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Lagarde claims “The IMF was vastly misunderstood on Greece’s pensions cuts”

Pensions in Greece were too high and had to be regulated, Managing director of the International Monetary Fund, Christine Lagarde, said at the world Economic Forum in Davos on Wednesday. To cut pensions was a “difficult political dilemma”  she added.

“In case of Greece, pensions were significantly higher than in any other EU state, regardless of whether they were small, medium or large. They were much higher and the issue had to be dealt with,” Lagarde said.

“What counts now is: What is the necessary limit for the safety net? What is the threshold beyond which you protect pensioners?” Lagarde asked but failed to give an answer to her own apparently pure rhetorical question. Neither did she bother to explain why not just the highest pensions were cut but the cuts were made horizontally across all levels: whether small, medium or large. Neither did she gave an explanation as to why the IMF put pressure to cut the poverty allowance (EKAS) to thousands of low-pensioners.

She tried to justify the alleged well-meant IMF’s efforts to make Greek pension funds solvent saying the Fund was “vastly misunderstood.”

Alexis Tsipras is to meet with Lagarde and Moscovici in Davos later on Thursday.

PS I suppose, Lagarde will be seeking the answers to her complacent questions about the limit of pension cuts digging holes in the neoliberal snow of Davos.

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  1. Pensions were and are still very high in Greece. The Greek speaking reader can find here a lot of information based on data from Eurostat, OECD, and the ministry of labor

  2. Simply throwing out data on pension spending as a proportion of GDP, or parading individual cases of abuse as proof that the pension system is endemically rotten to the core, or throwing out one size-fits-all solution (cut, cut, cut) is not very helpful. What is more helpful is trying to replace the data into its overall context in order to start to grapple with the complexity of the situation.

    First there is the demographic situation. Greece is one of the oldest and fastest aging populations in Europe. Not only will it need to pay out more pensions, but it will have to find a way to do it with a youth population whose growth rate is stagnant and unemployed to boot. Not really a recipe for success. Second, the same macroeconomic conditions that are driving young people out of the country in droves are also creating an economic dependency on pensions. Even though there have been cases in which Greeks have either retired early, exploited loopholes in current regulations, or filed bogus claims, the fact remains that if we look at the change in the unemployment rate for 55-64 year olds (those who opt for early retirement), it’s clear that many people opt for early retirement (even on a reduced pension) simply because they don’t think that they will ever be able to find work and a pension becomes the only safety net left to them. Third, on average, pensioners in Greece make less than €800 euros a month and 50% or so receive than the poverty level. More specifically, the average pension in Greece is €700 euros and dropping (for the main pension) with an average of about €160 euros for a supplementary one (and this average is quickly dropping). Add to this the fact that for the majority of retirees, their take home pension has been cut by nearly 50% already. Fourth, don’t forget that pension funds in Greece already took a more than an €8 billion euros hit in 2012 following the restructuring of sovereign debt. So almost half of the deficit in pension funds since 2012 is due to a fall in contributions sue to surging unemployment. Fifth, the pension system in Greece is now largely funded not by contributions but by raising taxation, mainly on consumption – this, in my opinion is both a questionable prescription and unsustainable over time given the state of Greece’s economy the other solution is of course to simply take people off the pension rolls). Moreover, this is counterproductive if all the saving brought about by purging retirees’ benefits, cutting supplementary pensions horizontally across the board, or raising revenue drastically by further squeezing an already depleted pool of taxpayers, are used to simply service Greece’s debt.

    The point I’m making here is that if the Greek pension system is unsustainable, so is its economy. Trying to continue to sustain an unsustainable economic reality by cutting or eliminating pensions on the flimsy excuse that “they are too high”, will create (is already creating) a societal and humanitarian catastrophe that will tear the fabric of Greece apart.

    Compromises will have to be found. But everyone (politicians, pensioners, creditors, and debtors) will have to make compromises. The solution to the pension dilemma cannot be found by only sacrificing the most vulnerable members of society

    P.S. Looking at the actual expenditure on beneficiaries instead of spending as a proportion of GDP, Greece’s figures don’t stand out as exceptional and are instead on par with the EU average.