ECONOMY

Mass strikes planned against social security reforms this week

Trade union umbrella body GSEE and civil servants’ union ADEDY are to stage a one-day general strike tomorrow in protest at the government’s social security reform proposals. With transport workers and seamen joining in the strike, this will make it one of the most serious challenges to the government as it seeks to push through reforms which have been criticized as too insubstantial to make any impact and in all probability will end up burdening the system even more. Unionists will be hoping that their strong-arm tactics will have the same success as last year’s walkouts. Two general strikes last year forced the government to withdraw its proposals and led to the replacement of the labor minister. The government’s new proposals, unveiled in March, have been criticized as a piecemeal approach which does not address the country’s demographic problem. While unionists insist funding is the key, observers said the aging population demands a more radical approach such as cutting benefits or a later retirement age. Raising the replacement rate (ratio of pension to salary) and increasing the minimum pensions for private-sector workers entering the work force after 1992 would only jack up the actuarial deficit, they said. On the positive side, the proposals seek to align public-sector benefits with the private sector’s by lowering their pensions. «The State is just shifting the problem to the future. Instead of dealing with it, it has opted for an easier solution by funding the deficit,» said Christos Avramidis of Proton Investment Bank. The government’s funding proposals involve paying off its outstanding obligations to IKA, the principal social security fund, by contributing 1 percent of gross domestic product annually to the fund and issuing non-marketable, zero-coupon government bonds to help IKA build up a reserve fund to cover future liabilities. Avramidis said linking GDP growth to IKA funding could have repercussions on Greece’s efforts to bring down its public debt. Greece is committed to reducing its public debt to 97.3 percent of GDP this year and to 60 percent by the end of the decade. With Eurostat, the EU statistics office, recently outlawing revenues from the issue of privatization certificates for debt-reduction purposes, the government could have an uphill battle sticking to its goal. Eurostat’s ruling jacked up the debt-to-GDP ratio last year to 101.7 percent from 99.7 percent. The challenge facing the government would be how much of its budget surplus would go toward debt reduction and how much toward social security funding, said Avramidis. «If Greece has GDP growth of 1.2 percent, in effect only 0.2 percent would be used to pay off debt as 1 percent would go to IKA,» he said. The government’s inability to look the problem in the face has as much to do with the unions’ aggressive tactics as the opposition parties’ antagonistic stand. «No one is prepared to take a long-term view of the issue,» said an observer. «It seems that unionists are not interested in what their children will be facing. As for the opposition parties, the short-term political agenda is taking priority over the social security issue.» Despite strong opposition, the government is expected to pass the legislation on social security reforms this week based on its majority. Greece’s social security problem is one of the most serious in the EU. Unfunded liabilities are estimated at 300 percent of GDP, the highest in the EU, and the current deficit at 4.8 percent of GDP is projected to double to 9.1 percent in 2025. Delays in implementing fundamental reforms could have an adverse impact on Greece’s sovereign credit rating and elevate its borrowing costs, Miranda Xafa of Schroder Salomon Smith Barney said in a research note. Because of the new BIS rules on bank capital adequacy in 2005, «Greece needs to be upgraded two notches to AA- by then to avoid losing the zero-risk weighting that Greek bonds now enjoy under existing BIS rules,» she said.