July 15, 2015
In a NYT column Steve Rattner argues that the conditions being imposed on Greece by Germany as a condition of its bailout are for its own good. While Greece undoubtedly needs to reform its economy in many ways, Rattner ignores the extent to which austerity, both within the country and the euro zone as a whole, have worsened Greece’s economy. This is both true in a macro sense, in that cuts in government spending and increased taxes reduce GDP and employment, but also the resulting depression worsens other problems, like the public pension system.
Rattner includes a table showing that pensions in Greece are 16.2 percent of GDP, the highest in Europe. However pension spending as a share of GDP has risen sharply as a result of the downturn. In 2007, according to the OECD pension spending in Greece was 12.1 percent of GDP, less than France’s 12.5 percent and Italy’s 14.0 percent. In fact, Greece’s pension spending was not very much larger as a share of GDP than Germany’s 10.6 percent.
Since GDP has contracted by more than 25 percent, the ratio of pension spending to GDP would rise by roughly a third if it had stayed constant. (Pensions have actually been cut sharply under previous austerity programs.) The surge in unemployment, now over 25 percent, has also raised pension costs. Many people who would prefer to be working instead retired early and started collecting their pensions because they couldn’t find jobs.
This is a direct result of the austerity that Germany has imposed on Greece and one reason why the Greeks are not as appreciative of Germany as Rattner thinks they should be.