The Farce Goes On-------Greek Court Suspends Gravity

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Take that, Einstein!

As is well known, we all labor under the irresistible force of gravity ever since Einstein heedlessly invented the stuff. Attempts to outlaw it have thus far failed to our knowledge, but maybe it’s just a matter of perseverance.

 

tsipras-2They did what? Alexis Tsipras learns that his government will need €1.5 bn. more per year according to Greece’s administrative court.

Photo credit: Angelos Tzortzinis / AFP

 

A Greek court has just decided on implementing a roughly equivalent ruling, by declaring the previous government’s pension cuts illegal and ordering the government to restore pensions to their height prior to the implementation of the last bailout agreement. AFP reports:

 

“Greece’s top administrative court on Wednesday ruled that pension cuts adopted in 2012 as part of the country’s tough bailout conditions were unconstitutional, and ordered the cash-strapped government to restore the payments to their previous levels.

The Council of State’s long-awaited ruling on private sector pensions comes as Greece’s anti-austerity government is locked in tense talks with international creditors over reforms in return for urgently-needed rescue funds, with pensions seen as one of the key sticking points.

The court’s decision, which is not retroactive, calls for the government to restore the pensions to the level they were at before a November 2012 law came into effect lowering main and supplementary pensions by five to 10 percent.

The Council of State has in recent years been asked to consider many of the painful austerity measures that caused widespread anger in Greece and helped bring the hard-left anti-austerity Syriza power to party in January.

The court last year found that wage cuts for police, the military and firefighters were also unconstitutional. But the previous government took several months to comply with the ruling and only partially restored the salary levels, citing budgetary constraints.

Wednesday’s pension ruling is expected to cost the state 1.2-1.5 billion euros ($1.3 billion to $1.7 billion) a year, according to Greek economic analysis site Macropolis.

 

We can understand that Greece’s pensioners are deeply unhappy. The fact of the matter is though that the Greek government is bankrupt. The court might as well have ordered birds to stop singing, or the sun not to shine. Things may have been different if a Greek default had been countenanced from the very beginning to liquidate unsound debt instead of piling even more debt atop it. However, even in that case, the Greek government would have had little choice but to embark on reforms, because it simply doesn’t have enough money to continue where Greece left off at the height of the last boom.

 

Heartless Cuts?

If one looks at the pensioners protesting in the picture above, it is easy to conclude on an emotional level that the pension reform was heartless and should be rescinded. However, Greece had/still has one of the most generous – and consequently impossible to finance – pension systems in the world. Here are a few facts, comparing Greece’s retirement system with that of Germany, which are putting the 10% cut implemented in 2012 into perspective:

 

Years of work to earn a full pension; Greece: 35 Germany: 45

Proportion of wages as pension; Greece: 80% Germany: 46%

Number of pension payments a year; Greece: 14 Germany: 12

Pension increase 2004; Greece: 3% Germany: 0%

Pension increase 2005; Greece: 4% Germany: 0%

Pension increase 2006; Greece: 4% Germany: 0%

Minimum payment; Greece: €450 Germany: €600

Maximum Payment; Greece: €2538 Germany: €2100

Minimum pension age for men; Greece: 65 Germany: 65-67

Minimum pension age for women; Greece: 60 Germany: 65-67

Average pension entrance age; Greece: 62.4 Germany: 63.2

 

Given that the Greek government doesn’t have the money to take back the pension cuts of 2012, the court is essentially saying: Greece’s creditors – of which Germany is the largest by far – should make up the difference. Looking at the data above, it is probably not too big a surprise that such ideas aren’t especially popular in Germany, although they may well be popular in Greece.

We wonder what Alexis Tsipras is going to do with this court decision. Hopes have just been rekindled that a deal allowing everybody to continue to kick the can down the road will soon be struck (in fact, it has to be soon, otherwise Greece will be in default to the IMF at the end of the month).

It could be that the negotiation strategy of the Greek government is working, as lenders are apparently backing down from some of their demands, at least that is the rumor making the rounds at the moment. However, “no breakthrough” has occurred as of yet, although the most recent talks are said to have been “constructive”.

What we cannot imagine is that the creditors are taking pension reform off the table (as to why not, see the list above).

 

Part-PAR-Par8136837-1-1-0Greek pensioners complain about cuts

Photo credit: Aris Messinis | AFP

 

Conclusion

A never-ending farce.

 

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