Defusing the social security time bomb
Over the last 30 years, labor unionists and the popular press have regularly published articles sounding the warning bell that the country’s major social insurance funds, including the biggest, the Social Insurance Foundation (IKA), are verging on collapse and will not be able to pay out their pensions. Much of this is scaremongering that often has a party-political inspiration, aiming simply at frightening pensioners and turning them against the government that happens to be in power, rather than elucidating the economy’s major problem – which is, indeed, the solvency of pension funds. These unionists, who mostly belong to the federation of social insurance fund employees, would do well to remember that even in 1985, when the economy was on the verge of collapse and foreign exchange reserves had dwindled to about $200,000, pensions were paid in full. The same is bound to happen now, despite the intense pressure to cut the huge deficit in public finances. Deputy Finance Minister Petros Doukas, whom I asked about it, assured me that no pensioner will be deprived of his pension. He also stressed that the government intends to complete within its current term the dialogue on this most serious problem with all parties concerned, so that with moderate and well-aimed corrective measures after 2008, the pension system will become sounder and more reliable. But I might just ask the dangermongers: Is it not true that without the reforms of 1990-1993, the system would be in real trouble and the disbursement of pensions would be in doubt? I have heard ministers of all governments since 1994 admit that that reform prolonged the life of the social insurance system by at least 10 years. So, we had better expedite a bold reform now that will give it a further lease of life, without bringing the economy to its knees. Of course, this will mean that the various pension funds will continue being subsidized by the state budget. Given the continuously worsening ratio of working people to pensioners, no one believes that the system will be able to survive by itself; budget contributions will remain necessary, but only up to a point – and not to the detriment of the rest of the economy. According to forecasts of the Organization for Economic Cooperation and Development (OECD), public spending on pensions will remain at around 12.6 percent of gross domestic product (GDP) to the end of this decade, but will rise to 15.4 percent by 2020, 19.6 percent by 2030, 23.8 percent by 2040 and 24.8 percent by 2050. These are truly staggering projections; a country cannot very well survive when it has to spend more than half of its budget on pensions. We will be an economy without a future. We may remember Andreas Papandreou’s famous saying, «The country will either eliminate its debt or the debt will eliminate the country.» Greek public debt is now 210 billion euros, or 115 percent of GDP. If this is breathtaking, why should we not be panicked by the actuarial deficit of the social insurance system, which is estimated between 260 and 300 billion euros? As Economy Minister Giorgos Alogoskoufis said the other day, this time bomb must be defused in time.
