Friday, September 5, 2014

Greece at a Breaking Point?

I am off to Greece for the rest of the month so I decided to focus my attention on my ancestral home. Roula Salourou of ekathimerini reports, Pension system nears breaking point:
The ticking time bomb of the social security system will not explode in 2025, but 10 years earlier, or next year, according to a study by the Institute of Labor of the General Confederation of Greek Labor (INE/GSEE) which is to be presented in Thessaloniki on Thursday.

GSEE’s annual report on the Greek economy includes a chapter on the aging population and the sustainability of the social security system from 2013 to 2050. Its conclusions, which Kathimerini has seen, say that the prolonged recession and high unemployment have brought forward the pension system’s crumbling point by a decade and that in order to become viable the system requires additional resources of 950 million euros for 2016 alone.

The system’s extra requirements are expected to grow rapidly in the following years, soaring to 2.67 billion euros for 2020.

The authors of the study note that pension cuts and a hike in the retirement age would have allowed for the sustainability of the system until 2025 had it not been for the deep and protracted recession and high unemployment. As a result 2015 is seen as the year when the social security system could fall apart.

They add that new measures will be necessary due to reduced state funding (from 16.4 billion euros in 2012 to just 8.6 billion per year from 2015 to 2018), an explosive rise in the jobless rate, an increase in the number of new pensioners (from 40,000 in 2009 to 100,000 per year after 2010), salary reductions and the growth in undeclared and flexible labor.

Already the social security funds’ cash reserves have dwindled from 26 billion euros in 2009 to just 4.5 billion last year, while the demographic shift in Greece resulting from longer life expectancy and a reduction in the birthrate has contributed to a 15 percent increase in the pension burden on funds, the study notes.

The INE/GSEE economists also note that after the recent interventions to the pensions system, the average age of retirement has grown to 63 years (not including early retirement options), while pensions have been cut by about 32.5 percent.
Indeed, the Greek pension system has reached its breaking point and if you want to see how mindless austerity is a one way policy to disaster, look no further than Greece. Troika, Germany and the Greek coalition government have turned a deep recession into a prolonged depression and young workers and older Greek men are feeling the pain of job losses:
Most weekdays, Thanassis Tziombras, a 50-year-old worker at the shipbuilding zone here at the main Greek port of Piraeus, is up before dawn and out looking for work by 6 a.m.

Some 40 minutes away, in the posh Athens suburb of Psychico, Constantinos Tsimas, a 54-year-old U.S.-educated marketing consultant, wakes up to another day of working the phones and emails seeking clients.

There is a social gulf between these two men, but they are united in one thing: the financial and psychological struggle that comes with being older and unemployed in a country where the economy has shrunk by almost a quarter in six years.

Greece's economy has taken such a brutal beating that it is in a category apart from other European countries suffering through the recession. Where Greece lost some 25% of its economic output, Spain lost about 6%. Experts say that, even as the Greek economy begins to recover, the shock has been so severe that older workers are unlikely to ever hold full-time jobs again.

Unlike in other parts of Europe, Greek reforms have largely removed provisions that protected older workers. In Spain and Italy labor-market regulations favoring baby-boomers over their children are still largely in place, entrenching the so-called two-tier labor market. But in Greece, everyone seeking work largely faces similarly poor odds, said Raymond Torres, head of research at the International Labor Organization, the United Nations labor agency.

While Greece's youth unemployment is still a record for the EU--almost 60% of people aged 15 to 24 were out of work in 2013--the unemployment rate among older Greek males is about twice the euro-zone average and almost four times that of Germany.

Some 18% of 40-to-59-year-old Greek men were out of work last year, according to Eurostat, the European Union statistics agency. In the U.S. where the recession set in sooner than in the EU, the unemployment rate for men in this age group peaked at 8.2% in 2010 and has been declining since to reach 5.7% in 2013.

One in five jobs lost in Greece between 2008 and 2013 was from the middle-aged male group. The Spanish equivalent was one in eight. In Italy, middle-aged men actually added jobs in the recession years.

Greece's older men are more often families' sole breadwinners. Female employment rates here, at 43.3% in 2013, are the lowest in the EU, where the average is 62.5%, according to Eurostat.

Recent pension reforms, meanwhile, mean older Greek men who have lost their jobs could be looking at several years of no income. Greece has increased the retirement age to 67 for both men and women, changing a decades-old system that allowed some categories of workers as young as 55 to retire on a full pension.

"If they don't have a job and they have to wait so long for a pension, what are they doing in the meantime? They are at serious risk of poverty, " said Anne Sonnet, a senior economist at the Organization for Economic Cooperation and Development, a Paris-based think tank.

In Greece, with its macho, traditional culture, unemployed men are at risk of depression, says Dr. Kyriakos Katsadoros, a psychiatrist and the science chief of Klimaka, a suicide-watch nongovernmental organization in Athens, who also noted risks of alcoholism and domestic violence.

"We were used to providing for our families through honest work. We were proud of our work--now we're just ashamed," says Mr. Tziombras, counting his worry beads between his fingers.

He is sitting in an old classroom on the port now used by the Communist-led laborers' union here. "Don't kill the mosquitoes--it's others who are sucking your blood," is written in chalk on the blackboard.

He says the union, apart from political guidance, provides "solidarity and psychological support" to workers.

The shipbuilding zone at Perama in Pireaus, once buzzing, is now a wasteland of idle cranes and scattered ship parts. Men sit in cafes waiting for word that a vessel has docked for maintenance and is in need of day workers.

At its peak in 2008, 6,500 men worked here. The shipbuilding industry retains workers on a daily rate as opposed to hiring them as staff, but in 2008 there was so much demand that these workers were effectively employed full time. In the good years, they would take home a net daily salary of about EUR70, or about $95. They haven't agreed to cut this rate, despite calls by employers' associations. Today, about 1,000 workers remain, doing sporadic work.

Mr. Tziombras says his wife managed to find a job as a cleaner at a local school, bringing a few euros into the household budget, but their relationship has been strained by the financial woes. Economists say it is a growing trend in Greece for women that didn't previously work outside the home to take jobs as their spouses lose theirs.

Late last year he drove across the country to get a few days' work at a factory. He has been doing odd jobs at construction sites around Piraeus and Athens, and continues to show up each morning at the port ready for work. The last time he got a job was for three days in January.

"We have gone through our savings, we've sold everything we owned, we stopped any nonessential activity," Mr. Tziombras says.

A law against foreclosing on primary homes means that he isn't likely to lose his home because of mortgage arrears, although he frets the provision may soon be revised. His two children, 17 and 22, are in high school and college. They will continue to depend on him for years, he predicts.

Concerns are in some ways similar in Mr. Tsimas's wealthier neighborhood. Shame at being out of work is the first thing mentioned.

"It's socially shameful but, more than anything, I was ashamed because I had to ask my wife for money," Mr. Tsimas says.

His wife brings home a good salary from her investment-banking job, but the loss of income from his work still hit the family budget, which supports one child at a British university and one in a private school.

He, too, has turned to politics and voluntarism to feel useful--although a very different brand to communist Mr. Tziombras and his labor-union activism. Mr. Tsimas is a member of Drassi, a liberal political party that seldom gets more than 1% in elections. He runs an online forum with friends where they debate about the economy and politics.

For all the shared experiences of shame, financial struggle and family strain, the bottom line for the two men is very different.

"I actually think unemployed working-class guys my age may be better off in a way, because their expectations were always lower," says Mr. Tsimas. "Being at this state at 54 is certainly not what I expected for myself."

Still, his material concerns are not about survival.

"Last year I gave my daughter my iPhone for her birthday," he says looking at his own older mobile phone. "I couldn't afford a new one."

Mr. Tziombras says he has given up on all of the smaller joys of life for him and his family, like dance classes for his daughter or the occasional night at the movies with his wife. It's now all about subsistence.

"Cutting everything that's not food turns the workers into animals," he says.
A record number of tourists flocked to Greece this summer and most of them didn't see the economic pain the country is experiencing because they flew off to their island destinations. But Greece is still reeling from the longest and deepest post-war depression it has ever experienced.

Still, as bad as things are, some economists think the worst is over. Niki Kitstantonis of the New York Times reports, Seeing Just One Way for Greece to Go: Up:
The first time Gikas Hardouvelis left his job as a bank economist to try his hand at Greek politics, in 2000, the country was preparing to join the euro currency union, looking forward to a period of prosperity and optimism.

The second time, in late 2011, Greece was teetering on the brink of a disastrous exit from the common currency, its finances and politics in free fall.

Now, as the country’s finance minister, Mr. Hardouvelis aims to steer Greece out of its catastrophic recession, his hopes lifted by the first indications of an upturn.

“A pessimist would say, ‘Everything is difficult around the world — in Europe, how can you grow?’ ” Mr. Hardouvelis, a Harvard-educated economist, said recently in his Athens office. It was his first interview since joining the government in a cabinet reshuffling in June. “An optimist would say, ‘Once you’ve fallen so much, it’s easy to pick up.’ ”

Mr. Hardouvelis is the first finance minister since the onset of the country’s four-year economic crisis to assume his role in the face of predictions that things will get better rather than worse. The Greek economy, now 25 percent smaller than in 2009, is expected to grow 0.6 percent this year.

And because Greece recorded a primary surplus in the spring — a budget in the black before debt repayments — it is eligible to begin exploratory talks with its international creditors about easing its huge debt burden, which stands at 174 percent of gross domestic product.

Success, though, will require him to enforce economic changes pledged to Greece’s troika of international creditors: the European Commission, the European Central Bank and the International Monetary Fund. They have kept the country afloat since 2010, when it narrowly avoided bankruptcy, with rescue loans worth 240 billion euros, or $317 billion.

Three days of talks with representatives of the troika on the progress of those changes are to begin on Tuesday. Analysts and international economists are divided about Mr. Hardouvelis’s chances of success.

In his previous political roles, Mr. Hardouvelis was only an adviser, first to the Socialist prime minister Costas Simitis from 2000 to 2004, and later to the technocrat prime minister Lucas Papademos, who was installed in late 2011 to lead a six-month coalition government after the previous Socialist administration collapsed.

Now, as a senior member of Prime Minister Antonis Samaras’s coalition government, Mr. Hardouvelis faces the challenge of administering harsh medicine that the recession-weary Greek public is finding tough to swallow.

The regimen will include modernizing an antiquated tax system, introducing a new property tax that aims to spread the burden more evenly and continuing a crackdown on tax evasion.

The second overhaul of Greece’s retirement system since 2010 is already in progress. It involves consolidating dozens of pension funds into three. An effort is underway to cut about 6,500 jobs from the Civil Service. Privatization of many state-owned assets, which has long been on the to-do list but has yet to show much progress, is back in focus, as potential buyers — chiefly from China — eye airports and other infrastructure.

Some experts maintain that Mr. Hardouvelis is the right man for the job, saying he has an ideal mix of experience and abilities. A widely cited academic, he has advised private and state banks, including the New York Federal Reserve, and has engaged in politics and diplomacy during critical moments in Greece’s recent history.

“He has a strong reputation in international economic policy circles, which should be extremely helpful in negotiating with international creditors,” said Kenneth S. Rogoff, a professor of economics at Harvard and a former adviser to the International Monetary Fund. “Of course, his task of trying to restore growth in a country with weak institutions that faces strong creditors is not an easy one.”

Others say he lacks the combative nature required for Greek politics and imposing his will on a reluctant populace.

Jens Bastian, an economic consultant and former member of the European Commission’s task force in Athens, compared Mr. Hardouvelis with his predecessor, Yannis Stournaras, who now heads the Greek central bank but had experience running a private bank before he was tapped for the ministry.

“He never held front-line positions which required him to sign decisions like Stournaras,” Mr. Bastian said.

The new minister’s first real test will come when he meets with the troika’s representatives. After the coming talks in Paris, the parties will reconvene later in September in the Greek capital — a symbolic move intended to indicate that Greece is ready to assume greater control of its actions.

“Greece has done most of the reforms; the next phase is to solidify them, to make sure they don’t reverse,” Mr. Hardouvelis said. “I think it will be done in a more efficient way in the future, precisely because the troika is not right on our neck. They’ll be staying in the background.”

Of the €240 billion in rescue loans pledged to Greece by the troika since 2010, only a small portion remains to be disbursed: €1.8 billion from the European side and €15.6 billion from the I.M.F.

The loans have been dispensed in installments in exchange for painful austerity measures, including Civil Service salary cuts and tax increases that have reduced personal incomes by a third, left nearly one in three Greeks unemployed and shrunk the economy by a quarter.

Greek officials contend that it is in the troika’s interest to hold off on additional austerity. “They have an incentive to allow us to let the economy grow because then we can better service our debt,” Mr. Hardouvelis said. He said he was eager to draft a growth plan, investing in promising sectors like agriculture and shipping to create jobs and to diversify exports beyond the economically anemic European Union.

A debt restructuring in 2012 required private sector bondholders to forgive some €100 billion, but the prospect that Greece’s creditors will share the pain this time is essentially off the table. As the eurozone teeters on the brink of recession once again, member states, particularly Germany, are in no mood to ask their taxpayers to incur losses.

Greece’s aim, instead, is to reduce the cost of servicing its debt through lower interest rates or longer maturities. “Our debt is big, but it’s also very long term, so it’s easily serviceable,” Mr. Hardouvelis said.

He added that the government planned to tap international markets with a new bond issue in the coming weeks, the third round of fund-raising in three months after four years during which financial markets were essentially closed to Greece.

Problems in the broader eurozone — stagnation in Italy and France and political jousting over the continued fiscal discipline championed by Germany — may now favor Greece, Mr. Hardouvelis said, smiling apologetically at the irony. The eurozone’s slump, he said, “necessitates an expansionary monetary policy, which keeps interest rates down and keeps borrowing costs down.”

When troika inspectors arrive in Athens, Greece’s budget will once again come under a microscope. Mr. Hardouvelis bristles at the suggestion that inspectors might take a hard line, noting that foreign auditors originally doubted Greece’s predictions of a primary surplus, only to be proved wrong in the spring. “I hope this has taught them a lesson, and they don’t insist so much on the fiscal side,” he said, noting that a Greek recovery would be undercut by any “new, onerous targets.”

Mr. Hardouvelis, the son of farmer from a small fishing village in Greece’s southern Peloponnese peninsula, said he was sensitive to the social effects of the long siege of austerity. And despite his Harvard pedigree — he went there on a scholarship — Mr. Hardouvelis makes it clear he does not consider himself part of the entitled Greek political elite.

“I understand what unemployment is,” said Mr. Hardouvelis, 58, who is married with two children, one still a student, the other doing his obligatory military service. “I didn’t have a dad who would send me $1,000 a month to make it at college.”

Greeks are overtaxed, he said, but he added that tax relief would need to be preceded by growth. There may be action, though, to temper some “extreme cases” — like a tax on heating oil, which has fallen short of revenue targets while having a negative effect on the environment because Greeks have turned to burning wood to heat their homes.

Mr. Hardouvelis contends that the current government is leading a more “mature” society and that the lackluster results of anti-bailout opposition parties in elections to the European Parliament in May signal a public realization that there is no viable alternative to the country’s living within its means — however meager for now.

“Greeks don’t buy promises anymore,” he said. “They know they will be the ones that have to finance them.”
Greeks went from paying hardly any taxes to being overtaxed and not surprisingly, the more dumb taxes they impose, the more general tax revenues decline. When people are out of a job, they don't have money to pay for special taxes ("haratzia"). It's come to the point where Greeks are giving back land and apartments in order not to pay taxes.

In fact, being a landlord in Greece is absolutely terrible. You can't sell real estate because there are no buyers and many people are not paying the rent because they've fallen on hard times. And good luck taking them to court, you'll never get your money. On top of this, you have to pay taxes through hiked up utility bills. The government is desperate for tax revenues, trying to squeeze blood out of stones.

While Greece desperately needed reforms, it has yet to make cuts where they are most needed, in the bloated public sector. Sure, they cut wages and pensions, but the bulk of the pain from unemployment was felt in the private sector, not the public sector which is still largely intact (50% of working Greeks are working in some public sector job).

And the worst might lie ahead, especially if Greece's far-left Syriza builds on its momentum and wins the next elections, which might come as soon as next spring. I think all Greek politicians are hopelessly corrupt and dangerous demagogues and the most dangerous of them all is Alexis Tsipras, leader of Syriza. He continuously preaches that Greece can easily walk away from its debts and stay in the eurozone, which is utter nonsense (but desperate Greeks believe him).

Anyways, I'm off to Greece to spend time with family and friends. In my absence, those of you who want to track pension and investment news can do so by following the links below:

1) Google: pension

2) Google: private equity

3) Google: commercial real estate

4) Google: hedge funds

5) Pension Tsunami

6) Benefits in the News

In addition, you can follow me on Twitter (@Pension Pulse) and there are many links to other sites on the top right hand side of this blog under the Pension News section as well as many excellent blogs I track on my blog roll. 

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I leave you with a passage, Nikos Kazantzakis on Crete, my home away from home:
I don’t see Crete as picturesque, smiling place. Its form is austere. Furrowed by struggles and pain. Situated as it is between Europe, Asia and Africa, the island was destined by its geographical position to become the bridge between those three continents. That’s why Crete was the first land in Europe to receive the dawn of cvilisation which came from the East. Two thousand years before the Greek miracle, that mysterious, so-called Aegean civilisation was in full bloom on Crete – still dumb, full of life, reeling with colours, finesse and taste which surprise and provoke awe. It is in vain that we defy the traces of the past.

I believe there is an effulgence, a magic effulgence radiating out of ancient lands which have struggled and suffered a great deal. As if something remains after the disappearance of the peoples who have struggled, cried and loved on a patch of land. This radiation from past times is particularly intense on Crete. It penetrates you the moment you set foot on Cretan soil. Then you are overcome by another, more concrete emotion. Anyone who knows the tragic history of the last centuries of the island is transfixed when he reflects on the frenzied struggle on that land between men fighting for their freedom and oppressors raving to crush them. These Cretans have grown so familiar with death that they no longer fear it. For centuries they suffered so much, proved so often that death itself could not overcome them, that they came to the conclusion that death is required in the triumph of their ideal, that salvation begins at the peak of despair. Yes, the truth is hard to swallow. But the Cretans, toughened by their struggle and greedy for life, gulp it down it like a glass of cold water.

“What was life like for you, grandfather?” I asked an old Cretan one day. He was a hundred years old, scarred by old wounds and blind. He was warming himself in the sun, huddled in the doorway of his hut. He was ‘”proud of ear” as we say on Crete. He couldn’t hear well. I repeated my question to him, “What was your long life like, grandfather, your hundred years?” “Like a glass of cold water,” he replied. “And are you still thirsty?”

-- Excerpt from Pierre Sipriot’s interview with Nikos Kazantzakis French Radio (Paris), 6th May 1955
Below, a beautiful production by the "OXI Day Foundation" in the US on the "cultural gene" of Philotimo, a character virtue founded on the same values that elevated the word Philosophy to a universal human expression (h/t, Nadia).

I also embedded a nice clip with some of the best beaches in Greece. Beyond its ageless struggles, Greece is still the most beautiful country in the world and the absolute best place to vacation. I'll be back in October to resume my blogging. If you need to reach me, email me at and I'll try to reply as soon as possible.

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