IMF: Tackle pensions now
The social security system’s financing needs threaten to overwhelm the Greek economy after 2010 if reforms are not urgently implemented, the International Monetary Fund (IMF) warns in a still-unpublished report. The report, expected to be officially published in the coming days, warns that demographics, specifically the increase in the number of pensioners relative to persons of working age due to low fertility rates, will begin to put a squeeze on the Greek economy beginning in 2010. This is much earlier than other forecasts. The previous, Socialist government, forced to present a compromise social security reform bill in 2002 due to opposition from unions and other political parties, had claimed that it had ensured the financing of the system through 2032. Later, the General Confederation of Greek Labor (GSEE), relying on studies by its own affiliated Labor Institute, said problems in financing the system might arise after 2025. The ruling New Democracy party, which had sided with the unions in opposing the Socialists’ attempts at reform, has not offered its own assessment but Economy and Finance Minister Giorgos Alogoskoufis has implicitly acknowledge the need for an earlier reform by calling for a «prolonged» dialogue on the subject. The government’s aim, however, is to delay reform, and avoid the political cost, as much as possible. The IMF report praises the government for its efforts to achieve fiscal stability and reform the public sector, but adds that an extra effort must be made if Greece is to lower the 2006 budget deficit to below 3 percent of GDP. On the question of public utilities, it says the government is on the right track, adding that the final aim should be the full privatization of all utilities. Besides social security reform, the main challenges for the Greek economy are further fiscal tightening and structural reform of the goods and labor markets. If carried through, «Greece will be in a better position to converge with Western European productivity and income levels and take advantage of its neighbors’ economic growth,» the report says.
