By 2014, Greece must reduce its expenditure on social security by 3% of GDP or 6.3 billion euro. This was announced a day after the arrival of the technical group of the supervisory Troika in Athens. It has undertaken to draw up by June 2012 a precise programme for the restructuring of social policy in Greece, so that the social security system of the country fits in the narrow sleeve of the economic crisis.
Despite the cuts in pensions and allowances, Greek pension insurance funds still have serious deficits. According to the data for the first two months of this year, the insurance funds in Greece have already used 27% of the budget funds allocated to them. The largest Social Security Institute IKA had already consumed 64% of its annual state subsidy by the end of February 2012. The insurance fund of farmers has spent 25%, while the funds of self-employed and employees in local government organizations have used 35% of the amount from the state applicable to them. These data make it clear that Greece will not get away without further cuts in pensions and social benefits.
The recession and increased unemployment on the other hand only contribute to the deterioration of the Greek social security funds. So far, the deviation between planned and collected revenues from social security is six billion, which calls into question the survival of pension funds. The supervisory Troika of the International Monetary Fund, the European Central Bank and the European Commission has assigned two technical working groups to address the issue of sustainable cost cutting. One of the groups is working in the Court and has addressed the spending of central government. The other one involves mainly members of the International Monetary Fund and the task force group of Horst Reichenbach from the European Commission, which will release by the end of the week an analysis of the current costs and necessary cuts.
The last report of the Fund on the state of the Greek economy from the end of last year indicated that the country will not get away without further cuts in pensions. It says that the recession will lead to an increased non-payment of health and retirement contributions and high social security costs. By 2015, they will increase to 0.6% of GDP, which is a significantly higher rate than the European average, according to the report. To correct the situation, an immediate and bolder reduction of high and medium-sized pensions is necessary rather than a consistent cut of all pensions. This will lead to a more equitable distribution of the burden of fiscal consolidation.
The Greek economy cannot be recovered only through cuts in social security funds and now comes the turn of the administrative reform. The government should cut spending between 1% - 3% of GDP by dismissing 15,000 civil servants this year and closing about 100 inefficient public enterprises and organizations as well as many departments and offices of various ministries. Social benefits will also be cut and as a result, the country will save 2.1 billion euro or about 1% of GDP by 2014. Weak links in the budget remain health care and local government organizations. Since the beginning of the year, public hospitals have already spent over 1.5 billion euro and municipalities are unable to operate after the government has cut their funding by about 500 million euro.
Meanwhile, rules in private social security have changed to make it more attractive for citizens as a way of providing additional income later. The draft, which is prepared by the government provides for a simple procedure for the "Life" contracts. The economic crisis and lack of liquidity have forced many people to prematurely terminate their private pension programmes, which has brought a significant loss to the insured. The changes cancel the acquisition costs or in other words, cancel the penalty for early termination of the insurance contract. These costs can reach the value of contributions paid for two years. From now on, the money will be paid back to the citizens, who decide to terminate their insurance contract with the insurance company.
The system in effect to date did not allow privately insured people to terminate their private security contracts in the first three years of the ten-year insurance period. In the case that the people had to do so for some reason, they received a minimum amount of the contributions or nothing depending on the terms in their contract. The new changes entitle the people to terminate their contracts with the insurers even in the first year at a small loss for them. An important addition to the bill to reform private insurance is the right of equal access to the services of private insurers for disadvantaged people.