Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

Greek Pensions: Tsipras’ Last Ditch Fight Versus Troika

Marcello Minenna 16th March 2016

Marcello Minenna

Marcello Minenna

The Troika is in Athens and will not leave without deep cuts to pensions, even though the country is back in recession. Far from last summer’s media glare, a renewed clash of powers is on course between the Troika and the Tsipras government that could severely impact upon the exhausted Greek economy. Among the controversial 48 points of August’s “armistice” was the pension reform: the Troika requesting cuts of over €1.1 billion in 2016, to be obtained via a 6% increase in mandatory contributions from pensioners to the health system. De facto this measure could be a deadly shock for an economy where the total expenditure on pensions reaches 13.5% of GDP.

So it’s not surprising that the Parliament has been stalled since October 2015 around different unviable hypotheses of cuts, trying meanwhile to unlock further tranches of financial aid from the ESM. In November attention focused on the recapitalization of the banking system; at least €15 billion of fresh capital was necessary to avert a looming bail-in of depositors, whose accounts were still blocked (it’s worth remembering) by the capital controls imposed by the ECB in June 2015. This recapitalization has finally taken place: €5.3 billion of new market resources have been injected into the banking system, while senior and junior bondholders have been bailed in via a forced conversion into equity, enduring a loss of 60% of the invested capital. This maneuver has freed up a further €3.4 billion of capital. The ESM, after the apocalyptic projections of a €25 billion involvement made during the July psychodrama, has limited its intervention to €5 billion of contingent convertible instruments, in other terms a limited, cashless capital injection.

Up to now, the ESM has reluctantly thrown the battered Greek public finances € 16billion; predictably, they have already disappeared into a black hole formed by maturing debts and salary expenses. The financial emergency endured by the government has never abated and in February the Troika re-imposed its physical presence in Athens. The official reason is the first review of the ESM program but the Greek political establishment is perfectly aware that the Troika is there to enforce the pension cuts.

The stark fact is that the Greek pension system is tottering on a perilous cliff in terms of sustainability: at the end of 2015 over 50% of the financial inflows of pension funds were represented by direct government transfers (which in turn are funded by new debt), while the contribution of the employed is continuing to shrink steadily: from €24 to € 17billion in less than five years. It could be an argument it would be impolite to highlight in official EU circles, but it’s incontestable that the destruction of the financial health of Hellenic pension funds can be entirely attributed to the sharp increase in the unemployment rate from 9% to 27% and to the reduction of the average annual salary from €13,330 to €10,300, all direct consequences of the two previous Troika programs of “aid”.

The Greek pension system has undoubtedly been lavish and unbalanced towards users, but the Troika “cure” has undermined its sustainability despite a steep cut of up to €10billion in government spending between 2010 and 2015.

The uninterrupted payment of pensions has been one of the few factors that have averted a vertical collapse of the Greek economy in the wake of the third bailout. The system has found a precarious equilibrium at a lower level: after an aborted rebound in the 2nd quarter of 2015 (just before the acute phase of the crisis), Greece’s GDP has relapsed into contraction mode, while deflation has never disappeared from the radar screens, with prices falling uninterruptedly for 34 months out of 35.

Hence the economy of Greece is skating on wafer-thin ice and any “reform” that the Troika manages to snatch will worsen the situation. Probably the Troika will get what it wants. One can infer it simply by observing the changing attitude of the government in recent weeks, from the sharp rebuttal of IMF requests at the end of February (no more cuts!) to the concessions shown in the latest public declarations (possible cuts for pensions over €1300 ). On the debt side, the concessions granted to the Greek government have been very modest: the talks are centered around a simple freeze till 2022. Only after full implementation of the required reforms, a partial anchoring of the reimbursements to the performance of the GDP (the growth bonds in the initial Varoufakis proposal) may be on the table. But, with ongoing deflation, the size of this debt cannot help but balloon out of control.

In the meantime, the refugee crisis in Greece is also slowly spinning out of control, exerting a mounting pressure on public finances. The Troika has explicitly excluded any connection with its evaluation of the program: any easing of the requirements would be considered as an aid (even!). As was to be expected, the third aid program is retracing the sad path of the first two: wasting financial resources, depressing the real economy and worsening the debt problem to unprecedented depths.

Marcello Minenna

Marcello Minenna is head of the quantitative analysis unit in Consob (the Italian Securities and Exchange Commission). He has taught quantitative finance at Bocconi University and at the London Graduate School of Mathematical Finance. He is a regular writer for the Wall Street Journal and Corriere della Sera and is a member of an advisory group which supports the economic analysis of the biggest Italian trade union, CGIL.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u4219834647f 0894ae7ca865 3 Europe’s Businesses Face a Quiet Takeover as US Investors CapitaliseTej Gonza and Timothée Duverger
u4219834674930082ba55 0 Portugal’s Political Earthquake: Centrist Grip Crumbles, Right AscendsEmanuel Ferreira
u421983467e58be8 81f2 4326 80f2 d452cfe9031e 1 “The Universities Are the Enemy”: Why Europe Must Act NowBartosz Rydliński
u42198345f5300d0e 2 Britain’s COVID Generation: Why Social Democracy Must Seize the MomentJatinder Hayre
u42198346761805ea24 2 Trump’s ‘Golden Era’ Fades as European Allies Face Harsh New RealityFerenc Németh and Peter Kreko

Most Popular Articles

startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer
u421983467 2a24 4c75 9482 03c99ea44770 3 Trump’s Trade War Tears North America Apart – Could Canada and Mexico Turn to Europe?Malcolm Fairbrother
u4219834676e2a479 85e9 435a bf3f 59c90bfe6225 3 Why Good Business Leaders Tune Out the Trump Noise and Stay FocusedStefan Stern
u42198346 4ba7 b898 27a9d72779f7 1 Confronting the Pandemic’s Toxic Political LegacyJan-Werner Müller
u4219834676574c9 df78 4d38 939b 929d7aea0c20 2 The End of Progess? The Dire Consequences of Trump’s ReturnJoseph Stiglitz

ETUI advertisement

HESA Magazine Cover

What kind of impact is artificial intelligence (AI) having, or likely to have, on the way we work and the conditions we work under? Discover the latest issue of HesaMag, the ETUI’s health and safety magazine, which considers this question from many angles.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
How are minimum wage levels changing in Europe?

In a new Eurofound Talks podcast episode, host Mary McCaughey speaks with Eurofound expert Carlos Vacas Soriano about recent changes to minimum wages in Europe and their implications.

Listeners can delve into the intricacies of Europe's minimum wage dynamics and the driving factors behind these shifts. The conversation also highlights the broader effects of minimum wage changes on income inequality and gender equality.

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Spring issue of The Progressive Post is out!


Since President Trump’s inauguration, the US – hitherto the cornerstone of Western security – is destabilising the world order it helped to build. The US security umbrella is apparently closing on Europe, Ukraine finds itself less and less protected, and the traditional defender of free trade is now shutting the door to foreign goods, sending stock markets on a rollercoaster. How will the European Union respond to this dramatic landscape change? .


Among this issue’s highlights, we discuss European defence strategies, assess how the US president's recent announcements will impact international trade and explore the risks  and opportunities that algorithms pose for workers.


READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity”,

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641