Saturday

17th Nov 2018

Greece raids public sector coffers to pay pensions

Greece issued a decree on Monday (20 April) to force public bodies to provide funds to the central bank, as the government is desperate to find cash to pay pensions and public salaries next week.

"Central government entities are obliged to deposit their cash reserves and transfer their term deposit funds to their accounts at the Bank of Greece," the decree published in the Government Gazette said.

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  • Greece's Central bank is expected to raise €1.2 billion from the move. (Photo: Stanjourdan)

Bodies like local governments, hospitals or some state-owned firms are affected, but not pension funds. They are expected to pump about €1.2 billion in Bank of Greece coffers.

"The regulation is submitted due to extremely urgent and unforeseen needs," said the decree.

In Greece pensions are paid at the end of the month and the civil servants salaries are paid in two stages, in the middle and at the end of the month.



This means the Greek government needs €2 billion next week to meet the commitment and have some money left, days before repaying almost €1 billion in two International Monetary (IMF) installments and €3 billion in two separate treasury bond repayments.

When it comes to concerns about the risk of a Greek default, much attention is given to the country’s capacities to meet its IMF or bonds deadlines.

But pensions and civil servants salaries are a potentially highly explosive issue for the left-wing Greek government.

Each month the Greek state has to pay pensions for 2.6 million people and the salaries of 580,000 civil servants - plus about 60,000 fixed-term civil-servants or political appointees, according to the latest official statistics.

The total monthly amount for pensions and salaries is about €1.6 billion.

With Greece’s liquidity reaching alarming levels and no deal in sight with the Eurogroup to get a new loan, PM Alexis Tsipras could end up with a choice of a default on his country's lenders or on Greek citizens.

Interior minister Nikos Voutsis earlier this month said that if the government had to choose, it would pay the salaries and pensions.

But meeting with IMF chief Christine Lagarde a few days later, Finance minister Yanis Varoufakis promised that Greece would "meet all obligations to all its creditors, ad infinitum".

Not paying pensions and salaries would have a very high political cost.

Tsipras was elected on a pledge to end austerity, raise pensions and stop the downsizing of public services.

Choosing the lenders over the Greek people would split his government and parliamentary majority.

Such a move would also have deep social consequences in a country where 20.5 percent of the population was over 65 in 2014, compared to an average 18.5 percent in the EU.

The average pension is €956 before taxes and social welfare payments. According to official statistics published in March, 44.8 percent of pensioners are now below the poverty line of €665, and 60 percent receive €800 a month.

A 2013 OECD study pointed out that "public transfers represent around 70% of old age incomes".

Choosing to stop paying civil servants would also have a social impact, with consequences to the whole Greek economy.

Even with the downsizing of public administrations, civil servants still represent a significant number of households, and maybe the only wage earner in a country where unemployment is at 25 percent.

"The OECD report clearly shows that the salaries of civil servants by 2010 were disproportionately higher than those of their colleagues in the private sector," wrote researchers Fotis Zygoulis and Elina Zagou in a note for the London School of Economics last year.

"However the salaries of civil servants were directed mostly toward private consumption. For this reason, the reduction in the salaries of civil servants affected both private sector wages and the general economic cycle."

Schaeuble and Varoufakis: worlds apart

Washington got a snapshot of eurozone politics when the two protagonists in the Greek impasse voiced opposing world views at a think tank event on Thursday.

Tsipras asks for quick deal

The Greek PM met with Angela Merkel and Francois Hollande Thursday to try to shore up political support in talks with the country's lenders.

Is Greece about to default?

Greece just used emergency funds to pay the IMF and needs to find another €3bn by the end of May. But is it really on the edge of default?

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