Economists fret as Italian politicians promise to scrap pension cuts

* Pension reform helped calm markets during debt crisis

* Raises retirement age as life expectancy rises

* Government has exempted some categories

* Popular parties vow to repeal it after vote

By Gavin Jones

ROME, Nov 29 (Reuters) - Many of Italy’s leading politicians are promising more money for pensioners after elections next year, campaigning to undo reforms that economists say stabilised the country’s finances at the height of the euro zone debt crisis six years ago.

Italy still spends more than 16 percent of its GDP on state pensions, the second highest percentage in Europe after Greece, despite a package of deep cuts imposed by a government of technocrats in 2011 that helped halt a sell-off of its bonds.

The reform, named after then-Welfare Minister Elsa Fornero, was never fully accepted by Italians. It raised the retirement age and requires further rises to be phased in over time, with the next hike -- to 67 years from 66 years and 5 months -- due to take place on Jan. 1, 2019.

But politicians from right-wing and anti-establishment parties expected to be among the leaders after an election in May next year say they want to repeal the reform, blocking future cuts and undoing those that have already taken place.

Economists say such a move could be a disaster for state finances. Italy’s ratio of debt to GDP is also the second highest in the European Union after Greece.

“If they undo the pension reform it will throw into doubt the sustainability of Italy’s pension system and its public finances in general,” said Lorenzo Codogno, head of LC Macro Advisors and former chief economist at the Italian Treasury.

Tito Boeri, the head of state pensions agency INPS, told Reuters on Wednesday that net emigration and a falling birth rate meant it would be hard to fund the pension system over the next 30 years, even if current legislation is left untouched.

“I am reading about proposals from the parties (on pensions) that would cost billions and billions of euros, but we face very serious problems,” he said.

The centre-left government has so far resisted calls from senior officials in the ruling Democratic Party (PD) to scrap the 2019 increase in the retirement age.

However, under trade union pressure, it recently exempted 15 labour categories with “onerous” jobs, ranging from midwives and nursery school teachers to cleaners and lorry drivers.

That was not enough for the largest trade union, the CGIL, which has called for a day of street protests on Saturday, and it may be only a foretaste of what happens after the election.

“The Fornero law is a scandal,” says Carla Ruocco, a prominent lawmaker from the anti-establishment 5-Star Movement which leads in opinion polls. “It keeps people at work against their will, leads to an older labour force and makes it harder for young people to find work.”


Anti-immigrant Northern League leader Matteo Salvini, a core member of a centre-right coalition that looks set to win most parliamentary seats, says abolishing the Fornero Law should be “the first act” of the next government.

The law gradually raised the pension age for women to 65 in 2018 from 60 in 2011, to bring it more into line with the rules for men, and prescribed regular increases for both men and women thereafter, based on updated estimates of life expectancy.

It also tightened up the requirements for taking earlier retirement, which are now calculated on the basis of the number of years worked, rather than age.

While 5-Star and the Northern League want to bring down the retirement age, former prime minister Silvio Berlusconi, a coalition ally of Salvini, has promised to raise the pensions of those who have already retired. The 81-year-old media tycoon has pledged to double minimum pensions to 1,000 euros per month, at a cost of at least 4 billion euros ($4.74 billion) per year.

Politicians of all stripes say the pension system has now reached long-term sustainability, though some economists dispute this, saying trends on demographics and economic growth are more negative than those assumed under the Fornero reform.

Whatever the trends in the longer term, for the next 10 years Italy will continue to fork out far more on pensions than most of its partners, according to Eurostat projections.

This not only makes it harder for the country to reduce its huge public debt, but sucks resources from other, more productive uses such as investment in education and infrastructure. ($1 = 0.8443 euros) (Additional reporting by Francesca Piscioneri; Editing by Peter Graff)