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Spain to Increase Retirement Age and Freeze Pensions?

An article reported Friday that:

  • Spain is likely to raise the retirement age to 67 (from 65) and freeze pensions in order to save about 4 billion euros per year;

  • Spain's unemployment will soon exceed 25%, and will stay at that level until at least 2015;

  • Spain does not want austerity terms dictated from outside Spain;

  • Spain will announce its own reform (read 'austerity') measures on September 28, following Cabinet approval of its 2013 budget;

  • in August Spain took 4.4 billion euros from an insurance fund in order to fund payments to 8.1 million Spanish pensioners. This where Spain's population is about 47 million; and,

  • the Spanish Government is not ruling out using an emergency 'Pension Guarantee' fund by the end of 2012 in order to then pay pensioners.

Increasing the retirement age by two years and freezing pensions in order to possibly save 4 billion euros a year is a statement that is based on a calculation using assumed inflation rates. Stated differently, I assume the so-called savings really are savings measured against what would be the forward pension costs but for removing inflationary increases to pension costs from the equation.

Under any circumstances, these strike me as 'band-Aid moves' at best. Moreover, if I am right in what freezing means, there is no austerity in that in the context of reducing current costs.

Watch carefully for announcements from and about Spain this week and next, where for me what happens with Spain seems critical to what is likely to happen in the Eurozone generally.

You might also want to read Spain's Fiscal Deficit 8.56% of GDP in First Half; Impossible Second Half Targets.

Topical Reference: Spain targets pensions as bailout likelihood increases, from The Financial Post, from Reuters, Julien Toyer, September 21, 2012 - reading time 3 minutes. Also read Spain's Fiscal Deficit 8.56% of GDP in First Half; Impossible Second Half Targets, from Mish's Global Economic Trend Analysis, Michael Shedlock, September 21, 2012 - reading time 2 minutes.

 

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