Greek Pensions Reform Sparks Clashes in Test for Tsipras

GREECE-ECONOMY-STRIKE

A woman walks past closed stores during a 24 hour strike in Athens, on Feb. 4, 2016.

Photographer: Louisa Gouliamaki/AFP via Getty Images
  • Police fire tear gas at protesters as unions hold strike
  • Reform poses the biggest test to Tsipras's political survival

Socrates Vrysopoulos is an unlikely militant.

The 38-year-old Greek banking and commercial lawyer is part of a month-old bar-association boycott of the country’s courts, in protest against the government’s pension-reform plans. He says they cripple small businesses and the self-employed, raising the tax and social insurance for a young lawyer with annual income of 20,000 euros ($21,900) by 27 percent to 13,800 euros.

“A reform is supposed to be a new scheme that helps you improve an existing situation,” said Vrysopoulos, who started his own law firm in 2011. “This is not a reform at all. It’s a way to get more money to repay your loans as a country.”

With farmers blocking highways, about 40,000 workers joined the protests in Athens on Thursday as unions held the first one-day general strike of 2016 against Prime Minister Alexis Tsipras’s pension proposals. Greek police used stun grenades and teargas to disperse a group of protesters throwing Molotov cocktails in Syntagma square, in front of the parliament. Still, the protests mostly passed peacefully and the clashes were smaller in scale than those seen in the early years of Greece’s bailouts.

Self-employed doctors, taxi drivers and civil engineers have thrown their lot in with the protesters, while traffic is set to be disrupted with metro, buses, ferries and flights within Greece affected. The Athens Stock Exchange Index declined 3.8 percent to 509.45, the lowest close since June 2012.

The pension reform, needed to fulfill demands of the country’s institutional creditors, is becoming a thorny issue for the 41-year-old premier elected by the Greeks just over a year ago for his anti-austerity promises. Hanging onto a thin parliamentary majority and facing a revived opposition party that has leaped ahead in opinion polls by electing a new leader last month, the reform poses the biggest test to Tsipras’s political survival since last year’s bailout negotiations threw Greece’s euro-area membership in doubt.

‘Sacred Cow’

“Pensions are the sacred cow of the Greek political system,” said Platon Tinios, an assistant professor at the University of Piraeus and visiting senior fellow at the London School of Economics. While the current changes complete the series of reforms started with the country’s first bailout in 2010, they provide few assurances Greece won’t need a whole new pension system in a few years, he said.

Greece has almost 2.7 million pensioners, and the average gross pension for retirees is about 960 euros per month, according to the most recent available Labor ministry data. The sum total of pensioners and unemployed is higher than the 3.7 million currently working in Greece, according to the latest Labor Force Survey published by the Hellenic Statistical Authority. 

Last year, the state spent 22.7 percent of its ordinary budget to plug the hole in pension funds, according to the country’s Parliamentary Budget Office. The non-partisan office said in a report published last month that public expenditure for pensions equals 14.9 percent of Greece’s gross domestic product, versus an average of 7.9 percent among member-states in the Organisation for Economic Cooperation and Development.

“Without changes, the social security system is unsustainable,” the Parliamentary Budget Office said.

Inevitable Cuts

The case the government presents is that in its talks with creditors -- officials representing the International Monetary Fund, European Commission, European Central Bank and European Stability Mechanism are in Athens this week -- it is defending primary pensions from further cuts because pensioners’ spending is helping to prop up the economy. Higher contributions are the “lesser evil,” according to Labor Minister George Katrougalos.

It’s a point Kostas Chatzieleftheriou, a 56-year-old self-employed optician, sympathizes with.

“The market will be hit if pensions are cut,” he said. “Half the people entering my store are pensioners. If you go on and cut 10 euros from their pension, it will feel to them like you’ve cut 100 euros.”

Still, even if the government safeguards primary pensions, cuts are all but inevitable from the country’s system of auxiliary pensions, which are practically indistinguishable from primary pensions, according to the University of Piraeus’s Tinios.

“All Tsipras can guarantee is that they won’t cut primary pensions, as if it makes a difference to anyone if you take money from the left pocket or the right pocket,” he said.

Broken Link

The current debate takes little account of whether the system will be able to pay out pensions in 10 years, Tinios said. Successive governments have portrayed pension cuts as temporary measures rather than a response to demographic change, damaging the link between contributions and benefits, he said.

“The self-employed are essentially treating the whole thing not as an insurance contract but as a new tax,” he said. “They have a point.”

Kostas Giannelos, a 32-year-old farmer, who has been cultivating olive trees, cotton, wheat and legumes in Pelasgia, central Greece, for the last 10 years, says he may lose as much as 80 percent of his income with the government’s new measures. His parents are also farmers and he has to help his mother meet her contributions.

Like Vrysopoulos, the lawyer, Giannelos says he’s being asked to contribute more at a time when the link between what he puts into the social security system and what he gets out of it has been broken.

“I have been paying to the fund since I was 20 and will get a pension at 67 of about 500 euros per month,” he said. “The farmers are asking for the proposal to be withdrawn and dialog to begin from scratch.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE