STUMP » Articles » Digging into the Near Past: Greece's Pension Situation » 30 June 2015, 06:02

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Digging into the Near Past: Greece's Pension Situation   


30 June 2015, 06:02

As a followup to yesterday’s post on Greece and Puerto Rico, I decided to see if I can find what I’ve written about both before. Most of the sources will be from the Actuarial Outpost, where I’ve been an active member since 2003.

In 2008, I started a thread keeping track of issues with public pension on the Outpost. Greece didn’t show up in that first thread (these threads were getting unwieldy, so each year I start a new one. The most recent thread starts here, with links to the prior threads. These mainly compile news stories more than comment on them – it’s helpful when I want to go back because these disasters rarely “just happen”. Usually there are signs for a long time before it finally blows up.)

Greece did show up in 2010.

In February 2010, I linked to a news item and Leo Kolivakis’s comment on it

Greece Implements Pension Reforms

John Hadoulis of AFP reports that Greece hikes pension age, calls for bonus cuts:
Greece doesn’t have a choice but to implement pension reforms. And pension tension isn’t a problem unique to Greece. Here in Canada, former Nortel employees will face big cuts to pensions, health care, disability coverage and other benefits later this year under a $57-million deal with the insolvent company.

In the UK, the BBC reports that according to the the Pension Protection Fund (PPF), the deficit in final salary pension schemes in the private sector hit £52bn in January, up from £33bn in December.
As you read this comment, remember that what’s happening in Greece is emblematic of what’s plaguing most developed countries, albeit in varying degrees. Pension woes are not going away, will get worse over the next decade, and will undoubtedly require tough choices and compromises ahead by all stakeholders.

Many people knew there was a problem well before people like me became aware. These problems have been developing for a very long time.


I’ve got a collection of essays by Peter Drucker titled Toward the Next Economics and Other Essays, originally published in 1981. Drucker also had a book called How Pension Fund Socialism Came to America from 1976, but I have the first book sitting right in front of me, and the other is stuffed into a box somewhere at home, so we’ll go with the 1981 book. In this book, I am looking at Chapter 8, “After Fixed-Age Retirement is Gone.”

There is a lot of good stuff in the book, beyond him elaborating his thoughts on mandatory retirement ages going away — he also predicts the shift to more part-time work, more people working at older ages (which is what I’ve definitely seen), he foresees specific changes that needed to have been made to Social Security (and they were, in 1983). and I could go on. But I am going to type out part of the book regarding public pensions [please forgive typos]:

[P]ublic sector pension plans, especially those of state and local governments, are a mess and are, in fact, generally bankrupt. It is reasonably certain that public sector employees face sharp cuts in what the public increasingly feels are exorbitant pensions.
The very large early retirement pensions are, in great measure, a form of reverse income distribution. They take money from the poor and give it to the rich. Typically, the police captain in a big city — such as Los Angeles or Detroit—goes into early retirement after twenty years of service and takes a job as chief of police in one of the affluent suburbs at a fraction of the salary the suburb would have to pay, did he not have his substantial early retirement pension from his first employer. As the big citis and the large state governments become increasingly insolvent under the pressure of unfunded or inadequately funded pension promises, the early retirement pension will come under increasing attack—and it cannot be defended.

He was only about thirty years ahead of time. In my analyses of public pensions thus far, it doesn’t seem like these early retirement plans were much cut until relatively recently. You can see how long it takes for these things to start falling apart.

Greece, though, had (or has) a severe problem with astonishingly low retirement ages.


Back in April 2010, various Greeks took to the streets to protest the reforms mentioned in the February post.

Hundreds of Greek police, firefighters and harbor police in Athens are holding a peaceful protest against the government’s pension reforms.

Unionists say the reforms will increase their minimum retirement age to 60, from around 53. They say it will be hard to do their job effectively at that age.

More than 400 people took part in Wednesday’s protest in central Syntagma Square, in front of parliament. They displayed banners, including one that invited German Chancellor Angela Merkel to “come and join us on patrol.”

As I remarked at the time, maybe Angela Merkel should invite the police and firemen to Germany, so they can look at the people whose money they’re taking.

From June 2010 we got the following story:

June 18 (Bloomberg) — Sophia Constantinidou works as a teacher in a private school in Athens. She also has a more lucrative job: remaining unmarried.

The 52-year-old gets 400 euros ($496) a month from the Greek government, part of her late mother’s state pension. Under the current system, Constantinidou qualifies to receive the payment for life as the only surviving child of a deceased civil servant, provided she doesn’t tie the knot.

“It’s not that I didn’t want to get married,” Constantinidou, whose mother died 20 years ago, said in an interview. “But after I turned 40, I realized I wouldn’t be getting married and that thankfully I had this.”
….. Greek pensioners on average live on 96 percent of the salary they had when they worked, more than twice the proportion of earnings as Germans, according to the Organization for Economic Cooperation and Development.
….. Under terms of last month’s 110 billion-euro ($123 billion) bailout agreement, Greece will increase the retirement age to 65 from as early as 58, curtail early retirement and calculate payments over a longer period of employment.
There’s one pensioner in Greece for every 1.7 workers, compared with one for every four in 1950, according to a government study published on May 12. There are 637 occupations the Greek state deems to be arduous in nature and qualify to stop work earlier. They include hairdressers, car washers, steam-bath attendants and radio technicians.

Remember that it’s partly due to these pension reforms that the current Greek socialist government got voted in. They promised to undo some of these “austerity” reforms.

They just didn’t mention where all the money to pay for this was supposed to come from. You can default on your bonds only once (for a while….)


Again, from 2010, the Greeks were trying to renegotiate the pension deals, and it didn’t work too well for them:

Senior Greek government officials said on Wednesday that Greece is trying to renegotiate the terms of pension reform stipulated in the IMF and European Union rescue deals sealed this month.

Pension reform is a critical performance criteria for the debt-stricken country, which negotiated a 110 billion euro ($135 billion) rescue package with the EU and IMF to help it deal with its debt crisis.

Labor Minister Andreas Loverdos said in an interview on Wednesday he was pushing to have the option “to negotiate to the end”.

As you saw from the June posts, that didn’t work out.

I had some unkind words at the time:

Reminds me of “negotiating” with my child about stuff she has absolutely no leverage on.

DD: I want to read Captain Underpants!
Me: It’s nice to want things. No library books today.
DD: What if I clean up the family room?
Me: I said no.

[time passes]

DD: Look, I finished my homework. Can I have Captain Underpants now?
Me: That’s good of you. No, you can read another book.
…and then 5 minutes later, I see she’s reading her book of Abraham Lincoln jokes.

To be sure, the item being negotiated over was not trivial, like reading a specific library book. But the issue has been what political leverage the Greeks have. There are a variety of threats they have to their arsenal, but the main ones are defaulting on their bonds and exiting the Euro.

If they really don’t have the money to pay the bonds, they are simply going to default. That’s it. Doesn’t matter if they restructure loans or whatever, the money will not be paid as originally promised, which is a de facto default.

As for the euro… I am not going to pretend to understand monetary policy, but it seems to me that Germany is going to be paying a high price for linking itself up with much weaker economies. There’s a reason the UK stayed out of the monetary union, and I bet they’re feeling really good about that decision right now.

There was a back-and-forth between me and a poster named WellThen after the above:

WellThen: Unfortunately, the difference between negotiating with your child and negotiation with an innumerate 50 year old is the 50 year old has a vote.

meep: Yes, but if he doesn’t have the power to print his own money…. reality will intervene at some point.

And indeed, what happened:

Those 50-year-olds (and older people voted) the prior government out. The new government came in with the promise to roll back those cuts.

And it turns out they can’t quite do that and stay in the euro. Greece may very well be printing its own money again, soon enough.


I will just pull some quotes from my AO posts, without adding the links. You can follow the link to each post to see those.

May 15, 2011:

Greece: their finances suck. Response? You know. The experts do not see this ending well, not just for Greece, but the entire eurozone (I like the restructuring option built into the bonds to begin with – if you were a sucker to trust Greece, or expect a bailout, you get what you deserve.)

May 31, 2011:

Just a matter of when and how, not if: what will happen when Greece defaults. Yes, a little short-term prognostication (I consider a two-year horizon to be short term, myself. Look, when I consider public finance, long term is at least 50 years.)

Breaking news: the Greeks are unhappy. Beware of any large wooden horses on the horizon.

The Greeks didn’t appreciate being called lazy by the Germans. Though they are. Amusingly, the “lazy Americans” have the same retirement age as Germans, and far less paid vacation.

And yes, they threw another fit. Let me know when that makes money magically appear, guys. It didn’t the prior dozen…twenty?… times.

[Okay, it took 4 years, not 2. That’s still short-term to an actuary]

June 16, 2011:


Dammit, will they just default already? I guess the German banks (and others) don’t want to take the hit, but they’re going to have to eventually.

I’m sorry, but the Greek populace doesn’t seem to have digested the concept that they can’t have hairdressers retiring at age 50 on someone else’s dime. What are the supposed austerity measures the Greeks are up in arms about? Let’s see: cutting down the public workforce, a slew of increased taxes, selling off state-owned properties/companies. I’d be curious what companies Greece still owns — and for all I’m ragging on Greece, they had better be careful in selling off their stuff, because there’s a prime opportunity for corruption and graft right there. And I would be cheesed off as a Greek citizen if the country didn’t get the best possible price for those properties.

Interesting that it’s Socialist parties in Europe having to do this.

And by “interesting”, I mean “inevitable”.

VDH, as someone familiar with both locales, makes the connections between Greece and California.

But can he explain Illinois?

June 27, 2011:


No, it’s not. Various parties are having fits over having to deal with reality, and I’m not just talking about the Greek populace.

A vote is being taken on Wednesday (or at least, that’s the current schedule) in Greece on their latest austerity package….and this is just to get the short-term cash flows promised in various bailout plans previously…. it doesn’t take care of their long-term debt problem.

A Bank of England official warns of bank exposure to PIIGS debt, though my understanding is that French and German banks have it much worse. I like the timing of the stress test results release – I’m thinking it will be coming out right about the time the credit agencies will say Greece is actually in default.

Other eurozone countries aren’t looking too hot, either.

Leo Kolivakis writes about many things, some personal, but you should scroll down to item 4, where he talks about Greece. An excerpt:

Let me share with you the ugly reality on Greece’s woeful tax collection system. Everyone in Greece knows this, but let me give it to you straight. A close buddy of mine, a radiologist, is now vacationing in Greece with his family. His aunt recently had to replace a heart valve and she slipped an envelope of 12,000 euros to the cardiovascular surgeon so he would do it. In Greece, this envelope is called “fakelaki” and if you don’t have the money, you’re dead. Specialist surgeons working at public hospitals are typically the worst offenders, but there are others notorious for accepting huge sums and they declare nothing. And most of them pay off Greek tax collectors who are equally corrupt and greedy.

The U.S. has a long way before getting that corrupt, but those officials deliberately trying to weasel themselves around the rule of law (see the PUBLIC FINANCE section) had best beware and be aware… what you may think is a show of power may be what ultimately undermines it.

About the corruption item. My parents recently visited Italy, and my stepdad mentioned something that Italians pointed out about America: that our politicians do not have the inflated incomes that even small-town mayors get in Italy. My stepdad forebore explaining that said pols can cash in as lobbyists later.

March 2012:

Did you know the Greek pension funds (both public and private) held quite a bit in Greek sovereign debt?

Oh wait. Many U.S. pension plans hold Treasuries.

I guess this wouldn’t be a surprise.…820078,00.html

“On Tuesday, five other public pension funds demonstratively voted against participating in the debt haircut. Greece’s pension funds hold domestic government bonds worth a total of €20.4 billion (€26.9 billion) — about 5 percent of Greece’s entire debt mountain. About two-thirds of that amount will be affected in any case by the debt haircut. For the rest, the funds have to give their consent — and a number of them are opposing the move.”

Well, if you go to the Eurozone watch thread, you’ll see they lost the fight. The debt swap occurred on Friday.

“But with other creditors, the participation is much more problematic. The Greek pension funds are a case in point. They now face a crucial test. They suddenly find themselves exposed to drastic losses totaling around €11 billion. Although there are vague plans for the funds to receive state-owned real estate assets in return, nobody currently knows what this will mean in concrete terms, or whether these properties are actually usable.

“The pension funds are already suffering from dramatic drops in income as a result of wage cuts of up to 50 percent within the space of two years, skyrocketing unemployment and lower capital injections from the state budget. As a consequence, pensions have been reduced significantly. “We want to prevent a new crime at the expense of the insured,” said union leader Costas Tsikrikas on Tuesday, justifying demonstrators’ tough approach. University professor Theodore Paraskevopoulos spoke of a scandal. “The debt haircut is relieving the state of its obligation to pay pensions,” he said.

“As corporations under public law, the pension funds were forced to make a risky investment. They were obliged to carry out the informal instructions of the incumbent governments, namely that reserves could only be invested in Greek bonds. Now the funds fear the wrath of their members. And they are not alone in that fear. According to KfW CEO Schröder, many fund managers and asset managers outside Greece have also decided not to participate in the debt swap, out of concerns they could be sued by their clients.”

Great risk management there.

July 2014:

Hospitals, tax offices, prisons and archaeological sites are expected to be disrupted by the strike. The action coincides with a visit from Greece’s international creditors to review on the country’s progress.

The European Commission, the International Monetary Fund and the European Central Bank – known together as the Troika – are monitoring austerity measures that were a condition of a 240bn-euro bailout.

The lenders have commended Greece’s progress in meeting the targets set. It has achieved a primary budget surplus, with its deficit wiped out apart from interest owed on the bailout, BBC reports.

October 2014:

Greece is pressing its EU/IMF lenders to exclude a contentious pension reform plan from the backlog of reforms it must complete before exiting its bailout program, in a bid to avoid a public backlash, two officials familiar with the matter said.

Athens is in the middle of what is expected to be the final review of progress on pledges made under its 240 billion euro bailout and is under pressure to finish all outstanding reforms before receiving a final aid tranche of 7.2 billion euros.

But the Greek government is resisting a commitment to pass a law merging supplementary pension funds by November because the plan would effectively mean a further cut in pensions for many Greeks – undermining the government’s stated pledge to avoid new reductions in wages and pensions, one Greek official said.

And then there were the elections and negotiations this year.


I happen to be listening to a lecture series on the decline and fall of the (western) Roman Empire. People forget that Rome, as an organized power, started around 500 BC (I date from the founding of the Republic, and not the time of kings, etc.) and the Republic itself started to fall apart even before Julius Caesar came along, when Sulla and Marius battled it out for Rome.

From that time onward, Rome was falling apart as a government, lurching from temporary fix to temporary fix. The height of the problem was 193 AD, when there were five emperors (at least, five separate men claiming to be emperor that year). The next century saw a great deal of turmoil, and one of the main ways emperors tried to hold onto power was to promise the legions higher salaries.

As you can imagine, things fell apart.

But it took a couple hundred years for it to finally fall in 476. And in the East, the Roman Empire continued another thousand years as the Byzantine Empire (the name given to it by later westerners – they considered themselves to be the Roman Empire), not completely falling until 1453.

My point is that when, in 2011, I wrote:

I know we’ve heard it several times before, but perhaps the endgame is near.

In governmental time, five years is near.

This is the mistake Meredith Whitney made when she predicted scores of muni bankruptcies. Maybe she mistook the rapidity of corporate bankruptcies being transferred over to governments.

Governments often do have a lot of ruin in them, and it can take a long while for it to work itself out.

But it does work itself out…. eventually. So settle in. This isn’t over.


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