SPAIN - The Spanish government will raise the retirement age today in a renewed bid to restore investor confidence after a €20bn ($27bn) plan to shore up savings banks failed to tame the nation's borrowing costs.
Four months after Spanish workers disrupted transport and broadcasts in a general strike aimed partly at the pension plan, Prime Minister Jose Luis Rodriguez Zapatero's Socialist government will approve a bill to raise the retirement age to 67 from 65. The government, unions and employers reached an agreement today after late-night talks on the pension bill and changes to wage-bargaining rules. Deputy Prime Minister Alfredo Perez Rubalcaba is due to give a news conference at 1:45 p.m. in Madrid after the Cabinet meeting.
Spain's worst economic crisis in six decades and a jobless rate of 20 percent have quickened the pace at which the social- security system is eating into its surplus. Europe's debt crisis has also added urgency to the overhaul that comes as La Caixa, the nation's second-biggest savings bank, presents 2010 earnings in Barcelona today along with its plans to reorganize after Spain tightened rules for lenders to bolster their capital.
"It will be hard to convince everybody with something that has such a long horizon as the pension plan," said Olaf Penninga, who helps manage 147 billion euros at Robeco Group in Rotterdam. "It's good they're doing it but it's not the silver bullet," he said. "For now the pressure will remain on Spain."
Ten-year Spanish bonds yielded 231 basis points more than comparable German securities today, up from 229 yesterday and 209 on Jan. 24 when Finance Minister Elena Salgado unveiled the savings-bank plan. The plan features a minimum core-capital requirement of 8 percent that rises to as much as 10 percent for lenders without private investors.
The government, fighting to slash the euro region's third- largest budget deficit to 6 percent of gross domestic product this year from around 9 percent in 2010, has pledged to approve the pension bill today. Salgado said talks with unions can continue as the legislation goes through parliament, where the minority government needs support from smaller parties.
"The fundamental elements of our proposal will be in the draft that's presented to the Cabinet," Salgado said in an interview on TVE on Jan. 26. "But it's a law so it has to go through parliament and in that process it will be possible of course to make small changes."
The bill allows workers who have paid into the social- security system for 38 1/2 years to retire at 65 years with a full pension rather than the new limit of 67 years, as a concession to unions, El Mundo reported today.
Spain spent 95.7 billion euros on contributions-based pensions in 2010, almost 10 percent of GDP. Forty percent of this year's spending will go to social security as the nation grapples with Europe's highest jobless rate, according to the budget law. The unemployment rate rose to 20.3 percent in the fourth-quarter, the National Statistics Institute said today.
Last year, the difference between employed workers' social- security contributions and contribution-based pension benefits turned negative, according to data from the Labor Ministry, even as the system posted a surplus of 0.2 percent of GDP, helped by interest earned on a 60 billion-euro reserve fund.
That shortfall emerged five years earlier than expected due to job losses and demographic factors, said Javier Diaz-Gimenez, a professor at IESE Business School who has written on pensions. Without changes, the debt needed to fund the pension deficit would amount to 190 percent of GDP by 2050, he estimates.
"Small, gradual changes in the Spanish system do not solve the problem," he said by phone. "It'll be disappointing because they won't announce a fundamental reform."
Zapatero, who once pledged to keep raising pensions, has made a policy U-turn since the Greek debt crisis prompted a surge in borrowing costs. Voters and traditional union allies have been alienated by cuts to public wages and social benefits, changes to labor rules and measures to support banks. The agreement reached with unions was the first since the Sept. 29 general strike.
The Socialists, facing regional and local elections in May, would win 18 percent of the vote if general elections were held now, with the opposition People's Party on 49 percent, according to a poll in El Mundo on Jan. 2. Zapatero will announce this fall that he won't seek re-election in March 2012, La Vanguardia newspaper reported yesterday.
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