Interview: Greece's pension system contributed to debt crisis: Greek expert

As a new pension system reform in Greece is under way and trade unions escalate their protests against the proposals of the government and international creditors who push for more pension cuts, a leading Greek expert explained how the thorny issue contributed to the 2009 debt crisis and how it can be addressed today through social agreement.

"The insurance system was one of the core causes which led to the 2009 crisis," former labor minister and Professor Emeritus at the Department of Economics of the University of Athens, Tassos Giannitsis, told Xinhua in a recent interview.

During his term as labor minister in 2000-2001, Giannitsis attempted to put forward a radical reform of the national insurance system, but it never reached the parliament.

Trade unions, opposition parties and also the then-ruling socialist party PASOK objected and eventually blocked his proposal due to the political cost that it would carry.

Today, as the Left-led government of Prime Minister Alexis Tsipras attempts to deal with the "hot potato" under the pressure of lenders to meet the third Greek bailout commitments and secure further vital financial aid for the debt-laden country, several of Giannitsis' former ardent critics acknowledge that if they had supported the reform in 2000, Greece would most likely be in a better financial position.

Among the key problems regarding Greece's social security system, Giannitsis explained, is the increasing deficits of insurance funds due to mismanagement, which are covered by the state.

"The expenses incurred by the state for pensions stood at 71 billion euros (79.49 billion U.S. dollars) or 83 percent of the total fiscal deficit for the 2006-2009 period and 94 percent for the 2010-2013 period," said Giannitsis.

As a result, the expenses incurred by the state for insurance funds led to an increase in external borrowing.

In particular, the total deficit of insurance funds, covered through state financing, was the equivalent of 83.6 percent of the increase in public debt for the 2000-2009 period and 405.2 percent of the increase in public debt for the 2010-2014 period.

In addition, the policy of assigning extensive pension rights and recognizing notional insurance years for a great number of citizens, combined with the crisis and unemployment, led to a radical change in the working-to-retired population ratio, Giannitsis noted.

From 2008 to 2015, the number of pensioners in Greece increased by 500,000 to 550,000, while about 300,000 pension applications have been filed whose approval is being delayed.

The working-to-retired population ratio was 1.77 in 2000 and dropped to 1.27 in 2013.

"This ratio renders the insurance system extremely problematic," the expert stressed.

The constantly growing need for resources to finance and support the insurance system necessitated a series of increases in taxation, which resulted in a deep recession in recent years.

Which could be the way out of this circle today? For Giannitsis, a social agreement is urgently needed to deal with the Greek pension system problem.

He suggests the implementation of measures to enhance economic growth, investments, competitiveness, knowledge and innovation, in order to increase employment, wages and revenue for insurance funds and the state.

"In order to have stability and confidence in the insurance system in the long term, the mutual consent on the reform of the insurance system would be unquestionable," he said.

Besides adopting policies regarding the ageing population, another key element to the resolution of the pension system crisis is the battle against the extensive evasion of contributions, which deprives insurance funds of vital revenue, the professor underlined.

Any kind of reform chosen in coming weeks will require some sacrifices and losses of benefits for a percentage of Greeks to ensure the sustainability of the system, experts stress.

Under the social agreement, Giannitsis proposes inequalities which undermine the current system should be restricted to establish a "more fair and viable scheme."

With the first 24-hour general strike of 2016 staged by trade unions on Thursday in protest of the pension system reform, the Greek government and its lenders are under more pressure to deal with this difficult issue, analysts say. Enditem