2015-04-09 07:36:53
Pensions are at the heart of the continuing row over Greece s parlous finances
Apr 4th 2015 | From the print edition
ONCE again, Greece s new left-wing government has handed a list of reforms to other euro-zone governments and the IMF in the hope of securing the next dollop of the country s bail-out. The list was due to be reviewed by senior euro-zone financial officials on April 1st, after The Economist had gone to press, but the initial reaction was dismissive.
Some of the iciest comments concern pensions. Greek spending on them is the highest in Europe as a share of GDP, an astonishing 17.5% in 2012. That contrasts, for example, with expenditure worth 12.3% of GDP in Germany, Greece s main creditor. It is double the share of GDP that goes to them in Slovakia, one of Greece s fiercest critics.
Lavish spending on Greek pensions has been a source of acrimony with northern creditor nations ever since Greece was first rescued, almost five years ago. Germany had only recently pushed through a pension reform raising the retirement age from 65 to 67 between 2012 and 2029. That made Germans ill-disposed to dip into their pockets to help a country whose workers were able to retire much earlier on generous pensions. Slovakia, a poorer nation than Greece, pulled out of the first bail-out in the summer of 2010 in response to public anger at the prospect of subsidising Mediterranean spendthrifts.
In fact, a series of reforms in Greece have restricted pension spending. A big overhaul in 2010 slashed prospective promises that would have caused pension expenditure to vault to 25% of GDP by 2050. The retirement age was raised to 67 for men and women from 2013. The replacement rate the value of the pension in relation to prior earnings was reduced from 96% for average earners, the second-highest in the OECD, a club mainly of rich countries, to 54% in 2012. And pensions have been cut by eliminating two annual bonuses.
Payback time: Greece's financial dilemma, in graphics
But the reforms have not gone far enough. In particular it is still relatively easy to retire early, and the link between contributions paid in and benefits received is too weak; the system is not actuarially fair. Although the revised reform list includes a pledge to reduce early retirement, Greece s creditors will want to see hard evidence that this will be tough enough. The proportion of 55-64-year-olds who work in Greece, just 36% in 2013, is unusually low; in Germany the share was 63% (see chart). There is a lot of ground still to make up.