ECONOMY

OECD stresses need for reforms

Greece’s economy was among the fastest growing in the OECD in the last decade but more reforms are needed to ensure its good performance is sustained in the years to come, the OECD said yesterday. The Organization for Economic Cooperation and Development (OECD) said in a report that it was particularly encouraging that Greece managed to sustain growth in the last two years despite efforts to shore up its public finances. «It is imperative to use this period of strong performance to tackle remaining weaknesses in product and labor markets and move fiscal policy further toward a sustainable position by vigorous continued consolidation and pension reform,» the report said. Last week the OECD forecast Greece’s economy will continue to expand at rates close to 4 percent this year and next, outpacing the eurozone, with less accommodative monetary conditions gradually slowing domestic demand growth. On the fiscal front, the report projected Greece’s budget deficit would shrink to about 2 percent of GDP this year. «Given strong economic growth and large future costs from population ageing, fiscal consolidation should continue, possibly at a more rapid pace than planned. Spending restraints and further efforts to broaden the tax base remain critical,» the OECD said. To ensure fiscal sustainability, Greece will need to implement wide-ranging reforms in the key areas of healthcare and the pension system, a challenge the government has said it plans to tackle in its next term. The report recommended that the minimum wages of newcomers to the labor market and those in areas of high unemployment be allowed to fall under those envisaged in collective pay pacts with employers. The partial subsidization of social security contributions from the state budget is proposed as an incentive for businesses to hire more staff. It also recommends a lowering of compensations for layoffs and a bolstering of part-time employment schemes. The country’s educational system is in need of improvements, particularly in the tertiary sector, with the licensing of private universities, the OECD said. «The greatest challenge facing Greece in the economic field is that of the pension system,» OECD Secretary-General Angel Gurria said at a presentation of the report. Pensions targeted Reforms in the pension system would have to include changes in the way they are calculated, in order to take into account the total number of an employee’s working years, and thus encourage people to stay at work beyond the retirement age. This would also have the effect of lowering the amount of the pension in relation to the last salary. The OECD also recommended a re-examination of the extent of invalidity pensions and of the list of the so-called health-hazardous occupations which enjoy advantages compared to the rest. Gurria said retirement ages would have to be adjusted upward, in line with the rising average life expectancy. He noted that Greece has the highest percentage of people in employment in the 25-54 age bracket among all OECD members. The government has said it has no plans to raise the retirement age. Deputy Labor and Social Security Minister Gerasimos Giakoumatos appeared anxious to stress that the report would have no serious impact on government policy. «Mr Gurria was entitled to say what he said. After all, he pays no taxes.»