May 8 (Bloomberg) -- The Greek government will bring social security costs for workers below the European Union average for the first time in July when it cuts contributions to the pension and health-care systems, Labor Minister Ioannis Vroutsis said.
Social security contributions will fall by 3.9 percent bringing the total reduction since 2012 to 5 percent, Vroutsis said in an interview in Athens yesterday. The move is part of a suite of measures designed to boost Greece’s competitiveness and attract foreign investment as the country emerges from a six-year recession, he said.
“The reduction of social contributions alone will create about 30,000 new jobs in the next two years,” Vroutsis said. “We have done almost everything required to reform the Greek labor market.”
As Ireland, Spain and, this week, Portugal emerge from the strictures of their bailout programs, Greek officials are trying to show they can continue the work of repairing their economy as the financial pressure eases. After easing rules on firing, lowering compensation for dismissals and overhauling collective bargaining rules, the government ended its four-year exile from international markets last month, issuing 3 billion euros ($4.2 billion) of bonds at an auction that was almost seven times oversubscribed.
Among the improvements that have allowed Greece to lower employers’ costs: dead Greeks are not getting pensions anymore.
Database of Deaths
A database Vroutsis set up last year registers all deaths in Greece allowing the government to halt benefit payments. Vroutsis, an economist by training, said he discovered about 40,000 people were collecting payments on behalf of dead relatives when he joined the ministry. The fraud had cost the government about 5 billion euros over the past decade.
“When I took office, we didn’t even know how many pensioners there were in Greece,” Vroutsis said. “The new system is foolproof.”
A European Commission report, released May 5, projects a 2 percent drop in Greece’s real unit labor costs this year and a further 0.7 percent decline in 2015. Vroutsis said he expects wages to stabilize and unemployment to fall, after a slump that wiped out a quarter of the Greek economy and saw two bailouts totaling 240 billion euros.
The government is pushing its euro-region partners to cut the interest rates and extend the maturities of its rescue loans as a reward for its success in reducing the budget deficit and improving the structure of the economy.
Europe’s Highest Unemployment
The economy added 60,600 new jobs for salaried workers in the private sector in April, according to Labor Ministry data, the biggest increase since Sept. 15, when new fines for illegal employment triggered a mass of registrations. Unemployment in the 11-million strong Mediterranean nation remained the highest among European countries in February, at 26.5 percent, according to Greek statistical service figures released today.
“The next priority is the simplification of the whole body of labor legislation, which we hope to complete in one year,” Vroutsis said.
From June 2016, Greece will also review its minimum wage, currently 586.02 euros a month, after talks including workers’ and employers’ unions, the central bank and the Labor Ministry, Vroutsis said. The government plans to streamline the pension system by the end of this year by merging some of its 92 separate funds, a measure that will help ensure the sustainability of the country’s social security system, Vroutsis said.
To deliver those reforms, the country has to maintain a stable government, he said.
“The fuel that will keep Greece airborne and moving forward is called political stability,” Vroutsis said.
He said he is confident that his governing New Democracy party will beat Syriza, the group that argued against accepting the bailout conditions, in this month’s EU Parliament elections. Once the fiscal situation improves, the government should introduce a flat tax for all companies, he said.
“The two big interventions that need to be made are debt relief and tax cuts,” he said.
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