Friday, 28 March 2008

The sins of the fathers

The opposition has thrown everything it can, including the kitchen sink, at New Democracy's social security reform. Nationwide strikes were followed by a demand to submit the law to a referendum. The government has rightly refused this, saying that if all major reforms were submitted to this treatment none of them would pass. The former head of the Left Coalition, Alekos Alavanos, asked the president to send the legislation back to parliament. Socialist opposition leader George Papandreou won an eleventh-hour delay by bringing forward a motion of no confidence in the government.

Despite the hysteria, the social security bill offers some important new benefits to women. Mothers would be credited with a year's worth of social security contributions for each of their first three children - a 50 percent rise on existing credits. Each child means retirement a year earlier. Those insured with the Social Security Foundation (IKA) would also be entitled to eight months off work after childbirth rather than the current two. Their existing right to another two months off work before childbirth and a 25 percent reduction in working hours for 18 months upon return would not be jeopardised.

New Democracy has rolled back the generosity of the state towards women at the end of their careers. Early retirement with full pension would move back from age 50 to 55, with a one percent annual penalty for pensions claimed in the intervening period. The government argues that women need time off work when they are having their children; but they have given mothers fewer years' worth of free social security credits at childbirth than they have taken away in their fifties (not to mention that they have made life harder for their employers).

Where parliamentary clamour is less justified is in New Democracy's efforts to curb early retirement. Current law allows anyone with 35 years' worth of social security contributions to retire as early as 58. Beginning in 2013, the bill would gradually raise that to 60.

"A chap has done his 35 years. Why can't he get out of work and claim his pension?" asked the Left Coalition's Panayotis Lafazanis. "This is a qualitative change to the system that opens up extremely dangerous paths in the future. " One is left to imagine what those dangers might be; perhaps the possibility of working all the way from graduation to 65 - a period of 43 years for those who get into university and graduate on first try.

Employment Minister Fani Palli-Petralia also attempted to tie 37-year careers to a minimum retirement age of 58. Here the opposition was so great that in mid-parliamentary session on March 20 she rescinded the relevant paragraph to cheers from her own side.

People employed in hazardous and unsanitary professions did not escape unscathed. Today they may retire as early as 55. Beginning in 2013, the bill would raise that to 57. But hazardous profession status is so fraught with abuse that the government has left it to a future bill to evaluate which of 500-odd professions should remain in it.

Another storm swirled around the government's stipulation that auxiliary pensions, which bolster primary ones, cannot be more than 20 percent of the primary. That is a large cut, given that they sometimes come close to matching primary pensions; and the fact that the measure affects people entering the workforce before 1993 bodes ill for everyone else.

Two of the concerns are more well-founded. One is that the consolidation of 133 funds into 13 is a first step towards a harmonisation of benefits and perhaps even a standard national pension. The current bill allows many funds sucked into IKA to retain autonomy, but it is easy to see a government breaking that autonomy a few years hence. Not only does it make no sense to have different benefit schemes within the same fund; the state holds many funds in its thrall because it owes them money. The people at greatest risk from this delayed harmonisation - such as the employees of the Public Power Corporation (PPC) or the Hellenic Railways Organisation (OSE) - are a labour aristocracy created by Pasok in the state sector during the 1980s. Society foots the bill for their benefits and they are right to imagine some sort of hard landing.

The other well-founded concern is that the autonomy of the Bank of Greece may be affected by its consolidation into IKA. The bill calls on the bank to contribute 345 million euros to IKA over 15 years as its share of the burden. The European Central Bank's president, Jean-Claude Trichet, expresses concern that these payments "may undermine the Bank of Greece's financial independence". That, in turn, says Trichet, could undermine the bank's institutional independence. Trichet calls on the government to audit the bank's pension fund in order to determine whether such payouts are required, or whether they would end up financing IKA. (Such audits are foreseen by the bill for each fund being consolidated into IKA.)

The bill has tried to offer a positive form of savings as well. It will encourage people to extend their working careers by three years with a ten percent bonus; but there is no disguising the ugly end of early retirement.

The real problem with the bill is not that it does the wrong things. It is that it does not go far enough. As reported by this newspaper, 15.8 percent of tax revenues this year will subsidise social security organisations, up from 8.7 percent a decade ago. That is forecast to rise to a quarter of the budget by mid-century. This bill is forecast - as reliably as any such forecast can be - to save about six billion euros a year by 2030. But that is peanuts compared to the 153.5 billion euros our analysis has forecast the government will spend topping up pension funds that year with today's growth, inflation and social spending trends (see our February 22 issue). The bill simply does not overcome the problem that with Greece's declining birthrate, each pensioner is backed up by 1.75 workers.

Another problem is the underperformance of pension funds we highlight today. An analysis of the 25 pension funds with the largest real-estate, cash and securities assets reveals that only a handful outperform inflation (see Sophisters, economists and calculators column on page 18).

Stuck between mismanaged funds and limited savings, the government has no option but to pull more money out of the budget, which is exactly what the unions are asking it to do. Last month Prime Minister Costas Karamanlis announced the formation of a generational solidarity fund that will subsidise the social security system after 2019. Until that time the fund will quietly absorb four percent of VAT receipts and a tenth of the tax-derived receipts that would go to a few solvent funds. But even this solidarity fund will probably amount to no more than about 17.6 billion euros in 2019, and since the budget is not balanced, this money will have come at the expense of paying down the national debt. In other words, we will borrow with interest to retire people whose descendants will foot the bill.

This bill is self-evidently not the final word on social security reform; it is a step towards deeper cuts which may or may not balance the system. As former finance minister Stephanos Manos wrote in a newspaper column last month, "If every pensioner received an average of 10,000 euros a year [much more than the standard IKA pension] the system would be solvent. So where is the money going?"

The prime minister offered the answer in parliament on February 15: "Some of our fellow citizens are retired on the basis of more years than they actually worked, and others are struggling to secure a minimum pension. Some have pensions larger than their salary, and others receive minuscule amounts."

This madness is the result of political favouritism by two decades of Pasok governments, which put a quarter of retirees in some funds on disability pensions. Many more have spurious army veteran pensions; and then there is the scandalous generosity of the bloated public sector. Given the abuse of the public trust, it is difficult to see how this country will sustain meaningful pensions in a pay-as-you go system two decades hence. It is far more likely that the pensions retirees are attempting to live off today will in future be seen as supplements to individual retirement accounts or employer-based schemes. Don't expect the social security burden on households to lighten and create income for a private scheme. That will be an added, but inevitable, burden. That is precisely the future Pasok deputies decried in parliament, which is the greatest hypocrisy imaginable.

Friday, 7 March 2008

Fyrom should talk

AFTER THE September 1995 interim accord that ended a Greek embargo against the Former Yugoslav Republic of Macedonia (Fyrom), and particularly after Costas Simitis came to power the following January, the two countries essentially ignored the name issue that divides them.

Behaving as neighbours should, they resumed commercial ties that saw billions of euros' worth of Greek investments enter Fyrom. Greece launched an aid programme to supplement a European one in August 2002. A host of bilateral agreements have allowed us to conduct everyday business - on border and police cooperation, sharing secure information, visa-free passage for diplomats and civil servants; on energy, aviation and military cooperation, including training; on roads and shared water resources. A trilateral accord with Albania even created a multinational park around the Prespa Lakes.

Given such a highly functional relationship, it would be nonsense for the Greek economy and national security to go back to the dark days of February 1994-September 1995, when Greece became an international bully for blocking all but humanitarian goods from reaching Fyrom.

Thirteen years of Fyrom calling itself the Republic of Macedonia, and being recognised as such by dozens of nations, have been demonstrably innocuous to Greek interests. To the Greeks' credit, they have come to realise this. Only 24 percent think Fyrom a threat in a Public Issue poll conducted for Kathimerini in late February, days after United Nations mediator Matthew Nimetz's proposals were leaked to the Greek press. The same proportion would consider a recognition of the Republic of Macedonia by Greece a "catastrophe" - a historically-charged word in Greece harkening back to 1922 and clearly disproportionate to the largely semantic predicament of the present day. By contrast, 69 percent of Greeks say Fyrom is a negligible threat.

The very smoothness of Greek-Fyrom relations lowers the pressure for a solution, however. Reasonable, non-nationalistic Greeks appreciate that caving in to a recognition of the Republic of Macedonia is unnecessary and beneath Greek dignity. Any government that concedes to it without a qualifier is bound to be punished, and rightly so. Fyrom is not all of geographic or historic Macedonia; it is only a bit of each. Greek acquiescence to a Republic of Macedonia no more ensures its stability than a throat lozenge cures cancer, simply because Greece does not pose a threat to Fyrom. The question Prime Minister Costas Karamanlis must be asking himself is: what level of risk is acceptable for something that is practically so inconsequential and politically so expensive if it goes awry?

The formula he and Foreign Minister Dora Bakoyannis have adopted is a reasonable one. They have accepted the least unacceptable of five names put forward by Nimetz - Republic of Upper Macedonia - as a basis for talks and made the veto threat to Nato membership official if Fyrom continues to refuse to negotiate on the basis of anything but Republic of Macedonia.

On the Greek side, there is genuine hope that all political parties will be able to live with this name, as long as it is Fyrom's only name. The Nimetz proposal leaves open the possibility of a double-name regime, in which the term accepted by Athens will be used in multinational bodies such as Nato and the UN only. Athens wants it to be retroactively interpolated upon all of Fyrom's other bilateral relations, correctly perceiving that the agreement would otherwise be a sop to Greece.

Greek opinion polls support that priority. More than two-thirds of Greeks remain opposed to any name that includes the M-word, according to a GPO poll conducted for the Mega television network programme Anatropi after the Nimetz proposals leaked.
But when the question was phrased as a choice between conceding on a Macedonia-composite name and conceding on the double standard, only 43 percent prioritised the first (the finding of a Kapa Research poll for To Vima conducted before and after the Nimetz leak). That is exactly consistent with a poll conducted in March last year by the Centre for Political Research and Communication, a think-tank. Since an absolute majority believes that it is more important to avoid the double standard than to avoid the M-word, a compromise between Athens and Skopje is technically possible.

Two things might derail it on the Greek side - a loss of nerve by Karamanlis, who governs with a majority of one MP, or a breaking of ranks by rightwing Laos, seduced by the prospect of garnering seats in a precipitate election. But George Karatzaferis no more wants to be George Samaras than Costas Karamanlis wants to be Konstantinos Mitsotakis.

The greater danger is that Fyrom, fearing an Albanian minority emboldened by the newly-independent Kosovo and trusting in American backing in Nato, may prove unyielding. In such a case, Greece should use its veto for a host of reasons.

First and foremost, it is simply not worth Greece's while to risk the death of a reformist government at a time of enormous political disillusionment. Pasok is not ready to govern (76 percent of Greeks said as much in the To Vima poll), and Pasok-Syriza or New Democracy-Laos coalitions could not govern responsibly or for long.

Second, Greece has little to gain by concession. The most damaging part of the creation of any kind of Macedonia - the invention of a Macedonian ethnicity - is irreversibly accomplished. That invention will remain the driving force for statehood, no matter what the political entity is called. Nor does it seem worth ratcheting up points in this matter with our most important ally since US foreign policy in the region is an inscrutable mess with no discernible carrots for good Greek behaviour.

Third, Greece has much to lose by showing weakness in foreign policy, not only because it inhabits a particularly primitive neighbourhood and nurses outstanding sovereignty disputes with Turkey, but also because it needs to preserve its mettle as a worthwhile ally to Cyprus as that country prepares to tackle reunification.

Perhaps the most telling Greek statistic is the low level of expectation - 85 percent of Greeks say they do not expect satisfaction of the Greek position. That is, more than anything else, an expression of our feelings about the US, which has tried to settle the former Yugoslavia's two outstanding basket cases with two initiatives over the last month.

Only four percent of Greeks told Kathimerini's pollsters that Greek foreign policy should rely on US support. A total of 50 percent feel it is the European Union that will be our mainstay and, most damningly to the US, 16 percent chose Russia. That is a low of historic proportions. As it tries to salvage a tattered Balkan policy, Foggy Bottom should not give the impression that it is neglecting standing investments in favour of those too desperate to choose their friends.