Greece Reform It or Ruin It?

Today 25 distinguished economists from around the globe have issued a plea to the Eurozone to distinguish between reform and austerity. These are the top experts in the world; they include Joseph Stiglitz, Nobel prize winner in Economics.

What are these experts talking about?

For one thing, they are talking about the troika's demands for Greek pension reform. Here's the demand from the bailout monitors that seems least reasonable to me: "... the abolition of a special monthly stipend for pensioners receiving the lowest benefits."

Pensioners "receiving the lowest benefits" means 45 percent of Greek pensioners. These retirees receive pensions that put them below the official poverty line of $737.60 a month.

Public pensions in Greece have already been cut by almost 50 percent, with the average pension in the country currently at $776.40 a month.

Compare this to a wealthy country like the U.S. Our Social Security benefits, the only "pension" many American retirees have to live on, currently pays an average of $1,328 a month while the official U.S. poverty line for all states except Alaska and Hawaii is $980.83 per month.

Greek workers would be paid less than the official poverty line while the average American retiree is paid well above the U.S. poverty line. Yet the troika feels that pensions for Greece's poorest citizens should be reduced further, leaving even the average Greek pensioner below the poverty line.

How would we like it if in ten years a foreign creditor, say China, came into the U.S. and demanded such a major policy change in order to pay off Chinese investors in our government bonds?

Think that couldn't happen? The U.S. is not so far behind the four poorest countries in the Eurozone in terms of our national debt to GDP ratio.

In addition. foreigners are continuing to snap up both commercial and retail housing market properties in this country during a global property boom that's heating up again right now.

Meanwhile, U.S. exports are not doing so well abroad. And the U.S. continues to spend the bulk of its tax resources to support military interventions in religious wars abroad in the Middle East and Asia.

But back to Greece. Are the Greeks just deadbeats? No!

In 2012, the former Greek government, in compliance with troika demands for debt restructuring, pursued austerity economic policies that plunged the country into debt, causing pension funds to lose $27 billion in reserves.

Unemployment in Greece soared to heights we haven't seen since the Great Depression, and contributions to its pension system declined while political appointments to public office continued to soar under the previous government.

Greece's newly elected government is willing to make pension reforms. This includes extending the retirement age by over a decade by lowering pension amounts for early retirees in Greece's government sector.

In Greece's private sector, fraud would be reduced by self-employed persons, meaning a large number of Greeks in the private sector, would have their pension contributions monitored by Greek tax authorities rather than by pension funds.

So, what's holding up more tax reforms and/or even more draconian reductions to pensions in Greece that would surely plunge the country into further crisis?

Kerin Hope's take on this was in the Financial Times yesterday in the article, "Q&A: Greek pensions -- deal or no deal". She pointed to a Greek parliament that's heavily divided politically.

Hmm! I don't suppose we think that could ever happen here in our Congress, could it? Oh, surely not!