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Greece Leads in Pension Cuts

Greece is the only country to have taken drastic action, to cut pensions by 30 percent between 2009 and 2013 under the terms of its international bailouts, Reuters reports.

Under the title “South Europe's families offer short-term fix to pensions crisis” Reuters said the economic crisis has undermined reforms begun in the 1990s; with so many Europeans unemployed, there are not enough well-paid workers paying into the system to fund it properly.

The economic crisis has also undermined reforms begun in the 1990s; with so many Europeans unemployed, there are not enough well-paid workers paying into the system to fund it properly.

"It is not sustainable with such a low level of jobs, with such kind of jobs with such low salaries," says Jose Carlos Diez, an economics professor at ICADE business school in Madrid.

For instance, Spanish unemployment is 25.9 percent while about 5 million people - or about 30 percent of the employed workforce - are on short-term or reduced-hour contracts and pay very little into the state pension system.

According to the European statistics office Eurostat, people aged 65 and more will account for 31.6 percent of the Spanish population in 2050 - up from 17 percent today - while the number of 25-64-year-olds will drop to 34.8 percent from 44.9 percent.

As a result, there will be 1.1 workers per pensioner in Spain, far less than the current 1.8. That is likely to mean years of red ink for the social security system, which posted an 11.8 billion euro deficit last year.

Older generations in Spain, Italy and Greece regularly look after their grandchildren, and children are expected to take ageing parents into their homes. But not all pensioners can help financially without suffering hardship themselves, said Reuters.

Southern Europe's family safety cushion has also compensated for low state spending on other welfare services, such as universal unemployment benefits or care for infants and the elderly.

As a percentage of gross domestic product, Italy, Spain and Greece spend far less on these services than northern European countries, according to the OECD.

This income gap between old and young points to a chronic problem aggravated by the crisis: how to rebalance Europe's welfare systems to make them affordable and socially just.

Reuters gave an example: though Spanish state spending on pensions rose 18.2 percent in 2008-2012, that on education and healthcare dropped 8.1 and 0.1 percent respectively. This year, money for schools, hospitals and publicly-funded research is due to fall even further while pension costs keep rising.

The affluence of pensioners relative to their children and grandchildren has created a dependency that may hurt those now aged 30-40 for the rest of their lives.

Southern Europe's family safety cushion has also compensated for low state spending on other welfare services, such as universal unemployment benefits or care for infants and the elderly

"We're facing a generational time-bomb," says Alessandro Gentile, a professor of sociology at the University of Zaragoza.

As today's young are more likely than in the past to suffer unemployment or under-employment through their careers, their pensions will be lower. This means eventually they won't be able to cushion their own children financially. At that point, says Gentile, the model of family solidarity "will short-circuit".

Pensions systems, the biggest component of state welfare expenditure in most of Europe, are hard to change overnight said Reuters.

Many governments began tweaking their loss-making pension systems a decade ago and retirement ages have risen to reflect increased life expectancy.

Also, in many European countries a bigger share of contributions to state-run pensions is now paid by people while they work, rather than through taxes on working populations. Governments say this makes the system financially healthier.

Yet in most cases, the reforms don't take full effect until 2030 or even later. With pensioners forming an important voting bloc, this reflects political resistance to faster change.

Only well paid work offers a long term solution for the younger generation facing the inevitability that the Bank of Mum and Dad won't supply funding for ever.

Source: Reuters