Cicero Policy Briefer

Issue 23, April 2008

How pensions reform brought Greece to a standstill

By Chris Jackson

The Committee stages of the Pensions Bill in the UK were a rather mellow affair, with voices barely raised and the public blissfully unaware about the effects of the legislation on their future pension savings. By contrast, the equivalent situation in Greece could not have been more different: a cocktail of riots, petrol bombs, tear gas and all day strikes which brought Greece to a standstill greeted the Government’s pension reforms.

Despite being re-elected on a ticket of not reforming pension provision, the Government decided to renege on its commitment and press ahead with reforms. New Democracy, the main Greek centre-right party currently in office, believed that this was the only way to prevent the Greek pension system from imploding. Under the current system, pension payouts account for 12.6 per cent of GDP, and in 2050 the Government estimate that this could be as high as 25 per cent of GDP. Greece is one of several European Union countries facing a pension crisis due to an ageing population, and has been urged by Brussels to revamp its disjointed, profligate and mismanaged social security system.

The reform would eliminate most early retirement schemes, combine pension funds and cap auxiliary pensions . In total, 133 pension funds would be merged into 13 new groups in a bid to cut operating costs. The reform bill is anticipated to mostly affect women, especially working mothers. It will cut many special pensions and offers incentives to work more years in a bid to raise the retirement age in Greece. The legislation is an attempt by the Government to overhaul a pension system experts say will collapse in 15 years if left unattended.

A fortnight ago the Greek parliament voted on New Democracy’s pension reforms. The Bill was supported by the party’s 151 deputies and one independent, with 13 MPs from a leftist coalition (the Coalition of the Radical Left, or Syriza) voting against it. All other parties, including the main socialist opposition, the Panhellenic Socialist Movement, abstained. Outside of the Hellenic Parliament, the country was swiftly in uproar over the proposed changes: a survey by the banking unions showed that 71 per cent of the population opposed the pension reforms, with 69 per cent supporting the strikes against the pensions legislation. Trade unions estimated that millions of people took part in a general strike, paralysing the train and bus services across Greece and restricting ships to ports. A number of domestic and international flights had to be cancelled, due to air traffic controllers joining the action, while schools, ministries and banks were also forced to close for a day.

The labour unions that were central to organising these protests even received some unexpected backing from the European Central Bank (ECB), which criticised the bill on the basis that it threatened the Greek central bank’s independence. The ECB was concerned about provisions in the draft law that obliged the Bank of Greece to make annual contributions to the state-run IKA-ETAM (the Greek general social security body), and felt that these would undermine the Bank’s financial independence. The Government, however, rejected the criticism, claiming that it would not alter the status quo. The opposition parties even went to the extent of trying to delay the bill hours before it went to vote by gathering signatures to force a referendum. Alekos Alavanos, Syriza’s parliamentary leader, stated: "We demand a referendum on the pension reform bill…It is apparent that there is a great gap between the Government’s position and the will of society."

It is most interesting to see the pensions crisis unfold across Europe, with all countries similarly affected, and to observe differing responses that governments choose to implement and how they are received by the public. The Greek demos may not be too happy about the changes to their pensions system; one wonders, if pensions provoked such emotion in the UK , whether there would even be a need for the introduction of personal accounts.

Chris Jackson can be contacted on +44 (0)20 7665 9530 or click here to email.

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