GREECE - The Greek government is expected to publish a new law designed to tackle its ailing social security system in April 2010.

The country's pension gap currently stands at €4bn for 2010, largely as a result of its large informal economy, insufficient efforts to tackle the structural problems as well as worsening unemployment figures created by the global finance crisis.

The severity of the government's financial problem was revealed in October when the newly-elected Papandreou socialist government declared Greece's budget deficit stood at 12.7% - more than double the previously announced figure.

The new government promised in its 2010 draft budget to save Greece from bankruptcy by bringing the deficit down to 9% of GDP in 2010. And the upcoming new law on pensions is part of this drive.

Urgent measures are needed to prevent public debt rising to 121% of GDP in 2010 from 113.4% in 2009, as forecast in Greece. EU forecasts on Greece for 2010 paint an even gloomier picture with the deficit at 12.2% of GDP and national debt rising to 124.9% of GDP, ranking Greece the weakest economy in the EU.

The other austerity measures Papandreou announced in December include a 10% cut on social security spending for 2010, fight against corruption and tax evasion, reducing defence spending, closing third of Greece's tourism offices abroad, bringing immigrants currently working outside the social security system into it, cutting bonuses across the public sector and introducing a 90% tax on bonuses for private bankers.

Despite protests against upcoming social security reforms, a significant change is bound to take place next year, according to Nikos Tessaromatis, chief investment officer of Athens-based EDEKT Asset Management.

"There is opposition to potential reforms. The left parties are refraining from the talks with the government committee which is looking into how to cut social security spending. But their vote counts for only 10% of the total vote in the parliament, and most people do understand something needs to happen."

The pending law is likely to make the system clearer by merging the number of existing first pillar pension funds from the current 13 to three: one for agricultural workers, one for wage earners and one for small enterprises. The number of Greek pension funds was reduced from 140 to the 13 only as recently as 2008.

"This would make the system easier to manager and more transparent. Economy of scale is easier to oversee anyway," argued Tessaromatis.

While unemployment has reduced cash flows to the social security fund significantly, making the deficit worse, tackling informal economy is of utmost importance, Tessaromatis added.

"In fact, if tax evasion could be reduced, this would also reduce the deficit as such," he said.

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