Pension funds have cost an extra 6.6 bln euros

The national budget has been forced to cover a social security system shortfall of no less than 6.6 billion euros in the last four years. If this situation continues it will certainly lead to even greater problems for the country’s economy, which is why Greece’s official creditors are insisting that the changes to the system included in the bailout agreement be carried out in full.

The amount is almost four times the value of the fiscal measures (1.7 billion euros) that the creditors are demanding from Athens for the 2015 budget to meet its targets. However, had the funding targets set for the social security funds been met in the last few years, there would not have been any fiscal problem today.

The funds sank the state budget in 2011, when they required an additional injection of 4.6 billion euros. Even this year, after a series of measures have already been put into effect, the social security funds still managed to create a hole of 462 million euros in the public coffers.

It is therefore clear that the government will have to ensure the sustainability of the system, as history to date has shown that every year the budget for the sector falls short and the Finance Ministry is forced to commit resources from other areas in order to plug the gaps or otherwise resort to the use of contingency reserves.

The ministry aims to put an end to this next year by making sure the needs of the social security funds are contained to the financing of the budget passed by Parliament. The plan is for the funding to reach up to 10.7 billion euros next year.

There are two reasons why sticking to that estimate will be vital, given how tight the 2015 budget will be and the pressure from the country’s creditors even before the year has even started.

The first is that the creditors insist there is a fiscal gap in next year’s budget. They argue that as things stand the target for a primary surplus amounting to 3 percent of gross domestic product will not be met, so they are calling for measures that Athens says are worth 1.7 billion euros. In fact the creditors are basing their fiscal gap estimates on their forecast that the social security system’s spending needs have been underestimated.

The second reason concerns the climate of uncertainty created, which is putting the achievement of the forecast rate of economic growth and therefore public revenues in jeopardy. The possibility of early general elections has put investors off bringing their funds to Greece for now. It is also certain that elections would see the state mechanism freeze, with obvious consequences not only on the economy in general but also tax revenues and inspections.

Even after the elections – if indeed they do take place next month – the inspection by the country’s creditors will still be pending, a factor that has always amounted to an obstacle to economic growth. Furthermore, the marginal liquidity of the state, until the inspection is successfully completed and the outstanding bailout installments are disbursed, will certainly affect the real economy, so the chances of strict adherence to the provisions of the 2015 budget are particularly slim.