The 2022 Greek pension reform. Rebirth of carve-out privatization in Eastern Europe

by Nikola Altiparmakov; CeRP WP 208/22

Abstract. Greece was forced to implement unprecedented austerity measures over the 2010-2020 period in order to consolidate the public pension system and make up for the lack of appropriate entitlement reforms during the past decades. Despite financial stabilization being mostly achieved by 2020, the newly elected government opted to abruptly change the course of pension consolidation and implement the controversial carve-out pension funding in 2022. Although inspired by the World Bank (1994) pension privatization blueprint, the Greek 2022 reform features a novelty element of entrusting the management of pension savings to a dedicated government body in order to try to remedy inherent market failures in private pension provision. Similar to earlier reforms in Eastern Europe, the multi-decade transition costs of carve-out funding have been vastly underestimated in Greece which will give rise to fiscal distress in the coming years. The fiscally imprudent aspects of the 2022 reform will likely be brought to the fore when favourable international financing terms start to change. Unless firm political commitment is established to implement the missing austerity measures needed to finance the transition costs, Greece might end up resorting to reform reversals similar to the ones already implemented across Eastern Europe.

Published: March 2022