June 25, 2010 / 9:41 AM / in 9 years

UPDATE 4-Greek government agrees radical pension overhaul

* PM says Greece needs reform to be able to afford pensions

* Most Greeks oppose reform, unions to strike June 29

* EU Commission welcomes overhaul: says respects aid terms

(Adds EU Commission welcoming overhaul)

By Ingrid Melander and Lefteris Papadimas

ATHENS, June 25 (Reuters) - The Greek government agreed on Friday the most radical shake-up of its pension system in decades to avert bankruptcy and satisfy foreign lenders despite fierce opposition at home.

The reform cuts benefits, curbs widespread early retirement, increases the number of contribution years from 35-37 to 40 and raises women’s retirement age from 60 to match men on 65.

“We inherited a pension system which had collapsed and we are fixing it,” Labour Minister Andreas Loverdos told a news conference after the cabinet approved the cuts. “It is our responsibility to save the country from bankruptcy.” The ruling socialists face a battle over the reforms, agreed as part of a 110 billion euro ($147.6 billion) emergency loan package from the EU and IMF. Most voters oppose the reforms and a strike on June 29 will gauge the strength of public discontent as lawmakers start debating the bill.

“The draft pension bill ... is slaughtering fundamental pension rights,” public sector union ADEDY said in a statement.

By contrast, the EU Commision in Brussels praised the overhaul as respecting the loan deal.

“We welcome it as a major step towards improving the sustainability of public finances,” spokesman Amadeu Altafaj Tardio said.

The socialist party has 157 of 300 seats in parliament and the reform is likely to pass despite some criticism from its ranks.

Analysts see the Greek pension reform as a test case. It goes beyond tax increases and public wage cuts to tackle a sector which epitomises many of the woes that have caused the country’s downfall, including tax evasion, red tape, selective privileges and delayed reforms.

DEEP CHANGES

Greece must adopt the reform by the end of September under the terms of the EU and IMF bailout. Loverdos said passing the law would not be easy but he was certain it eventually would be adopted.

Asked if the bill respected the EU/IMF conditions after weeks of difficult talks, he told Reuters: “Yes.”

Greece needed the reform to be able to pay pensions, Prime Minister George Papandreou said. “Fiscal adjustment is the tip of the iceberg, we need deep changes,” he told lawmakers before the cabinet meeting.

The European Commission had forecast that Greece’s bureaucratic pension system’s costs would explode to 24 percent of GDP by mid-century, the highest in the euro zone, if the system were left unchanged. “With the changes in the pension system ... spending (on pensions) will reach 15.5 percent of GDP in 2060 from 12.5 percent of GDP now,” Loverdos told reporters.

The pension bill also incorporates clauses to reform labour rules, after lawmakers protested against plans to push them through with a presidential decree. The rules will make it easier and cheaper to fire workers and allow firms to pay young first hires less than the minimum wage.

Analysts welcomed the reform.

“If both (the pension and labour) laws are passed in parliament in the next few days and completed by September, we’ll have in a few months the progress that Greece did not have in the previous 30 years,” economist Nikos Magginas, at National Bank of Greece, said.

Greece held long and difficult talks with the EU and IMF on the details of the reform. In the first sign of glitches over the EU/IMF blueprint, the Labour Minister openly called for the re-negotiation of some key targets and the European Commission sent Athens a letter to remind it to stick to the plan.

Additional reporting by Tatiana Fragou, George Georgiopoulos, Angeliki Koutantou and Alister Doyle; writing by Ingrid Melander; editing by Michael Roddy

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