Back in 2020 the Pissarides Commission report became the focus of discussion in Greece, written by four distinguished academic economists headed by the Nobel Laureate, LSE economist, Chris Pissarides. The report examined the main characteristics and trends of the Greek economy, from a national and a global perspective, and made policy recommendations for its sustainable recovery, without the imbalances, distortions and fiscal policy lapses that had led to the 2009 financial crisis. According to the Centre of Liberal Studies, the present government has implemented or initiated implementation of more than half of the report proposals to this date. It will suffice to say that the recommendations were mostly general and open to the interpretation of policy-makers that developed and rolled out the reforms, but not without putting heavy emphasis on avoiding the “political cost” involved.

The report noted the need for pension reforms, a contributing factor Greece’s bankruptcy in 2010. Yet, the newly introduced state entity, henceforth referred by its initials in Greek as TEKA, falls well short of best practices, despite the government’s noble intentions to overhaul the social security system by moving from a currently unfunded Defined Benefits (DB) scheme to a partially funded Defined Contributions (DC) model. Its institutional setup is unfair and potentially patently ineffective, and it will exacerbate the demographic problem in an environment where the Greek population is declining because of emigration and low birth rates. Unfortunate-ly, while successfully adapting societies learn from past mistakes, as well as the successes of others, Greece continues stubbornly to adopt institutional arrangements that failed miserably in the past. Against this background, we draw attention to certain economic and governance TEKA fault lines.

Giving TEKA exclusive rights to manage worker’s auxiliary pension contributions is an anti-competitive tenet and compromises Greek workers’ freedom to participate in privately managed pension funds, whereas developed pension fund markets ensure this freedom of choice. More significantly, another weakness is the TEKA promise of a guaranteed zero real rate of return on the balances of its participants. This is wrong on at least three grounds. First, it is wrong because it reverses the order of risk taking from the workers who are the true owners of the auxiliary pen-sion contributions to the state. Thus, since the participants as well as the portfolio managers of TEKA are insured against losses, they have no incentive of taking ownership of the investment process, and hence suboptimal performance over the long haul is all but assured. Second, it fur-ther marginalizes the Greek private pension fund sector which is a critical component of pension funds in most other developed pension markets. And thirdly, the provision of the said guarantee is immoral because it was adopted in full knowledge that it does not differ from the populist arrangements that drove Greece into bankruptcy.

On the governance and supervision side TEKA’s operating model replicates past failed experiences in most state enterprises from trains, electricity, air transport, etc. In particular, the law mandates that its Board of Directors (BOD) consists of six external members appointed by the Labor Minister or Deputy Minister from a list of twelve members recommended by an “inde-pendent” selection committee. Similarly, in charge of day-to-day operations is the Chief Executive Officer (CEO), who is also appointed by the Minister or Deputy Minister from a list of three that are recommended by a different “independent” selection committee. These provisions ignore the dire consequences of loss of control, arising from changes in management arrangements with the turnover of governments, a case of misplaced “political leadership”.

The law does not provide for the representation in the BOD of employees and employers who are the main source of the auxiliary pension contributions, leading to a governance structure inherently beset by the well-known problems of the principal-agent relationship. For, in this case, the principal, that is the Greek workers and employers, is absent, and the decisions are taken by the agent, that is a select group of elected and unelected officials. By contrast, in mature Western type democracies that respect property rights, the representation of workers and employers in the governance of pension funds promotes individual responsibility, “class consensus” for the democratic pursuit of a common purpose, since those who decide on investments are the same as those who have direct interest in the results. On this account, it is quite likely that, if TEKA’s BOD and CEO are perceived as not acting in the public interest, the absence of the key stakeholders from the BOD may lead to a confrontational environment with low trust.

In conclusion, most likely, this reform, but not only, was driven more by “political cost” rather than efficiency considerations. In this case though, the results from TEKA’s operations will take long to emerge and, if they are as suboptimal as we expect, the losers will not be only the workers at a critical stage of their lives, but also the whole country. For this reason, we conclude that more than anything else this reform is a case of failed political leadership and it should be recon-sidered. For, if New Democracy wins in the coming elections, the current prime minster should be reminded that in history there have been few leaders who overcame the short-sighted and self-serving choices of their parties and made a difference for their countries, and many leaders who embraced the accounting of “political cost” and went down in history as examples to avoid.