Radical pension reforms in Greece, which prime minister Costas Karamanlis prioritised in his campaign for a second period in office last year, has proved to be the combustive substance that set an entire society ablaze.

Greece’s two largest unions, private-sector GSEE and public-sector ADEDY, have staged three general strikes since December 2007 and dozens of sector-specific strikes affecting millions of people. At times these blocked all air and marine traffic and left Athens refuse uncollected for weeks on end.

Public anger is also reflected in polls. Local polling company VPRC said 71 per cent of Greeks opposed changes to pension reforms. MRB polling agency, on the other hand, said the figure was nearer 58 per cent. According to the VPRC poll, 69 per cent of respondents also supported the strike. Greek union leaders were quoted by Agence France Presse as saying that Greece had not witnessed such large-scale strikes since democracy was restored in 1974.

The staunch resistance came alongside ongoing criticism that managers of the 130-odd pension funds were mainly political appointees. It also arose against the background of a pension fund-related corruption row that crippled the Karamanlis’ New Democracy (ND) government towards the end of its first term in office. In February 2007, it emerged that a pension fund manager, also the son of the ND finance chief, purchased a 280 million euro structured bond – a risky investment instrument – at an inflated price. It was rumoured that he and his colleagues received kickbacks to perform the transaction.

The problem was addressed by sacking the manager in question and performing an audit of all the country’s social security and pension funds. Nonetheless, it undermined public confidence in the government’s handling of the pensions issue. Despite broad public discontent, parliament approved the final reading of the pension reform package on March 21. Commentators believe it did so because improvement was essential.

The European Commission (EC) has twice warned the Greek government to address its public deficit, caused largely by the debt-laden pension system. Until last year, Greece was on the EC’s watch on account of its excessive public deficit.

“The bill aims to rationalise the social security system and secure its long-term viability,” Greek finance minister George Alogoskoufis was quoted by the Associated Press as saying.

Greek experts argue that if the pay-as-you-go pension system remains as it is, it will collapse in 15 years’ time. Aggregate deficits of the pension funds could reach 400 billion euro, twice the country’s GDP.

A number of factors also predicate urgent reform. Despite the Greek economy’s continued development at a pace above the EU average – four per cent – the country’s birth rate is one of the EU’s lowest. The country’s ageing population is also proving an acute strain. Hence the need to outline measures to keep the active workforce at least on a par with present levels.

In addition, only a few of the state-run pension funds operating 33 billion euro in assets have been managed by professionals.

A report from the Organisation for Economic Co-operation and Development sees Greece as the country with the most comprehensive mandatory pension schemes in the EU. On retirement, Greeks receive 96 per cent of their final salary.

Mismanagement, wastefulness and fragmentation are perceived as the main drawbacks of the existing system. Rectifying those problems underpins the pension reform. According to the 400-page pension reform bill, the Greek government wants to cut the number of existing pension funds down to 13. The government expects the merger will save 750 million euro in operational costs. Labour unions estimate a figure of 320 million euro.

The government also seeks to raise the retirement age for both men and women to fight the ageing problem. Currently, the retirement age for men is 65 and 60 for women.
The bill also offers incentives for people to keep working after they reach retirement age. It also precludes many special pensions and scraps early retirement schemes, a move particularly affecting women. Currently, women are entitled to early retirement with full benefits.

The sweeping protests, which persisted after the bill’s passage in parliament, have prompted the Greek government to review the draft legislation. Even if amended, however, reforms look set to  be implemented, if only because of EC pressure.