a primary surplus — revenue not counting debt payments for this year — chiefly because of a boom in tourism.

Prime Minister Antonis Samaras pledged last week to give 70 percent of any surplus to pensioners on low incomes, but political opponents accused him of making false promises.

Already, pressure is building on Mr. Samaras’s fragile coalition government. Teachers, hospital staff and other civil servants, as well as lawyers, are on strike this week.

“Pensions are the easy target,” said Mahi Triantafyllou, a 58-year-old high-school teacher, at one protest. “They’ll hit us again.”


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