GREECE: VETERAN PETRALIA NAMED EMPLOYMENT MINISTER

UNCLAS ATHENS 002367 SIPDIS SIPDIS SENSITIVE E.O. 12958: N/A TAGS: PGOV PREL GR SUBJECT: GREECE: VETERAN PETRALIA NAMED EMPLOYMENT MINISTER AS BATTLE LINES DRAWN OVER PENSION REFORM ¶1. (SBU) On December 14, veteran Greek ruling New Democracy party member and former minister Fani Palli-Petralia was named Minister for Employment and Social Protection as the government faces a tough, uphill fight to reform the ailing state-run pension system. Petralia ) a former Tourism Minister -- replaces Vasilis Magginas, who resigned abruptly amid allegations of nepotism and corruption (illegally employing Indian domestics he claimed were "personal friends" and building a country villa with a food-stand permit). In accepting Magginas' resignation, PM Karamanlis was making good on his promise to fight government corruption wherever it might be found. In naming Petralia, he tapped a loyal veteran, though most observers expect critical pension negotiations will be conducted by Economy Minister Alogoskoufis and Public Works Minister Souflias, with Petralia handling PR. ¶2. (SBU) Magginas was the second Employment minister to be jettisoned in less than a year. His predecessor, Savvas Tsidouridis, was forced out in April over allegations that SIPDIS his senior staffer was involved in stock exchange scandals. Petralia, meanwhile, faces a tough fight on pension reform as Greece's convoluted pension system is expected to cost the equivalent of one-quarter of Greek GDP within fifteen years as a result of an aging population, chronic fund mismanagement, and government wariness of touching this third-rail issue. A nationwide strike over pension reform paralyzed much of Greece last week, and labor unions are accusing Karamanlis of breaking his pre-election pledges of not raising retirement age and contributions and not cutting current pensions. This is in spite of the GOG's reiteration of "The Three No's" -- no change in the pensionable age, no reduction in the level of pensions, and no increase in contributions. SPECKHARD