Why Greek Pensions Have Become The Biggest Hurdle In The Bailout Negotiations

Tyler Durden's picture

By now it has become abundantly clear that the biggest hurdle in the Greek negotiations is the topic of pensions, and specifically  whether they should be cut, as the Troika demands, or boosted, as a Greece top court recently did when it reversed a 2012 ruling to cut pensions.

At the heart of this argument is a simple question: is it political, as Greece claims, or simple math, as the IMF and its Troika peers assert.

Earlier today, none other than the Greek PM laid out his "cut demands are political" argument in a short, 134-word statement

One can only suspect political motives behind the institutions’insistence that new cuts be made to pensions despite five years of pillaging by the memoranda. The Greek government is negotiating with a plan, and has presented nuanced counterproposals.


We will patiently wait for the institutions adhere to realism. Those who perceive our sincere wish for a solution and our attempts to bridge the differences as a sign of weakness, should consider the following:


We are not simply shouldering a history laden with struggles.


We are shouldering the dignity of our people, as well as the hopes of the people of Europe. We cannot ignore this responsibility. This is not a matter of ideological stubbornness. This is about democracy.


We do not have the right to bury European democracy in the place where it was born.

And there you have it: a mere pension cut requirement, one which Greece already agreed to in the past in order to obtain billions in previous funds from the Troika, but never truly implemented, is made into a strawman mountain equivalent to the very fight for survival of democracy in not only Greece, but the entire world.

What is left unsaid is that the simple reason why Tsipras is terrified of cutting pensions as the Troika demands is because he would almost certainly be promptly swept from power as Syriza renegs on its most solemn pre-election vow.

On the other hand, there is the IMF's argument why it is nothing but simple math that Greek pensions should be cut. This is what the IMF's Olivier Blanchard said overnight in an IMF blog post:

... the Greek government has to offer truly credible measures to reach the lower target budget surplus, and it has to show its commitment to the more limited set of reforms.  We believe that even the lower new target cannot be credibly achieved without a comprehensive reform of the value-added tax (VAT) – involving a widening of its base – and a further adjustment of pensions.  Why insist on pensions? Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone.  Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP.  We believe a reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and that it can be done while protecting the poorest pensioners.  We are open to alternative ways for designing both the VAT and the pension reforms, but these alternatives have to add up and deliver the required fiscal adjustment.

With Greek tax revenues imploding and the hope of even a 1% primary surplus long gone as a result of the Greek economy grinding to a halt.

Which in turn means that in order to be sustainable (and whatever happened to the IMF's "sustainable" 2022 Greek debt/GDP forecast anyway), Greece has no choice but to cut both wages and pensions.

Only the Greek government knows that such a move would be the start of the endgame, and will lead to either another technocratic government, a puppet of the Troika, or to an even more extremist government, this time from the ideological right.

At the end of the day, unless Greece is ready to take the plunge into economic depression only to pull an Iceland and be a reborn nation after a few years of extreme economic hardship and pain, it will concede, and it will "cut" pensions just to get its latest Troika fix.

When it does, Tsipras will be right, because democracy will have indeed died, a long time ago at that, replaced by an oligarchic elite unaccountable to the people and where only the cold logic of money matters.

As always, we hope to be wrong.

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Wolferl's picture

Throw those pathetic Greek deadbeats out of Europe already.

walküre's picture

They can't be thrown out of Europe. But they can be declared as a defaulted dead beat. There's still time for them to do the right thing and default on their own. Embarassing!

Vullsain's picture

The descendants of Archimedes and Socrates can't come to grips with simple math and logic. The human species is de-evolving..

jefferson32's picture

They descend from Archimedes and Socrates just as much as Israelis descend from Abraham.

(Not that it matters in the least of ways).

Pairadimes's picture

A textbook case of the effect of debt on freedom. There is no saving Greece from serious hardship at this point, one way or the other. They are the canary in the coal mine for the Euro as well. Tick tock.

Paveway IV's picture

Can't they just kill all the pensioners? I understand that's the U.S. strategy for the baby boomers. Oh... maybe I'm not suppose to tell you that part.

farmboy's picture

I wish I could default on 350 bln $ and get away with that.

TheGreatRecovery's picture

I think that, to get that, a seat at the Fed's discount window would be helpful.  It recognizes that one is "too big (for his britches) to fail".

bbq on whitehouse lawn's picture

Its the Germans who are trying to avoid paying the price for cheap money not the Greeks.
In order to keep Germans working and avoiding what happend in Japan they will need to continue to pay Greece. Thats the deal from the start. Its the German politicans who are trying to save their positions, weaseling out of the agreement.
If Germany forces Greece out, thats the end of the Euro. Germany will follow Japan.

walküre's picture

China is becoming Germany's biggest trade partner. Greece is a fraction of what Germany sells in the EU. Many Greeks have left or are leaving to work in Germany because their own nation is such a gong show and corrupt.

There is no upside.

Bag Of Meat's picture

Is it so hard to get already?? The scheme against pensioners went like this: 1)European banks bought greek bonds not giving a f*** about risk. 2) They realised the risk in the 2008-2010 crisis, and had the corrupt greek government buy all the bonds at par through (amongst other) pensioners funds, then immediately default on them (PSI). That's essentially a hold-up on the pensioners. 3) Funds turn huge deficit. 4) EU goes : "Bad lazy greek pensioners are getting "huge" pensions of 300Euros before they reach the early age of 65!! ". 5) EU demands 0% deficit clauses for the funds in order to repay the "sound" debt. This means cuts in pensions, until there is no deficit (the deficit that banksters imposed on pensioners). 6) X% cuts in pensions=> X% of pensioners D I E (the pensions are at a point where any more cuts would simply mean even more dead people because of inability to buy basic goods).

Can you see it now?

How are you people able to think on such double standards... good ole West has been tricked by the banksters and should hang them, but LAZY ASS GREEKS deserve cuts to death for the deficits the same banksters created.. 

TheGreatRecovery's picture

I wonder whether the IMF pays trolls to post good-banker bad-pensioner comments.



Bunga Bunga's picture

The Euro is a political idiocy, not economic commonsense. Germany did very well without the Euro and a strong currency, since it forced them constantly to increase productivity and act economically more responsibly. 

exi1ed0ne's picture

Ha!  I' would love it if they were thrown out of the euro so we could watch the whole damn thing collapse.  Greeks aren't necissarily deadbeats, just the people loaning them money are fucking morons.  You want to make a return on a loan?  In exchange you take on risk that the counter party will tell you to piss off when you come looking for your payment.  This is Econ 101 shit, and I'm sick and damn tired of clueless morons acting like central banking has taken risk out of the system.  It is necissary for stability and fairness for stupid to hurt.

Greece is small potatoes anyway.  Give me a call when it's France - and it will be when (not if) the Greeks are put out of the system.

Wolferl's picture

Econ 101 shit. Ridiculous. Bet you never made it even close to that. What you tell here is street gangster 101 shit. But only good enough for those gangstas that will never make it anyway.

farmboy's picture

I guess exi is talking about risk premia and is completely right. Upon entering the Euro Greek debt had a 10% coupon.

exi1ed0ne's picture

Street gangster 101 is the real world.  Best get use to it because it is going to reassert itself in the not so distant future like a motherfucker. The big boys play without rules, even more so on a sovereign level.  They hide this though propaganda so the proles think that they need to be "honorable" and not rebel too much.  The theft that has occurred over the past several decades from the future of the human race is unimaginably huge, and the price tag for that WILL come due.  Keep on believing in "International Law" and keeping bankers whole at the cost of entire economies.  There isn't enough popcorn in the world to accompany my enjoyment when faith in big brother comes crumbling.  Sadly enough though, there will always be propagandized scape goats like those "lazy" Greeks who's loans they never even see the proceeds of keep the Euro on life support.  Gotta keep that anger directed at the boogieman du jour, and not at those actually responsible for it.  Same as it ever was.

TL;DR Payment of interest by one party to another party that has no risk is at best indentured servitude and at worst slavery.

orangegeek's picture

Pensions?  LMFAO!!!!  There's no fucking pensions.  LMFAO!!!!  But if you want some leftover ponzi, then c'mon aboard!!!

LawsofPhysics's picture

^^^this.  folks in the west just havn't realized it yet...

kowalli's picture

you can't have pensions with 0 interest rate

Bunga Bunga's picture

So 5% at 7% inflation work better?

El Vaquero's picture

Nope.  Not having an enormous state sector with nice pensions that is rife with corruption and graft that crushes everything else is better.  But tell people that you'll pave the streets with gold, and they'll probably vote for you. 

BuddyEffed's picture

Pensions need real resources to function.  Just as real jobs need real resources to function. Just as real banking needs real money to function!  Get real !!!

LawsofPhysics's picture

you are getting ahead of yourself, let's start with money creation first and the fact that money creation has been in the hands of a relative few and has not required any real collateral for 30+ years.

How about this douchebag, I have a computer/printer, I will "create" my own "money"....

tick tock you stupid fuck...

farmboy's picture

Sure you can but net present value of future payments is the same as the whole liability :)

Theta_Burn's picture

Its the same Geece now as it was upon fraudulent admission into the EU..

Just a couple governments older.

Fire in the hole...



agent default's picture

Unfortunately it will only be a fizzle and the can kicking will go on.

walküre's picture


It sounded like a good idea at the time. It made a few people allot of money. Times have changed. The world has changed. There is no upside now. Every other deal on Wall Street can go this way. It's all fun and games when the sheen is fresh and there are lots of investors lining up throwing money at the deal but once the truth is out and the paint starts to fade... the investors are done.

The debt number is whatever.. this is about throwing more good money after bad money. CDS are never going to get paid anyway.

IMF done. Even Juncker is walking away. Draghi can't do much at this point.

Veriton's picture

What's going on has nothing to do with pensions. The globalist script calls for Greece to switch to the BRICS alliance, so that's what will happen. All else is for public consumption.

centerline's picture

Just wait for it.  Pensions are the underlying issue everywhere.  We all know that when those promises are broken, all hell breaks loose.  Therefore, everything will be done to avoid this from happening (at least for another day). 

Bob's picture

This neo-liberal juggernaut of "austerity" for the common man while billionaires built dominion over most of the planet at their expense had been running for quite awhile, but is now finally firing on all cylinders . . . and it's headed round the bend, right back to good 'ole Amurika:


walküre's picture

There will always be "hurdles". None of the creditors want to pretend and extend anymore. The Greeks need to be told to default or the creditors will default them. Obvious what is going on now. Greeks want to have their cake and eat it too. Always asking others to finance them longer and further. It's not even about the current debt load. There's no upside. Have you ever negotiated with dead beats? It's painful.

GRIMBO is coming before GREXIT a little later.

Winston Churchill's picture

Many times trying to collect bad debts, and it always gets to the "fuckit" moment.

Thats why its slowly at first, then all of a sudden.The sudden is the 'fuckit' moment,

then things go so fast you can't see them moving.

walküre's picture

Schäuble is saying "fuckit" now and he expresses the opinion of a majority in parliament.

I think IMF said "fuckit" last week.

Why is Varoufakis back now anyway? They had him replaced and now he's coming back to the stage with a new script that's pretty much the old script?

Either they're trying to play everyone for fools or they're just so arrogant to believe they still have any leverage. Maybe they do but I doubt it.


samjam7's picture

Why did Schäuble trust in Greece for so long and is now changing his mind? You could say the same about him he was arrogant enough to believe that Greece would fold into submission, but it didn't.

I remember his words well when Syriza came to power. 'There are treaties and we expect Greece to play by those rules'. He wanted to play by the rules the German way, well Greeks aren't Germans. A lot has happened since and Schäuble has a few more grey hairs on his head now. 

walküre's picture

Schäuble is creating a separation between Chancellor and FinMin. This is necessary now because when this thing blows up, the German people could go after this government and bring up conspiracy charges or collusion. Merkel is being left out to dry imo. She is a goner anyway. Her political career is at the end and neither the party nor the other key players want to sink with her. Merkel is the sinking ship. She invested so much political capital into the Greek salvage operation. CDU/CSU and other parties are not supporting the 3rd bailout. I remember when Schmidt was toppled with the "Vertrauensfrage" back in the day. Can totally see the same happen to Merkel this fall.

As they say, timing is everything. The elite has a schedule and things are culminating in some sort of major event this fall.

samjam7's picture

Schäuble can act this way because he is Finance Minister and the US pressure to keep Greece in the EU is not directly pointed at him, but at Merkel. If he were Chancellor he would maybe have to reconsider international and geopolitical agenda and not just a pure financial one. 

I agree that the situation is bad for Merkel and for the first time in years she is also faced with some serious headwinds in her own party but what serious alternative do you see for her? Schäuble as Chancellor would be a mere temporary solution with his age. CDU/CSU is still very dependant on Merkel because many Germans haven't figured out the disaster that is Greece and the EU yet and she represents all that is good with the current situation. In the end a party will always rather be in power even under a not so popular leadership rahter than hand over the government to the socialists. Well that's how I think at least.

samjam7's picture

If the EU truly wanted this they would've have shown Tsipras the door already. Do you think that if it wasn't essential for the EU that Greece stays in the Eurozone they would even bother to talk to Varoufakis and Tsipras for months on end? This just shows the weak position the EU is in, despite their big mouthed comments of how Greece could leave the Euro with no consequences. 

Tsipras is also in a weak position of course but he has less to lose and may well be an idealist. The EU has long since given up on its ideals and doesn't understand him. 

walküre's picture

I agree with you. The EU is at a cross roads here. Totally unprepared to dealing with a (potential) sovereign default. The Troika of all groups should have know the Greek books and the balance sheets. They knew and they know the cash flow and they knew the debt repayment plans. Did Greece hide any money from the Troika? Doubtful that's possible.

So the question is why is this being played out to the bitter end and why have they not pulled the stops by now.

Maybe they can't? Do the EU contract allow the expulsion of a deadbeat sovereign from within? There's no precedent for sure. Politicians have to act responsible and careful to not open up their constituency to being accountable for any damages from their actions. That is probably why none of the key players wants to say what needs to be said. Greece is already digging up the dead from 75 years ago. They're aggressive dead beats and nobody knows what else they're capable off. Can't trust them for sure. How do you give them more money when you know you can't trust them?

The meetings are part of the politician's job. They need to be there and pretend. Just to be there makes all the difference. But IMF walking out and Juncker cutting the Greeks off now as well is telling.

Greece now begging to resume talks. Varoufakis coming back from the dead. Seriously? Who wants to go down this road again and again and again?

El Vaquero's picture

"So the question is why is this being played out to the bitter end and why have they not pulled the stops by now."


Riddle me this:  What kind of exposure, both direct and indirect, does Douche Bank have to Greece?  And Goldman Sachs?  Just look at what Lehman Bros. kicked off.  Now bump it up to the level of a soverign nation. 

El Vaquero's picture

Back in 2012 or 2013, Varoufakis talked about how it would take ~8 or so months to go off the Euro and convert back to the Drachma.  I'm just wondering if they were just stalling for time.  It's been, what, 6 or 8 months since Syrzia was elected?

JustObserving's picture

The fight is over 1% of GDP.  If Greece sells an island every year, it can easily get that 1% of GDP.

Even if only 10% of Greek lawyers and doctors and accountants strarted paying taxes, Greece would easily have that 1% of GDP:

Take the examples of lawyers, doctors, financial services, and accountants. In all of these occupations, the self-employed are paying over 100% of their reported income flows to debt servicing on consumer loans


walküre's picture

That's only one fight. They're fighting to receive the last of the 2nd bailout tranche of 7 billion. That money is already spent on debt service to IMF and EU loans.

Then they will need a 3rd bailout to keep the lights on and there's absolutely no political will in Germany to keep funding the gong show.

There's no upside.

bbq on whitehouse lawn's picture

The upside is Greece leaves the Euro, joins the Russian China silk road and becomes the growth engine of europe for th next 20 years. Thats the upside all Greece.

walküre's picture

Dreamer. The Greeks couldn't make a go of it with all the billions they received from Europe. No trade barriers and access to a 500 million + consumer market. A strong currency and a real shot to being a great trading partner.

They couldn't do it. I don't know how many deals you've negotiated but when I look at the deal and I look at the parties involved, I always research their background and their past performance.

Maybe the Russians and Chinese have money to burn just for fun. Threre's some geopolitical interest there but to be honest, the Greek pipelone or gas upside are overrated. The port is already owned by the Chinese.

Tall Tom's picture

The sad truth is that the whole damned system is imploding.


Douchebunk is toast. The collapse of Oil Prices has doomed them.


There is no containment from Douchebunks Energy (OIL) Derivatives exposure as that was highly levered.


Nobody owns anything if the ownership is on paper. There are many multiple claims on the same hard asset.


And they want to write about PENSIONS?!? It is so damned IRRELEVANT and this whole Greek drama is THEATER.


The entire foundation for World BUNKING has been totaly shattered and the structure is failing and about ready to implode on top of everybody's head.


And everybody here writes about this fantasy of an economy as if anything whatsoever is real? IT IS NOT REAL. There is NO SAVING IT. There is absolutely NO WAY OUT.


And the criminal Ponzi Scam Banksters are about ready to take us ALL into a Hot War in order to cover this up. I read last week that the IMF is interested in Greek Military Spending?


I read today that the IMF and ECB are ready to financially nuke Greece in order to incite Civil Violence, Civil War, and an OVERTHROW of the current Greek Governemnt? I wonder why the IMF was concerned about Greek Military expenditures...Uh...


But it goes far deeper than that. These psychopaths are far more interested in covering their own ass and making sure that they have some bargaining chips to play when the entire God damned system implodes. You can be assured that they will act in their own best interests and NEITHER YOURS, OR MINE, and they will incite a Global Hot War if needed t save their own asses.


And we sit here and follow this Greek drama as if it means something


Are you all fucking crazy?


Every man for himself, I believe, is the proper and expected call, when the sinking ship has lost the last bulkhead of containment and is ready to plunge into the deep six.


Well I will say every man for himself as the bulkhead has blown out.


Hopefully you have your life preserver if not a seat in the lifeboat. Because the ship is in imminent danger of flounder.


So let's talk about cabin arrangements...or Class Cabins, as if it really makes any difference...which it does not.