nicholas c garganas : the greek experience speech by mr nicholas c garganas, governor of the bank of greece, at the economist conference on " social security reform in greece ", athens, 14 february 2008. * * * i would like to thank the organisers of the economist conference on " social security reform in greece " for their invitation and for this opportunity to speak on the subject of the implications of ageing populations – a subject of great importance for many countries, especially for greece. a main accomplishment of social policies in the second half of the last century – at least in the case of advanced countries – is that being old is no longer considered synonymous with a low quality of life. that accomplishment has been made possible through the provision of public pensions. in greece, of course, a significant proportion of pensions are still very low, but this can be considered a consequence of inefficiencies and weaknesses in the social security system as it stands at present. yet, as europe ’ s population ages, a demographic shift will take place in the next forty to fifty years that will pose significant challenges to the pension systems of our countries. the ageing of society will make it increasingly difficult to maintain an adequate level of public pensions for our older citizens. to provide an idea of the demographic changes that are expected to take place in the next forty to fifty years, consider the following projections with respect to greece, issued by the european union ’ s economic policy committee. these projections cover the period from 2005 to 2050. • projection number 1 : here is some good news – people will live longer, so that the population comprised of ages 65 or above will increase by some 60 per cent. • projection number 2 : low fertility rates will contribute to a decline of some 20 per cent in the working - age population, defined as ages 15 to 64. • putting these two projections together means that the ratio of the elderly population to the working age population – what is known as the old - age dependency ratio – is expected to more than double between 2005 and 2050, reaching more than 60 per cent. this would mean that while there are currently more than three workers for each pensioner, in 2050 there would be only 1. 6 workers per pensioner. thus, greece, like many other european countries, will be confronted with a sharp rise in the old age dependency ratio. this situation, in and of itself, however, need not put pressure on the financing of the country ’ s

pension system. in particular, if the proportion of the population of working age that is employed were to rise, this rise could help offset some of the fall in the working - age population. unfortunately, even here the news is not favourable. the employment rate is projected to rise modestly, but not enough to raise the level of employment. in fact, the level of employment is projected to decline by some 13 per cent between 2005 and 2050. to sum up what i have said so far, thanks to advances in health care, people will be living longer, so that there will be a large increase in the proportion of the population aged 65 or more in the years ahead. at the same time, there will be fewer people of working age and fewer people actually working. what, then, are the implications of these demographic projections? for one thing, they imply a sharp fall in greece ’ s potential gdp growth, perhaps more than halving potential growth between now and the 2030s and 2040s. with more people, and fewer producing goods and services, there will be less output for each of our citizens. for another thing, the projections, if realised, would put enormous strains on our public finances. to give you an indication of the magnitude of these strains, according to projections prepared in 2002, pension expenditures in greece will rise from 12. 4 % of gdp in 2005 to 22. 6 % of gdp in 2050, i. e. by 10. 2 percentage points of gdp. the net increase in total old age - related expenditure ( excluding spending on long - term care, for which no official figures are available ) is projected to be 11. 5 percentage points of gdp, reaching 32. 7 % of gdp in 2050. this situation compares with rises in pension expenditures of slightly more than two percentage points of gdp in both the eu25 and the eu15 over the same period, reflecting the implementation of important pension reforms in many of these countries since the 1990s. consideration of this set of facts yields the conclusion that pension reforms, public expenditure, employment, and growth are interdependent. pensions constitute a major share of public expenditure and that share is projected to rise sharply in the years ahead. moreover, pension systems and labour - market performance have close ties, and these ties have important implications for economic growth. pension systems embed incentives that affect the labour supply of, and demand for, mature workers, while a high level of employment also ensures high levels of contributions into the