If the Greeks have the political courage to finally and completely address their debt problems, they could become a leader in Europe and the world on how to achieve economic growth in the 21st century. Beyond paying what they owe to Europe and the IMF, their real issue is to fix --once and for all -- the underlying structural causes of the current crisis.
According to the IMF, one of the most important problem in Greece is pension reform. Greek debt is driven by the clash between the standards and expectations of 20th century retirement, savings and investment and the hard truths of 21st century demographics. While we may be focused on Greece today, the seminal question for all of us is how to enable sustainable economic growth as aging populations shape productivity, labor participation, and financial planning in country after country across the globe, including the U.S.
The structural challenges Greece faces today with its aging population include:
- The Greek retirement age of 61 is too young for 21st century lifespans, where we are likely to live another 20 more years. Even worse, reports suggest that early retirement is rampant. Only 44 percent of workers between 55 and 64 are still at work, compared with an OECD average of 52 percent.
- At about 1.3 births per woman, Greece has one of the lowest birthrates in Europe and around the world. At those levels, economic growth is unsustainable if 20th century fiscal policies are kept in place.
- Pension expenditures in Greece are among the highest in Europe, which when placed against an aging population – more old than young – is just not workable. According to the OECD, “Greek public pension entitlements are among the most generous in the OECD. Based on current rules, 20-year old earners starting to work now and working a full career would receive on average a pension corresponding to 96 percent of their previous earnings in gross terms, compared with an average of 59 percent for the OECD countries overall.”
- Rigid labor markets are a particular challenge in Greece, from minimum wage, which hurts youth employment, to trade union rules that make it difficult to enact flexible employment practices which could keep more people employed.
As June 30 has come and gone, Greece’s basic structural issues remain. It is in all of our interests to help Greece solve those problems as they face some of the essential questions about growth and labor productivity in the 21st century.