Social security reform delays could derail eurozone
Greece's delay in reforming its ailing state social security system could jeopardize budget and debt goals set out in the eurozone stability and growth program, Schroder Salomon Smith Barney consultant Miranda Xafa said in a research note yesterday. Calling the issue a social security time bomb, she said the country could also face higher borrowing costs as procrastination reduces the scope for upgrades in Greece's sovereign credit rating.
"If the financing gap of the social security system were allowed to grow, Greece would find it increasingly difficult to fulfill its obligations under the EU stability pact to generate budget surplus and reduce public debt to 60 percent of gross domestic product by 2010," Xafa explained. She also pointed to the danger of a dilution of the future rights of existing workers as reform delays diminish opportunities for the adoption of grandfather clauses to protect such rights.
In the 2000-2004 stability and growth program, the government noted that social security reforms would form part of its agenda this year with measures to be introduced in the first half of the year. The schedule, however, has been pushed back indefinitely following strong labor opposition to Labor Minister Tassos Yiannitsis's proposals.
Presented last month, the minister's suggestions were based on the UK Government Actuaries Department's report, the cornerstone of which was a standard retirement age of 65 for men and women, whose payable pension would be calculated on the basis of the average, inflation-adjusted wage over the last 10 years of work, and also subject to a ceiling of 60 percent of salary for basic pensions and 20 percent of salary for supplementary pensions. In addition, the more than 200 social security funds would be merged into eight groups.
The trade union federation GSEE, however, has insisted that the source of the social security problems lies in funding. It has suggested additional resources could come from taxing the rich, catching delinquent contributors and getting more illegal immigrants to sign up.
Yiannitsis is due to meet with GSEE leaders tomorrow. But trade unionists insist the meeting will not constitute a social dialogue until the government guarantees funding for the system. The minister will subsequently meet with civil servants' union on Thursday.
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