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Despite Large Cuts To Greece's Pension System, Creditors Want More


In Europe, leaders of the countries using the euro have given Greek Prime Minister Alexis Tsipras another deadline. They want a full proposal to resolve his country's debt crisis by Sunday. One source of tension between Greece and its creditors is the country's pension system.


Five years ago, The Economist noted that when Greeks protested against raising the legal retirement age from 61 to 63, Germany had recently raised its legal age from 65 to 67. Many Greek civil servants, according to The Economist, could retire after 35 years with 80 percent of pay. Germans got 70 percent of pay after 40 years. Well, you can begin to understand the attitude why am I working longer to pay for someone else's early retirement? But that was five years ago. Wall Street Journal reporter Matthew Dalton, who joins us from Brussels now, reports that Greek pension spending has been cut sharply in the years since. Matthew Dalton, thanks for joining us.

MATTHEW DALTON: Thanks very much.

SIEGEL: And how significant have the cuts been to Greek pension spending?

DALTON: Quite significant. Pension spending has fallen about 13 percent since 2012. That is about 5 billion euros a year. So it's very significant declines that have had a very significant impact on Greek pensioners.

SIEGEL: Well, if this is the case, what more do Europe and the IMF want Greece to do with its pension system and can they actually do it?

DALTON: Well, they want just a little bit more. The problem right now is that the Greece government subsidizes its pension system out of the national budget. And what the IMF and the European Union ideally would like for Greece's pension system to be self-sufficient in the sense that old people pay into it and they get out roughly what they pay in when they retire instead of this large subsidy that's happening. So what they've asked is for Greece to cut spending more. What Greece has proposed instead is to raise taxes on businesses to put more revenue into the system. And that's something that doesn't have the people in Brussels and Frankfurt and Washington particularly happy, and it's still a source of friction.

SIEGEL: What's the objection of the creditors to Greece's idea of raising taxes on businesses?

DALTON: Their objection is that Greece's economy is already overtaxed. And Greece responds by saying, look, if this amounts to the same budget impact as what you're suggesting - in other words, we're going to borrow the same amount of money as kind of set out in the program that we're signing up to. What does it matter if we do it by raising taxes or cutting spending? And they say, no, we think your economy is too taxed.

SIEGEL: But is that a deal killing gap between those two positions? Or is there a number one could find somewhere between the two that would resolve that sort of problem?

DALTON: Well, the hours and days will give us the answer to that question. But both sides have taken a pretty hard line on this because they both feel that they've already come a long way. And Greece, in particular, feels that it is - endured this economic collapse at the hands of the austerity policies that have been pushed by its creditors and they don't want to do any more.

SIEGEL: What about the common observation that some occupations in Greece qualify one for early retirement, miners more understandably than, say, hairdressers?

DALTON: (Laughter) That's right. Those kinds of, frankly, very absurd and funny things that were part of the Greek system have, to some extent, been eliminated. The creditors argued that there's still more to do, that Greece's pension system is too elaborate. There are many different funds by profession, by ministry of the government. It still needs simplification, but I think they have done a lot actually.

SIEGEL: Put me in the mind of a creditor here of the European Union. What's in it for me to see to it that the Greeks segregate their pension funds from their general budget and have some reform of their pension system? Why is it so important to me if I know I'm not going to collect 100 cents on the euro anyway?

DALTON: Well, I think that, aside from the issue of whether Greece is ever going to repay its debt, there's the trend of demographics in Greece and, frankly, in many European countries, but Greece needs money, so it's a particular issue there. Greece is getting older, so the demands of supporting older people in their retirement are going to become more and more problematic for Greece's budget as time goes on. This is not kind of, like, a one-time thing that will go away if they can just tweak a few things. It's going to potentially be a persistent problem, and it's a persistent problem for many countries in Europe where demographics are not looking particularly good. So it's not so much about getting their money back, although that is part of it, but from the creditors' perspective, they do want Greece's budget to be sustainable over the longer term so that we're not back in this mess in 15 years.

SIEGEL: That's Matthew Dalton, who covers European economics and trade policy for The Wall Street Journal in Brussels. Matthew Dalton, thanks a lot.

DALTON: Thanks very much. Transcript provided by NPR, Copyright NPR.