ATHENS Pension reform demanded by foreign lenders may be unconstitutional, a Greek court ruled on Thursday, in a setback to the government's efforts to push through an austerity package for the near-bankrupt country.
The Court of Auditors, which vets Greek laws before they are submitted to parliament, said planned measures such as increasing the retirement age by two years to 67 and cutting pensions by 5 to 10 percent could be against the constitution.
The court said cutting pensions for a fifth consecutive time since the country's first bailout in May 2010 violated a string of constitutional provisions including the principles of individual dignity and equality before the law.
Greek lawmakers, who are expected to vote on the cuts next week, could choose to disregard the court's opinion. But ordinary Greeks could still cite the ruling to fight pension reform in court, making it difficult to implement even if legislated.
Concerns about the measures' constitutionality could also further weaken the fragile ruling coalition's resolve, which passed a key privatization bill by a razor-thin margin of two votes on Wednesday.
The government agreed to undertake the reforms to continue receiving aid from the International Monetary Fund and European Union that it needs to stay solvent, and a finance ministry official said it would push ahead.
"The opinion of the Court of Auditors is not binding for the Finance Ministry," a ministry official, who declined to be named, told Reuters. "It is not the first time the court has expressed reservations on draft bills."
Greek pensions have already been cut by more than a quarter since the country was first rescued by the EU and the IMF.
But as the country's finances deteriorate further and privatization revenues miss targets, Athens has sought even deeper pension cuts to reduce its deficit.
The government expects pension cuts to deliver about half of the 9.37 billion euro savings it is targeting for 2013, according to the country's 2013 budget plan that will be voted next week.
Those savings are part of a 13.5 billion euro austerity package Athens is close to agreeing a final deal on with its lenders, the first step to unlocking a new tranche of aid to avoid bankruptcy this month.
(Reporting by Harry Papachristou and George Georgiopoulos; Editing by Stephen Powell)