There is no doubt that social security reform is necessary in a country such as Greece, characterized as it is by adverse demographics, a large public debt-to-GDP ratio and growing deficits. Yet the angry reaction by the majority of the Greek political establishment and general public to a proposal for reform included in the economic program of the conservative New Democracy party showed two things: First, that the majority of the population is not yet ready to accept any painful measures to secure the viability of the social security system in the long run; and, second, most politicians are fully aware of the immense political cost these reforms will entail and are unwilling to assume it over the next few years. If the seemingly negative reaction by the majority of the Greek public to the reform proposals – implying an extension of the retirement age and a cut in pensions – reveals a lack of understanding of the dire straits in which the pay-as-you-go pension system is bound to find itself down the road, the stance of the country’s political elite shows its unwillingness to direct the public on a very important issue. This is a worrisome combination that threatens to undermine the country’s well-being in the medium to long run. The Greek pension system suffers from a serious imbalance. The liabilities of the system are increasing at a faster rate than its assets. In other words, the first product, defined by the multiplication of the number of pensioners times the average pension, exceeds the second product, defined by the number of employees times the average contribution to the pension system. This imbalance is getting worse and worse as the years go by and nothing is done, as the population is aging and the improvement in employment is slow. A number of politicians and others recognize in private the need for reform measures, including painful ones, but almost no one is willing to say so in public. Less than a year ago, central bank Governor Nicholas Garganas caused a stir by advocating the reform of the country’s pension system, proposing that the retirement age be lifted. This proposal is being widely regarded by many pundits as the «softer» of a set of painful measures for immediate effect, as it is compatible with an increase in life expectancy. Other painful measures include reducing pensions and/or raising social contributions, something that is not compatible with the goal of increasing employment. As expected, the combination of adverse demographics, the high pension expenditure and the high public debt-to-GDP ratio have become a focal point for many analysts and economists from international organizations, credit agencies and foreign banks. The dynamics of the Greek public pay-as-you-go system are widely considered among the worst, if not the worst, in the European Union and this has been expressed in a couple of studies over the last few years. A study, produced by the Center for Strategic International Studies in cooperation with Citigroup Asset Management showed that Greece’s public pension expenditure will reach 19 percent of GDP by 2050, while the total on pension and health spending will hit 44 percent by then. The figures for Spain stood at 16 and 37 percent of GDP respectively. In an older report, commissioned by the Greek government and completed by the British Government Actuaries in 2001, the deficit of the pension system was estimated to rise to 9.1 percent of GDP in 2025 and 16.8 percent of GDP in 2050 from around 4.8 percent at end-2002, assuming no reform was undertaken. The Socialist government passed legislation in 2002 that called for the consolidation of numerous pension funds for salaried workers into IKA, the country’s main pension fund, by 2008 and further financing of the latter. According to the plan, the State agreed that the budget will finance IKA’s deficit, providing funds amounting to 1.0 percent of GDP each year starting last year through 2032. The State is also to pay IKA the sum of 9.6 billion euros to finance past state obligations to IKA as well as to cover the same pension fund’s obligations to other state entities. In addition, the State will also build up a reserve fund for IKA to help meet future obligations by issuing non-marketable, zero-coupon bonds, offering a real return of 3.0 percent, averaging 1.0 billion euros per year from 2008 onward. These bonds will start maturing in 2023. The same law also called for the consolidation of associated supplementary funds into a single fund in a bid to cut administrative expenses. Finance Minister Nikos Christodoulakis argues that this reform has solved the problem for decades to come but few appear to share his optimistic view. This, of course, does not mean that the enacted law did not ensure greater transparency in the funding of IKA by the State or did not attempt to rationalize the current cumbersome system of pension funds. It did not, however, address the rising pension expenditure as a percentage of GDP, which is regarded as the greatest threat to the system in the medium to long term. This is turn threatens the country’s actual and potential GDP growth rates, making it more difficult for Greece to finance IKA’s deficit by committing funds amounting to 1.0 percent of GDP through 2032. As Moritz Kraemer, a director of sovereign ratings at S&P pointed out once, «Growth is fueled by young people and not pensioners.» Despite all the hoopla surrounding the issue during a tough election campaign and the disagreements on the extent of the problem, no one says it is non-existent. Still, the vast majority of the Greek public appears to be unaware of the consequences, though one senses some may suspect the pension system is not in good health. The politicians, on the other hand, are happy to procrastinate change, so that somebody else will have to deal with this politically hot potato, while in doing so, they make sure the pension system is going to be in worse shape when the moment of truth arrives. This underscores both a lack of education on pension reform as far as the general public is concerned as well as a lack of leadership on the part of politicians. This combination could prove devastating for the health of the system and the Greek economy as a whole a few years down the road.