Some of the Reasons Greece Got Into Its Economic Crisis

An expensive pension system and rampant tax evasion are some of the factors.

ByABC News
June 30, 2015, 3:13 PM

— -- If the news about Greece's debt crisis has left you wondering about how the country could have gotten itself into such an economic pickle, one thing is clear -- it didn't happen overnight, and there's no single cause.

The roots of the crisis run deep with many contributing factors, including the highest pension spending in the European Union. But there are also political and cultural factors.

"The moment of truth for Greece and for the euro zone approaches," said Hari Tsoukas, who was born in Karpenissi, Greece, and is a professor of organization studies at Warwick Business School in the U.K.

Hours before a midnight deadline tonight when Greece will default on a $1.7 billion payment to the International Monetary Fund, German Chancellor Angela Merkel said there will be no new negotiations about Greece's bailout.

Here are some of the changes Greek workers have experienced and will face head-on with austerity measures imposed by creditors from the last five years:

1. Inefficient Pension System

Greece spent 17.5 percent of its economic output on pension payments, the most in the E.U., according to the most recent Eurostat data from 2012. But with existing cuts, that figure has fallen to 16 percent, Reuters reported. Italy, France and Austria each spent about 15 percent of their GDP on pensions in 2012, according to Eurostat.

Greece's struggle to pay pensioners is even more evident this week with banks closed and Greeks unable to withdraw more than 60 euros from ATMs.

Not only is the pension system pricey, but it is highly fragmented and political, Tsoukas told ABC News from Athens. Trade unions, such as those that may represent the police or military, can exert political power and reap better pension benefits.

"Not all Greek pensions are generous," Tsoukas said. "This is one of the things I find bizarre."

His elderly mother receives a farmer's pension of 600 euros a month while his father, who ran a shop, receives a small business pension of 700 euros, cut 40 percent compared to what they received five years ago.

"It’s impossible to further reduce that small pension," Tsoukas said.

A woman holds a flyer which reads "Greece says NO" during a mass anti-EU rally in Athens on June 29,2015.

2. Benefits

Government employees have had some of the best worker benefits in Greece. For example, an unmarried daughter used to receive her dead father's pension, Tsoukas said, though that specific practice stopped after the bailout agreement was made in 2010.

Some workers received atypical bonuses for showing up to work on time, but these bonuses were paid so workers were not paid higher pensionable salary. Either way, it's a practice that austerity measures eliminated.

"These were bizarre bonuses with bizarre names and misnomers, not because people regularly attended work," Tsoukas said. "It was a cheap way to give people more money without necessarily encumbering itself with paying higher pensions."

Greek Prime Minister Alexis Tsipras is pictured during a parliamentary session in Athens, Greece on June 28, 2015.

3. Early Retirement

In 2013, Greece's retirement age was raised by two years to 67. According to government data, however, the average Greek man retires at 63 and the average woman at 59.

And some police and military workers have retired as early as age 40 or 45, Tsoukas said.

There are also unique benefits for some workers. Female employees of state-owned banks with children under 18 could retire as early 43, he said.

"These kinds of exemptions were made -- particularly young mothers with young children who were able to take advantage of this and work 15 or 20 years for a reduced pension," he said.

4. High Unemployment and Work Culture Issues

A man who gave his first name as Apostolis, 39, who works in a store in Athens selling organic products, told ABC News he's concerned that his boss does not have the money to pay him tomorrow. Still, he said, "It's not too serious. First of all I could go a bit earlier in the evening and go to the beach to surf. Secondly, I will have a ready excuse not to pay electricity and water bills that have just arrived home."

The unemployment rate is 25.6 percent in Greece.

John Challenger, CEO of global outplacement and executive coaching consultancy Challenger, Gray and Christmas, told ABC News that entrepreneurism is in dire straits in Greece. He said he's not surprised by the shop worker's response.

"It’s kind of endemic and built into that culture that if I don’t get paid, I can’t pay you. It’s not the right foundation culturally for the economy to come out of this tailspin," Challenger said.

Carrying banners calling for a "NO" vote in the forthcoming referendum on bailout conditions set by the country's creditors, protesters gather in front of the Greek parliament in Athens on June 29, 2015.

5. Tax Evasion

The country has struggled to collect taxes from citizens, especially the wealthy, which is a problem when Greece's national debt is 177 percent of its GDP. Italy’s debt is about 133 percent of its GDP as of 2014, according to Eurostat. Greece's far-left government has said it wants to target wealthy tax evaders, but creating a more equitable tax system has been challenging.

ABC News' Dragana Jovanovic contributed to this report.