Yannis Stournaras: Government’s social security reforms are in the right direction

13 January 2016
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The government’s proposals on social security reforms are moving in the right direction, Bank of Greece (BoG) governor Yannis Stournaras late on Tuesday said in an interview with Skai TV, adding that he is now in open communication with the Finance ministry and Prime Minister Alexis Tsipras.

The proposed reforms are serious as they improve the condition in the medium term and reduces the cost of the social security system as of 2018. However, he expressed reservations about the transition period until 2018. As he mentioned, “the problem lies in the three years between now and 2018. For three years, the government has decided not to cut pensions and increase social security contributions. However, experience has shown that the increase in contributions is worse than spending cuts. That’s where we should found a golden mean”.

He argued that the social security reform is necessary, as from 2010 and onwards macroeconomic conditions have deteriorated. Despite the cuts, the major pension cuts, pensions as a percentage of national income, are well above the European average.

Stournaras did not rule out the possibility of a new Grexit danger, but he was optimistic, saying, “if we keep our promises, there is no way that this will be put on the table again. And if it is set on the table, the vast majority would be against it and in the Eurozone, the Eurogroup and the Eurosystem.”

BOG governor estimated that the impact of the capital controls on the real economy will be considerably less than initially estimated. While the recession was initially estimated at 2.5 percent, it now seems to be around 0-0.5 percent. Stournaras estimated that capital controls will be probably lifted within the year provided that there is a positive evaluation of the Greek program.

Referring to the negotiations with the creditors from 2010 onwards, he admitted that mistakes have been made from both sides.

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