Dwindling pensions a sticking point in Greece bailout talks

Michalis Akrithakis, a retired civil servant, is preparing to leave Athens to spend the summer at his family home in Crete, where his living expenses will be minimal.

"Vegetables from the garden, eggs from my cousin's chickens and backgammon in the cafe," the 72-year-old widower said. "My pension goes much further in the village."

As a former Greek public sector employee, Mr Akrithakis has seen his pension cut eight times in the past five years, slashing his monthly stipend by almost 45 per cent.

He is again starting to feel apprehensive despite reassurance by the country's leftwing Syriza-led government that further cuts are a "red line" that will not be crossed in talks with creditors to unlock €7.2bn of bailout aid.

Cutting a deal with creditors has become a matter of urgency for a cash-strapped government struggling to pay its bills. But the dispute over pensions has emerged as a key impediment.

During Monday's meeting of eurozone finance ministers, representatives of all three of Greece's bailout monitors - Pierre Moscovici from the European Commission, Benoit C?ure of the European Central Bank, and Poul Thomsen from the International Monetary Fund - cited pension reforms as one of the biggest stumbling blocks in the bailout negotiations, according to officials who were present.

The officials said Mr Thomsen referred to them as "exceptionally generous", and Mr C?ure warned there needed to be a "full discussion" on how to keep the system sustainable.

Sensing the threat, scores of worried pensioners protested outside the central offices of IKA, the main state pension fund, in April after their monthly payment was delayed by 24 hours.

"They [the negotiators] may be forced to make concessions [on pensions] because they're so desperate for the money," Mr Akrithakis said.

Pensions are a particularly sensitive issue in a country where 2.9m people - more than a quarter of the population - are formally retired even though 1m of them are still below 65.

"We still allow people to retire in their 50s on a full pension, for example mothers with underage children who have worked for 20 years," said Platon Tinios, a Piraeus university professor and international pensions expert.

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Successive governments have since chipped away at pensions and other social benefits as an easy way to reduce spending and meet fiscal targets agreed with international lenders.

But they have failed to overcome longstanding problems with cost overruns and fraud. Greek negotiators are now resisting a call for immediate cuts in supplementary state pensions that would wipe out a €300m accumulated deficit in the system and make it sustainable following a spate of early retirements and a sharp drop in employment, both triggered by the crisis.

"It would be the start of a downhill slope," said a labour ministry official. He noted that nearly 40 per cent of retired Greeks already receive pensions below the EU's poverty threshold of less than €665 in monthly income, compared with fewer than 20 per cent before the crisis hit in 2009.

The earlier reform aimed to make Greece's main "pay-as-you-go" state pension system viable until 2050. But income from workers' and employers' contributions fell faster than projected as Greece's recession deepened, pushing the jobless rate to almost 30 per cent.

<>State pension funds showed a €350m deficit in the first quarter compared with a surplus of €800m last year, following a 12 per cent fall in contributions and a 17 per cent cut in budget subsidies, according to finance ministry figures.

"This situation can only get worse . . . The system has maintained high contribution rates even though pensions have been effectively halved . . . This puts severe constraints on hiring and encourages expansion in the informal labour market," said Milton Nektarios, a former governor of IKA.

The Syriza government has come up with an ambitious plan to protect pensions. It involves setting up a new national wealth fund to collect proceeds from gaming taxes, privatisation sales and disposals of state-owned real estate that would underwrite more generous pensions and social benefits for the country's rapidly ageing population.

But like its predecessors, the new government has shown no interest in streamlining dozens of state pension funds that have nominally been consolidated but still run separate operations employing about 15,000 workers.

"Structural reforms of the pension system remain unfinished because the funds are used by politicians for making patronage appointments," Mr Nektarios said.

Yanis Varoufakis, the finance minister, has signalled a modest willingness to compromise in the current talks with creditors.

"Further cuts in pensions won't address the true causes of the system's troubles - low employment rates and vast undeclared labour," he wrote in a recent policy paper. "Our government is eager to rationalise the pension system, for example by limiting early retirement."

But that sentiment is hardly widespread. Panagiotis Lafazanis, minister for productive recovery and the leader of Syriza's far-left faction, said this week the government would defend its stance on pensions, declaring in parliament: "Our red lines will remain."

Additional reporting by Peter Spiegel in Brussels

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