IMF: Steeper Pension Reforms Needed in Greece

The International Monetary Fund on Thursday published a blog post, penned by the official handling Greece’s bailout, positing that the country needs to implement steeper pension reforms for its finances to be sustainable in the long-term.

Greece has already proposed some significant reforms; that package will soon be altered further after objections by creditors. The alterations will almost certainly lead to further benefit cuts.

More from the Greek Reporter:

Poul Thomsen, the Deputy Director of the Fund’s European Department who handles the Greek bailout, says that the Greek pension system is “unaffordably generous” and only pension cuts can make the security funds system sustainable.

In an article entitled “Greece: Toward a Workable Program” posted on the IMF official blog on Thursday, the Danish economist denies the criticism that the Fund is pushing for “socially draconian reforms”. He counter-argues that in Greece pensions cost about 10 percent of gross domestic product every year when the average in the Eurozone is 2.5 percent. Only deep pension reforms can make the pension system sustainable:

“Why the focus on pension reforms? Despite the pension reforms of 2010 and 2012, Greece’s pension system remains unaffordably generous. For instance, the standard pensions in nominal Euro terms are broadly similar in Greece and Germany, even though Germany—measured by the average wage—is twice as rich as Greece. Add to this that Greeks still retire much earlier than Germans and that Germany is much better at collecting social security contributions. The result is that the Greek budget needs to transfer some 10 percent of GDP to cover the gaping hole in the pension system, compared to a European average of some 2½ percent. Clearly, this is unsustainable,” he writes.

As a condition of its bailout, IMF instructed Greece to construct a pension reform package that generated savings equal to 1 percent of the country’s GDP.

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