Greek pensions and the question of social democracy in the EU

December 6, 2017


 
While the tedious and absurd Brexit drama unfolds, at the other end of Europe, the people of Greece continue to endure the relentless grind of European Union ‘solidarity’ as the Troika (the EU, the European Central Bank, and the IMF) continue to enforce a program of yet more spending cuts. The next batch of pension cuts, set to come into force within the next two years, will take total losses for pensioners since the start of the bailout period in 2010 up to 70 percent.

Before detailing what the reality of this means for the people of Greece it is crucially important to understand the larger context to the Greek pension problems because so much disinformation about it is spread by Brussels and Berlin, with claims that the Greek pension system is unsustainable and bloated, in other words that the Greek pension crisis is an internal Greek problem.

The first thing to understand is that the Greek bailout was not an act of solidarity by the rest of the EU designed to benefit the Greek people. Once the Greek state became essentially insolvent in the years leading up to the 2010 crisis the only way forward was for Greece to default on a large part of its debts and endure a painful but (in comparison to the endless purgatory it now finds itself in) short economic crisis. Instead the EU decided to respond to the Greek bankruptcy by imposing on its government the largest loan ever made, crushing the insolvent state under a mountain of new debt. This was done for two main reasons: one was so the French and German banks (who would have required a national bailout if they had been forced to write off their Greek loans) could be repaid, meaning that the French and German governments managed to spread the costs of the bailout of their respective national banking systems on to the rest of the eurozone. The second reason for the bailout was to avoid a general meltdown in the Euro system, once the markets realised that eurozone bonds could default, so the Greeks had to be saddled with crushing debt to paper over the deep structural weaknesses of the eurozone architecture which was revealed by the 2010 crisis.

The second thing to understand is the deeper issue of the dire consequences of a currency union without a social union. If the UK was run like the Eurozone (i.e. a single currency, a single market, free movement of labour and goods but no tax revenue transfers from richer to poorer regions) then overnight the pension systems of more or less every region of the UK outside of London would become unsustainable and insolvent because it is only the constant transfers to other regions of tax revenues collected in London (about £700 million per week) that balances their books. Because there is no social union in the EU (and thus no EU level social democracy) the poor regions (i.e poor member states) of the eurozone have to finance their social spending entirely from local revenues. That’s bad enough under normal circumstances but infinitely harder with Greece suffering a depression deeper and longer than the Great Depressions, as result of the insane deflationary policies imposed by the Troika.

The Greek Pension system

As a proportion of GDP, no country in the EU spends as much as Greece’s 17.5% on pensions, according to Eurostat and the size of the deficit in the Greek pension system is 9% of GDP, compared with 3% of GDP in Germany. But this does not mean that the Greek Pension system is especially generous or that the Greek pension crisis is merely the result of profligacy.

First, demographics. About 20.5% of Greeks are over 65 – behind only Italy and Germany in the EU when it comes to an ageing population. And with the country’s youth unemployment rate still above 50%, its young people are not going to be able to pay for their grandparents pensions any time soon.

Second, Greek society has a dependency on pensioners. As a result of mass unemployment one in two households now rely on pensions to make ends meet and the country has an old-age dependancy ratio above 30%, which means that for every 100 people of working age in Greece there are 30 people aged 65 or over.

Third, Greek pensions aren’t so generous. About 45% of pensioners receive pensions below what is considered the poverty limit of €665 per month. Looking at the actual expenditure per capita on beneficiaries, Greece’s figures don’t stand out as exceptional and are instead on par with the EU average:

Fourth, although there can be no doubt that many Greeks will have jumped on early retirement possibilities, exploited loopholes and claimed pensions when they weren’t allowed to, one needs to only look at the change in the unemployment rate among 55-64 year olds – it now stands at 20%, up from 6% five years ago – to realise that many will have opted for early retirement not because they wanted to, but because they were unable to find work – and a pension is often the only safety net as unemployment benefits are only paid for a year.

Fifth, in the only ‘haircut’ imposed on Greek bond holders, the write down of the value of some of the Greek debt was restricted to domestic bond holders. In 2012, Greek pension funds, which were obliged by law to keep a minimum of 77% of their assets in Greek government bonds, took an €8.3 billion hit following the restructuring of sovereign debt. So the debts to the German and French banks were repaid but the Greek pension funds were clobbered.

Sixth, the Troika imposed policies of massive deflation has, unsurprisingly, led to a great depression and mass unemployment, and again unsurprisingly, this has led to a collapse in the payments of contributions to the Greek pension system. Nearly a third of what pension funds have lost since the crises started is due to a fall in contributions on the back of surging unemployment. The unemployment rate is still painfully high (26.6%, while in 2009 it was 9.5%), and nearly eight out of 10 of the country’s jobless have been out of work for 12 months or more.

The crushing of Greek pensioners

The additional pension cuts imposed by the Troika up until 2019 and the reduction of state funding from 18 billion to 12 billion euros, means that by 2021, one in every two pensioners will get a net pension of 550 euros per month, if one also takes into account the reduction of the tax-free threshold, the net amount will come to 480 euros, well below the poverty line.

Under the new measures coming into effect pensioners who retired before 2016 stand to lose up to 18 percent of their main and auxiliary pensions, while the new pensions to be issued based on the law introduced in May 2016 will be up to 30 percent lower. More than 140,000 retirees on low pensions will see their EKAS supplement (Pensioners’ Social Solidarity Benefit for low income pensioners) decrease in 2018, as another 238 million euros per year is to be slashed from the budget for benefits for low income pensioners. The number of recipients will drop from 210,000 to 70,000 in just one year.

There will also be a reduction in new auxiliary pensions (with applications dating from January 2015), a 6 percent cut to the retirement lump sum, and a freeze on existing pensions for another four years, as retirees will not get the nominal raise they would normally receive based on the growth rate and inflation.

These new measures come on top of the impact of years to attacks, cuts and erosions in the Greek pension system, all imposed by the Troika.

Where is Social Democracy in the European Union?

Among the many issues raised by the obscene and unnecessary cruelties in Greece is the question of social democracy inside the European Union. Generally the social democratic left supports the project of the European Union but the current union is not a social democratic project, how can it be when it has created a single more or less free space, continent wide, for capital to operate within and yet there is no social union? How can a social union be created when this is no political and democratic union?

Fundamental to a social democratic polity is the existence of large scale social transfers of income from richer to poorer citizens, from richer regions to poorer regions, and the existence of a single integrated revenue, taxation and public spending system. Lets be clear what that would mean at an EU level which is that the tax payers of the rich regions like Germany paying the costs of pensions in poor regions like Greece – forever. Such a system of persistent and large scale social transfers could only work if they were legitimised by a pan-European democratic political system, and again to spell out what that would mean which is that the citizens of richer regions like Germany could be out voted and as result see their taxes increase in order to pay for – amongst many other things – Greek pensions.

Does anybody see how such things could come about? I have come to the conclusion that I cannot see under what circumstances a real social union could be created, nor can I see how an integrated and pan-EU organic demos could be created which would make such a social union possible. I cannot see how the EU can be turned into a social democratic project and if it is not a social democratic project then what sort of project is it?

Josef December 11, 2017

V. information, thanks Tony. Can’t dispute the main part of your article; perhaps to add that the balance of the Greek national budget devoted to defence is excessive, but this is due to the right wing coalition party and a low level but persistent popular worry about Turkey. This presumably means that any cuts to defence to protect pensions are unrealistic in terms of internal politics.

Your main question comes at the end. If it is impossible to have a European Social union, as you hint, does it confirm the so called Old Labour and left position, that the current EU is a capitalist club? So any left or social democratic UK government must either a/ break EU rules, or b/ leave the EU, to implement its programme and policies. This of course partly explains the Labour leader’s perceived “unenthusiasm” for the EU and even the customs union/ single market. However the global economy will of course react against and push back against such a UK government, and an isolated rock in the Atlantic (us) will have even less chance of independence, success, or whatever we call it. No answers, only questions.

But that in turn seems to imply that the UK outside the EU

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