Opinion of the European Central Bank of 19 March 2008 on a draft law concerning the reform of the Greek social security system (CON/2008/13)
Date: 2008-03-19
Institutions: European Central Bank
Subjects: Greece, administrative reform, national law, pension scheme, social security legislation

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 19 March 2008 

on a draft law concerning the reform of the Greek social security system 

(CON/2008/13) 

Introduction and legal basis 

On  6  March  2008  a  draft  law  entitled  ‘Administrative  and  organisational  reform  of  the  social  security 

systems and other social security provisions’ (hereinafter the ‘draft law’) was submitted for adoption to 

the  Greek  Parliament  by  the  Minister  for  Employment  and  Social  Protection.  As  part  of  the  legislative 

procedure,  the  competent  Permanent  Committee  for  Social  Affairs  convened  on  11,  12  and 

13 March 2008  and  adopted  the  draft  law  by  a  majority  of  its  members  including  amendments  and 

improvements, thereafter proposing it for enactment by the Parliament.  

The competence of the European Central Bank (ECB) to deliver an opinion is based on Article 105(4) of 

the Treaty establishing the European Community and the third indent of Article 2(1) of Council Decision 

98/415/EC  of  29  June  1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities 
regarding  draft  legislative  provisions1,  as  the  draft  law  relates  to  a  national  central  bank  (NCB).  In 

particular,  the  draft  law  introduces  a  number  of  provisions  that  could  affect  the  status  of  the  Bank  of 

Greece,  inter  alia  by  integrating  the  main  pension  fund  of  its  members  of  staff  (hereinafter  the  ‘BoG 

Pension Fund’) into a State-run fund, namely the IKA-ETAM.  

In the light of the above and considering the nature of the abovementioned provisions which could affect 

the status of the Bank of Greece as an independent authority, the ECB has decided to submit this own-

initiative opinion, with a view to assisting in the ongoing legislative procedure by commenting on specific 

provisions. 

In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central 

Bank, the Governing Council has adopted this opinion. 

1. 

Purpose of the draft law  

1.1  The  purpose  of  the  draft  law,  as  stated  in  its  explanatory  memorandum,  is  to  reform  the  social 

security  system,  especially  as  the  ratio  between  active  and  retired  employees  has  severely 

deteriorated,  entailing  the  creation  of  deficits  within  social  security  entities,  which  may  require 

1   

OJ L 189, 3.7.1998, p. 42. 

 
 
 
 
                                                 
subsidising by the State. 

1.2  The  draft  law  aims  at:  (i)  implementing  an  administrative  reform,  by  drastically  reducing  the 

existing high number of social security entities; (ii) adjusting specific social security arrangements 

that require a more efficient approach, increasing the sustainability of the pension system, inter alia 

by  providing  for  special  retirement  age,  providing  incentives  for  staying  in  service  and  by 

regulating  issues  relating  to  supplementary  retirement  schemes;  and  (iii)  introducing  institutional 

changes in the social security system. 

1.3  The  draft  law  is  structured  to  consist  of  a  Part  A  on  administrative  and  organisational  reform, 

basically  providing  for  the  integration  of  several  individual  entities,  including  the  BoG  Pension 

Fund, and a Part B on specific provisions and arrangements on social security. 

2. 

Description of the reform under the draft law  

2.1  According to the explanatory memorandum to the draft law, the basic principles of the envisaged 

social security reform are the following: (i) the public, redistributive and compulsory character of 

the social security system; (ii) a three-pillar structure, i.e. main and supplementary social security, 

occupational  social  security  (occupational  funds)  and  free  financing  (private  social  security); 

(iii) the  three  fundamental  parameters  of  the  system  (general  retirement  age  limits,  level  of 

pensions,  level  of  contributions),  with  ‘mature’  pension  rights  remaining  unaffected;  and  (iv)  the 

application of certain social security arrangements to persons insured before 1 January 1993, taking 
into account the general uniform rules pursuant to Law 2084/19922. 

2.2  

In  terms  of  the  administrative  reform  being  undertaken,  the  explanatory  memorandum  states  that 

today  public  social  security  in  Greece  is  provided  by  155  separate  entities.  In  order  to  limit  the 

resulting fragmentation and achieve economies of scale, to ensure capability for substantial control 

and  supervision, 

to  overcome  administrative  and  organisational  difficulties  and  reduce 

administrative and operational cost, the draft law proposes to consolidate funds or integrate entities 

in already existing social security organisations under specific terms and conditions. In this context 

the BoG Pension Fund is to be integrated into the State-run pension fund IKA-ETAM.   

2.3  Finally,  the  Greek  legislator  intervenes  in  some  specific  social  security  arrangements  pertaining, 

inter  alia,  to  retirement  age  limits  and  incentives  to  stay  in  service  for  a  longer  time,  taking  into 

account  increasing  life  expectancies,  as  well  as  to  supplementary  pensions.  Furthermore,  the 

legislator seeks to protect mothers’ rights, create a social security capital fund for solidarity among 

generations with the task of financing social security entities as from 1 January 2019 and introduce 

a social security registration number for all citizens.   

2  

Law on social security reform and other provisions (Government Gazette, Vol A/165). 

2 

 
 
                                                 
3. 

Economic analysis of the pension reform  

Greece is expected to experience a strong increase in age-related public spending, which will negatively 

affect  the  long-term  sustainability  of  public  finances.  Greece  is  therefore  in  the  group  of  high-risk 

countries in this respect. The EU Council opinion on the updated 2007 stability programme therefore calls 

for  reforms  to  the  Greek  pension  system.  Moreover,  in  the  absence  of  commonly  agreed  long-term 

projections of pension expenditures, the Greek authorities are urged to produce such projections as soon 

as  possible.  Taking  account  of  the  available  information  on  the  planned  pension  reform,  the  ECB 

welcomes the overall objective of the pension reform to be brought about by the draft law as it is intended 

to  improve  the  sustainability  of  the  Greek  pension  system  and  therefore  of  public  finances.  The  ECB 

understands that consolidating existing pension funds would also render long-term projections of pension 

expenditures easier, which would improve the transparency of Greek public finances and also support the 

assessment of the stability programme as required under the Stability and Growth Pact. 

4. 

Central bank independence  

4.1  Article 2(4) of the draft law states that the resources of the state-run IKA-ETAM will also include 

those of the entities being integrated, namely contributions of employers and employees, revenues 

from  social  resources,  property  revenues,  remuneration  of  capital  and  reserves  and  any  other 

revenue  of  such  entities.  This  Article  goes  beyond  a  mere  consolidation  and  restructuring  by 

introducing a requirement for the Bank of Greece to pay the amount of EUR 23 million annually 

into  the  IKA-ETAM  for  a  period  of  15  years  (i.e.  a  total  of  EUR  345  million),  such  amount 

corresponding to the Fund’s deficit as calculated on 31 December 1992. 

4.2  The  ECB  is  concerned  about  those  provisions  of  the  draft  law  that  oblige  the  Bank  of  Greece  to 

make  annual  contributions  to  the  state-run  IKA-ETAM,  which  may  undermine  the  Bank  of 

Greece’s financial independence. The ECB has consistently stated in its Convergence Reports that 

even if an NCB is fully independent from a functional, institutional and personal point of view, its 

overall  independence  would  be  jeopardised  if  it  could  not  autonomously  avail  itself  of  sufficient 
financial resources to fulfil its mandate3. It would be inconsistent with the Treaty for a member of 

the European System of Central Banks (ESCB) to be under a legal obligation to provide financial 

support, potentially by drawing on its own funds, for activities that are normally sponsored by the 
State4. 

4.3  The  ECB  therefore  recommends  that  the  new  rules  which  apply  to  the  Bank  of  Greece  should 

contain  sufficient  safeguards  to  ensure  that  the  Bank  of  Greece’s  ability  to  carry  out  its  tasks,  in 

3  

4  

ECB Convergence Report of May 2007, p. 19. See also ECB Opinion CON/2008/9 of 21 February 2008 at the request of 
the  German  Ministry  of  Finance  on  a  draft  law  amending  the  Law  on  the  Deutsche  Bundesbank  and  ECB  Opinion 
CON/2008/10  of  21  February  2008  at  the  request  of  the  Italian  Ministry  of  Economic  Affairs  and  Finance  on  some 
provisions of the Law on the State annual and pluriannual budget (2008 Budget Law). 
See  ECB  Opinion  CON/2003/27  of  2  December  2003  at  the  request  of  the  Austrian  Federal  Ministry  of  Finance  on  a 
draft Federal law on the National Foundation for Research, Technology and Development. 

3 

 
                                                 
particular ESCB-related tasks will not be affected. Such provisions should therefore be drafted in 

cooperation with the Bank of Greece.  

5.  Monetary financing aspects of the proposal 

5.1  The  IKA-ETAM  constitutes  a  body  governed  by  a  public  law  for  the  purposes  of  the  monetary 

financing prohibition in Article 101 of the Treaty.  First, Article 11 of Law 1846/1951 provides that 

the  Social  Insurance  Institute  (IKA)  is  a  legal  person  governed  by  public  law.  The  IKA  was 

renamed  the  IKA-ETAM,  integrating  a  number  of  pension  entities  as  part  of  the  social  security 
system  reform  undertaken  by  law5.  Second,  Governors  and  Presidents  of  Social  Security 

Organisations such as the IKA-ETAM are approved by a Parliamentary Committee after a proposal 

made by the Minister of Employment and Social Protection, following selection of a candidate by a 

Committee  composed  in  its  majority  of  public  sector  representatives  including  the  Governor  or 
Vice  Governor  of  the  Bank  of  Greece6.  It  is  further  noted  that,  pursuant  to  Article  5  of  the  draft 

law,  the  Governing  Committee  of  the  Office  in  charge  of  the  BoG  Pension  Fund,  after  its 

integration  in  the  IKA-ETAM,  will  be  composed  of  four  representatives:  two  public  sector 

officials, one representative of the insured persons and one representative of employers (Hellenic 

Banks  Association  or  Ethniki  Insurance  Company),  but  without  any  participation  of  a 

representative  of  the  Bank  of  Greece.  In  terms  of  financing  the  IKA-ETAM,  Article  2(8)  of  the 

draft law states that within six months from the integration, a special economic study to be tendered 

and  awarded by the Minister of Economy and Finance will be conducted for each individual entity 

and fund being integrated. In the cases where deficits are identified under this provision, the State 

will undertake to  meet the costs of such deficits. In other respects, the provisions of Article 4 of 

Law 3029/2002 will apply as regards the financing of the IKA-ETAM. 

5.2 

In  accordance  with  Article  237(d)  of  the  Treaty,  the  ECB  is  under  an  obligation  to  ensure  the 

NCBs’ compliance with the monetary financing prohibition. Based on the information available to 

the ECB, it would appear that the draft law contains provisions that might put the Bank of Greece 

in a position where national law requires it to conduct transactions that would constitute a breach of 

the monetary financing prohibition. More specifically, Article 2 of the draft law requires the Bank 

of Greece to pay an amount corresponding to the deficit of the BoG Pension Fund as determined on 

31 December 1992 (i.e. EUR 23 million), annually, for 15 years. Notwithstanding this requirement, 

the  ECB  understands  that  the  BoG  Pension  Fund  may  no  longer  face  any  solvency  deficit. 

Accordingly,  provisions  of  Article  2  could  be  understood  as  requiring  the  Bank  of  Greece  to 

finance a body governed by public law (i.e. the IKA-ETAM). Such requirement would be contrary 

to  Article  1(1)(b)(ii)  of  Council  Regulation  (EC)  No  3603/93  of  13  December  1993  specifying 

definitions  for  the  application  of  the  prohibitions  referred  to  in  Articles  104  and  104b  (1)  of  the 

5  
6  

By Article 5 of Law 3029/2002 on the reform of the social security system (Government Gazette, Vol A/160, 11.7.2002).   
See Article 134 of the draft law, which amends Article 36 of Law 3556/2007. 

4 

 
                                                 
Treaty7,  which  prohibits  any  financing  by  the  central  banks  of  public  sector  obligations  vis-à-vis 

third  parties.  If  the  draft  law  is  adopted,  the  BoG  Pension  Fund  will  be  integrated  into  the  IKA-

ETAM  and  the  Bank  of  Greece  will  have  no  control  or  influence  over  the  Fund’s  asset 

management.  Accordingly,  the  Bank  of  Greece  will  no  longer  be  in  a  position  to  ensure  the 

payment of pensions to its employees, which can no longer be considered to be a task of the Bank 

of Greece but rather a State task.   

6. 

Proposed changes to the current regime under the Bank of Greece’s statute 

6.1  The Bank of Greece’s statute stipulates the Bank’s duty to provide social security coverage for its 

staff.  In  this  context,  it  should  be  noted  that  the  Bank  of  Greece’s  statute  forms  part  of  an 

International Convention ratified by Law 3424/1927 and, as such, it has superior status relative to 

ordinary laws (acts of Parliament) in accordance with Article 28(1) of the Greek Constitution. In 

particular, the first sentence of Article 38(4) of the Bank of Greece’s statute establishes the Bank’s 

obligation not only to remunerate its current employees but also to pay pensions to its retired staff, 

under  terms  and  conditions  specified  by  decisions  of  its  General  Council  (subject  to  generally 

applicable  legislation).  This  obligation  is  further  confirmed  elsewhere  in  the  Bank  of  Greece’s 

statute, namely in Article 71(1), which mentions the Bank’s pension payments to its retired staff as 

a regular expenditure item deducted from its gross income when calculating net annual profit, and 

in  Article  74,  which  states  that,  in  the  event  of  dissolution  of  the  Bank,  the  Greek  State  ‘shall 

assume unimpaired full liability for obligations previously attaching to the Bank towards its serving 

and pensioned staff in respect of all their rights.’ 

6.2   Recent  Greek  legislation  has  confirmed  the  Bank  of  Greece’s  statutory  obligation  to  ensure  the 

payment of staff pensions. Thus, the BoG Pension Fund was exempted from the scope of Articles 5 

and  6  of  Law  3029/2002  pursuant  to  which  the  IKA  absorbed  the  individual  pension  funds  of 

commercial banks. Further, Article 18 of Law 3193/2003 explicitly reconfirmed that the payment 

of  staff  pensions  is  a  statutory  obligation  of  the  Bank  of  Greece  under  Articles  38  and  71  of  its 

statute.  This  provision  states  that  ‘the  Bank  of  Greece  shall  continue  to  fully  ensure,  by  any 

appropriate  means,  the  viability  of  the  relevant  Social  Security  Funds  and  the  social  security 

benefits payable to the Bank’s staff in accordance with the Charters of the Funds and the legislation 

in force’ and that, by exception from the single-fund scheme introduced for commercial banks, ‘the 

Bank  of  Greece  staff  funds  shall  operate  under  their  existing  legal  form  and  shall  remain 
independent […]’8.  

6.3 

In summary, therefore, the introduction of provisions in the draft law relating to the BoG Pension 

Fund  touches  upon  the  provisions  of  Articles  38,  71  and  74  of  the  Bank  of  Greece’s  statute. 

7  
8 

OJ L 332, 31.12.1993, p. 1. 
Articles 5 and 6 of Law 3029/2002 provided for the integration of a number of pension branches of various funds as part 
into the State-run IKA-ETAM and IKA-ETEAM with regard to main and auxiliary pensions, respectively. 

5 

 
                                                 
Pursuant  to  Article  7  of  that  statute,  any  amendment  thereof  is  subject  to  a  prescribed  procedure 

and  must  involve  specifically  defined  bodies  (decision  of  the  General  Meeting  of  the  Bank’s 

Shareholders ratified by an act of Parliament). It cannot take effect directly and immediately by the 

enactment of a new law alone. The Bank of Greece should therefore be involved in any legislative 

procedure possibly affecting its status. With a view to the principle of central bank independence, 

the ECB would like to point out that limiting the Bank of Greece’s role in this way is a potential 

tool to influence it unduly in fulfilling its tasks, thus limiting its independence. In this regard, it is 

useful to note that the ECB defines its staff policy autonomously and that this autonomy forms part 

of the ECB’s independence as guaranteed by Article 108 of the Treaty and Article 36 of the Statute 
of the European System of Central Banks and of the European Central Bank9. 

6.4 

In  the  light  of  the  above,  Article  1  of  the  draft  law  envisaging  the  integration  of  the  now 

independent  BoG  Pension  Fund  into  the  IKA-ETAM  might  have  implications  for  the  legal 

relationships  and  career  policies  of  the  Bank  of  Greece,  insofar  as  it  could  impair  the  Bank  of 

Greece’s ability to employ and retain the qualified staff necessary for the performance of its ESCB 

tasks. Sufficient safeguards are therefore necessary to avoid any potential reduction of the Bank of 

Greece’s independence.  

7. 

Cooperation with the Bank of Greece and the obligation to consult the ECB  

Finally, the ECB underlines that the Greek Government should cooperate closely with the Bank of Greece 

and consult the ECB on any future amendment to the specific rules applicable to the Bank of Greece in 

accordance with Council Decision 98/415/EC, as the provisions of the Bank of Greece’s statute entrust 

the Bank of Greece with the task of ensuring the social security coverage for its employees.  

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 19 March 2008. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

9   

See ECB Opinion CON/2008/9. 

6