A few weeks ago, Greek Finance Minister Yanis Varoufakis had a lengthy spat with his Baltic colleagues. In a late-night round of bargaining, he sought to insert the term “humanitarian crisis” into a communiqué. Disgusted, Estonia’s Minister of Finance, Maris Lauri, reminded him that the social standards in her country were much lower than those in Greece, but it still was participating in financing the bailout package for Athens.
As details of the Greek pension system circulate through the so-called “troika” of lenders to Greece, the European Commission, the European Central Bank and the International Monetary Fund, the numbers are certain to become a source of controversy.
The figures show the standard pension in Greece, after fulfilling all contribution obligations, is 80 percent of the average pay, or about €1,100 ($1,208). In comparison, German pensions are only 48 percent, which, according to the German pension insurance scheme, comes to €1,287 in the western states and €1,187 in the eastern states.
According to a report by the Ministry of Labor and Social Affairs in Athens, the gross amount actually paid in old-age pensions in Greece averages €958.77.
The German government is aware of the standard Greek pension figures, which Athens hasn’t confirmed. However, standard pensions are more of a theoretical number. More interesting are the amounts actually paid out and these figures are potentially explosive.
According to a report by the Ministry of Labor and Social Affairs in Athens, the gross amount actually paid in old-age pensions in Greece averages €958.77. In Germany, by comparison, the average pension is €734 in the western federal states and €896 in the eastern states.
These figures will make critics who accuse Greece of living beyond its means feel vindicated. Yet the conclusion that Greek pensioners are better off can’t be made on numbers alone. The pension systems are too different. For example, many German citizens receive parallel pensions thanks to state subsidies.
Additionally, the average says nothing about distribution. According to the Greek ministry of labor, one in five pensioners must get by on less than €500 gross per month while 17 percent receive more than €1,500. Therefore, the average pension can be higher than in Germany, while poverty in old age remains a much greater problem in Greece.
Despite these factors, pension figures are fueling the raging policy dispute, particularly between Berlin and Athens. Many question how a nation dependent on the financing of others can retain such a scheme.
To sell the Greek bailout to the public, Chancellor Angela Merkel and her finance minister, Wolfgang Schäuble, have consistently demanded tough austerity programs in the financially ailing nations in southern Europe. Greek Prime Minister Alexis Tsipras is attacking this dogma and demanding a roll back of some reforms.
That will be difficult, in part because of a pension system that has become too inflated. According to the Organization for Economic Co-operation and Development, pensions in Greece averaged 95.7 percent of earned income in 2009, the highest amount among all OECD countries.
According to Eurostat, the statistical office of the European Union, Greece spent about 17.5 percent of its economic output on pensions in 2012. In contrast, the E.U. average was 13.2 percent.
Athens has made some adjustments, however. Policymakers recently raised the retirement age from 65 to 67 years. Before the bailout program began, mothers could retire at 55 if they had worked for a minimum of 25 years.
Also, pensions are no longer calculated on the wages of the last five working years, but rather on the income average during the time contributions were paid. And vacation money and Christmas bonuses – each equal to a month’s pension – have been eliminated.
That’s not all. Public sector salaries have been reduced by up to 30 percent under the austerity program. Since individual cutbacks are extremely complex, the size of the drop in pensions since 2010 cannot be calculated, but Greek pension expert George Symeonidis said that the main pensions “were reduced as much as 20 percent and auxiliary pensions as much as 40 percent.”
None of this will work without continued reform. No other E.U. country faces such unfavorable demographic trends as Greece. A study by the National Actuarial Authority of Greece predicted the population will shrink from 11.05 million in 2013 to 8.5 million in 2060, when six in ten Greeks will be over 65 years old.