Demographic Winter in Greece

[Guest posting by Philip Elder of San Diego State University]:

The consequences of Greece’s current debt situation best be framed in a simple demographic analysis. Greece currently contains a population of about 11 million, 20% of which is over 65 (well above retirement age). Early retirement is set at age 50 for women and 55 for men--this is reserved for “hazardous” job holders. This adjective is applied to 580 job categories, ranging from those characterized by real hazards (mining, SWAT team) to those that are… somewhat less dangerous (hairdressers, wind instrument musicians, TV and radio broadcasters). On top of that, workers in the public sector--25% of the working population--can retire after 35 years of service with 80% salary, which in some cases means around the age of 55. Therefore, the average age of retirement in Greece is 61, and the average employee enjoys around a 96% pension which, given an average PPP-framed salary of $32,000, results in roughly $30,700 in pensions, per retiree, per year.

Because of a combination of high life expectancy (79 years average) and low birth rates of the region, partly caused by urbanization and partly by bizarre governmental incentives not to marry (if a woman marries, she loses her family’s pension) the population pyramid of Greece is projected to turn upside-down by 2050. Currently, 20% of the population is of retirement age and there are 1.7 workers per pensioner. If the trend continues unaltered, by 2050 as much as 40% of the entire population will be eligible for retirement, meaning that every employed Greek will be responsible for taking care of himself, his family and as many as two retired citizens.

All of this leads to one word: debt. With a capital D. Greece’s debt is currently 125% of its GDP, placing it at the head of the PIGS (Portugal, Italy/Ireland, Greece, Spain), or the aptly-named bloated economies that serve as the leading cause of migraines and heart failure for German and French political leaders.  To recover from this mess, the EU is installing austerity packages--cutting salaries (33% of the entire public wage bill), retirement funds and social benefits that have ballooned out of control by a century of favor-buying on a national scale. However, these packages have already led to 200,000 lost jobs, with another estimated 150,000 to be cut by 2015. Greece could suffer from as much as a 20% unemployment rate, with few natural resources and an unstable shell of a service economy.  When coupled with its incoming demographic winter, a very, very grim picture is painted of the future of the fount of Democracy.