Planned government handouts, social policy, not as generous as they seem

With the country having formally left behind the memorandum era and with the pre-electoral period having been informally launched, the government is attempting to burnish its social welfare credentials.

It believes that this is the only way to improve the political climate, rebuild its ties with a segment of the electorate, and transcend the negative impact of its botched handling of the deadly Mati wildfire.

Given New Democracy’s insistence that any handouts must not jeopardise the steps taken toward fiscal stabilisation, the government believes that it can draw a line between, “conservative” and “progressive” political forces.

A careful reading of the government’s statements, however, indicates that one cannot expect a substantial turn towards “social justice”.

Negotiations on pensions

The major crash test for the government is the issue of pensions, as pension cuts of 18 percent are in store for a huge number of pensioners.

If one considers that this cut comes after quite a number of previous pension cuts, with an aggregate loss of 50bn euros, and that pensions are crucial for the budgets of countless families, it is to be expected that the government would want to avoid such a measure in the midst of an electoral campaign.

However, pension cuts are a part of a critical bailout memorandum law, involving a new way of calculating pensions, in order to ensure the medium-term viability of the social insurance system.

In that sense, it will be difficult to persuade creditors not to implement the measure, even if the EFKA state social insurance fund has an apparent surplus.

Creditors see pension cuts not as a revenue-raising measure, but rather as a “structural reform”.

That is why the government’s negotiations with creditors concern a “suspension” or postponement of already legislated pension cuts.

The government would like to secure a postponement of pension cuts indefinitely, with an agreement that the postponement will be renewed as long as EFKA’s finances are in order.

For their part, creditors appear willing to entertain the idea of a postponement of the cuts for six months or one year, on the condition that eurozone national governments agree to the measure.

In that framework, sources say, the government is also discussing an incremental implementation of the cuts in six-month instalments, so that along with one-off handouts from the super-primary surplus, pensioners, at least until the elections, will not get the immediate sense that they are suffering losses.

In the medium-term, however, given the actual limitations of the insurance system, along with creditors’ demand for perpetual surpluses, it will be difficult to avert some sort of pension cuts in the end.