Former Eurogroup chief Jeroen Dijsselbloem wrote a blog post about the pensions system in general and the one in Greece in particular. He supports the Greek government position that the controversial pension cuts “are unnecessary.” However, at the same time he claims that “the statutory retirement age in Greece will go to 76.”
Does he know something, the rest of us does not? Or is it just Dijsselbloem’s wishful thinking or even a typo?
screen shot 10:30 a.m. Oct 15 2018
Below the original article by Dijsselbloem as posted on Linkedin:
“Only just having left the European support program, already Greece is back on the agenda of the Eurogroup. This time it’s about previously agreed pension reforms. The Greek government is making the case that further pensions cuts are unnecessary because they are over-performing the targeted primary surplus, which already allows them fiscal space for other social policies or to cut taxes. The creditors, represented by the troika, are critical. In particular the IMF that warns for “a bad signal to markets”. Who’s right here?
The pensionreforms in Greece aim to make the system sustainable. Greece has done a lot in this area. Numerous shortcuts to early retirement have been blocked, the statutory retirement age will go to 76, pensioners now also pay for health insurance. A new formula links future benefits to past contributions. Grants like EKAS are phased out. Child benefits inside the pension system are stopped. All funds are merged into two pension funds. And finally the gap between contributions and expenditures in funds will be addressed by temporarily freezing benefits and increasing contributions. As always, implementation fall this in Greece will still require a lot of attention.
The debate is now about the group of pensioners that entered the pension system before the reform of 2016 when the new formula was introduced. Should their pension be adjusted downward, in line with the new formula? I think the Greeks have a case, pointing out that this measure has no structural impact on the pension system. Over the long run it doesn’t bring much savings as the pensioners will naturally exit the system. In other words there is no contribution to long term sustainability of the system. It would off course create fiscal space in the short run which, most welcome, could be used for other non-pension social expenditures or tax relief. As it stands, fiscal space will be available this year and next. In 2017 we agreed in the Eurogroup Greece would deliver a primary surplus of 3.5% for five years. Many people said it couldn’t be done but targets are already exceeded for 2 years in a row. The IMF said it was impossible but last week adjusted its forecast to exactly 3.5%. Better tax-collection is the key driver here, next to a recovering economy. The additional space, this year already used for targeted increases of child-benefits, increases over time, allowing also for badly needed taxrelief for the real economy.
While the Greeks are well on track, other European countries are reversing pensionreforms. In my country, the Netherlands, the raised pension age (now 66, connected to life expectancy) is put to question in the current talks with unions and employers. In Italy the coalition parties have already agreed to lower the pensionage again (now 66). And in Germany (pension age 65) the government is worsening an already bad situation. The “Rentenversicherung”, payed by current generation of workers and employees, is about 80% of the average pension. According to the Global Pension Asset study 2018 by WillisTowers-Watson the pension funds in Germany only hold 13% of German GDP (the Dutch do best worldwide with 194% of GDP). The number of people over-65 in Germany are already among the highest in the world (with Japan, Italy and Greece) and in 2035 there will be one worker to pay for one pensioner. This worker will by then have to contribute half of his salary to the costs of pensions and healthcare. Handelsblatt Global wrote an unearthing piece titled “ageing population on course to wipe out Germany’s finances” this summer. Government spending will explode if nothing changes; The budget surplus already disappearing in a few years time, debt will go up to 208% in 2060. Far higher than the Greek debt now.
After a number of useful measures between 2000 and 2005, since the Merkel government started end of 2005 no reforms were undertaken. There were however steps back. The OECD report ‘Pensions at a glance’ shows that the recent law called ‘Flexirentengesetz’ creates the possibility to go working or an early retirement option at 63 for people with long working lives (45 years). The OECD points out flexibility will in practice probably only go one way, towards earlier retirement again.
So when the Eurogroup discusses next steps for the Greek pension system, it may find there is scope for flexibility given the results in Greece so far. It may want to spend some more time on the pension systems of others, Germany for one, ”
PS As Dijsselbloem’s post ends with a comma (,), we don’t know whether he wanted to add something or his brain suffered a collapse following the immense analysis effort on the Greek and the German pensions systems.