Doesn't sound too good yet...
It seems Spain (and especially Spain's young generation) is left with hardly another choice than to re-invent itself.
or the young generation are choosing to emigrate, to places like Germany for instance, which leads to this (same source, the writer lives in Barcelona):
The main reading which is being made of the first step is the following one:
"The new regime breaks the link between pension increases and inflation, in a move that seeks to balance Spain’s deficit-stricken social security system. "
My feeling is that this assessment does not go far enough. There is no doubt that the link is being cut, but that the reform in fact does rather more than this. As Tobias says, pensions can only now rise above 0.25% annually if the social security fund is in surplus, something which is very unlikely to be the case from now on. So the reform goes beyond simple inflation de-linking, and cuts completely the tie between pension payments and government finance. Basically it gets the government completely out of the middle. The key point to note here is the principle of sustainability, which will already be applied as of tomorrow. Only as much can go out in payments as comes in in contributions, and that is that. This is the gist of the philosophy behind the experts' committee report. The pensions system now involves an implicit contract between those who contribute and those who receive.
The implications of this are only partly reflected in the new law, which is a sort of "work in progress" and seems to represent a kind of "get them in the mood" approach to the issue. The link between government guarantee and actual pension is cut, but the implications of this are not really being fully explained yet. Let them used to the idea that pensions won't rise, and then you can let them know they may actually fall, not only in real terms but also in nominal ones would be how I would describe the situation. Frankly I think Fatima Bañez was being rather stupid in saying "pensions will never go down", because she may even have difficulty living up to this next year, but then she is a politician and this is what politicians seem to do - forget this year what they were saying last year, I mean. But then, I have never been able to understand much about politics.
As far as I can see, if Spain gets even slight deflation in 2014 then the even the 0,25% rise will become impossible to comply with without digging even deeper into the Reserve Fund. But the government has already put its hand into the fund to the tune of 18 billion euros in 2012 and 2013 (a number which rises to 23 billion if you count the money from the mutual funds). In 2013 the social security system received around 15.5 billion from the reserve, up considerably over the 6.5 billion it received in 2012. This number is therefore a minimum estimate of the amount of money which will be needed in 2014, given that the number of pensioners and the average pension will rise while the number of contributors probably won't to any significant degree and the average contribution will fall slightly.
So we can say the social security system will probably need AT LEAST 15 billion more from the fund next year, a reality which makes the payment of some 263 million euros extra to comply with the 0.25% increase seem ridiculous. The pension system is not on a sustainable path and something still needs to be done.
The idea of the Fund (as envisioned by the experts' committee) is to provide cyclical support to the pension system by accumulating resources in the good years and spending them in the bad ones. If they just run it down it will become useless for the purpose for which it exists (like with the bank deposit guarantee fund which cannot guarantee any deposits since the money has mainly been spent) so they can't go on using it much longer. The fund now stands at just under 24 billion euros. Maybe they will be able to get away with continuing to do subsidise pensions in 2015 as it is an election year, but then that will be that I think, and the first act of the new government will have to be to CUT pensions.
What the new law does mean is that the government can no longer seek recourse in the general government deficit for maintaining the value of pensions. That is the link that has now been cut. They will have enough problems sustaining health spending from public revenue, but then that's a problem between the autonomous community governments and their voters, and the central government are again out of the middle.
I have written a chapter on this for my book (out in March). In a way the pensions thing forms part of an interactive triad which includes the new growth paradigm (what Larry Summers calls secular stagnation, which is very demographically related) and the emigration of young people. At the moment young people are being forced out of the country by lack of jobs, but mounting fiscal pressure to support the elderly will soon add to the flow. Spain seems to have invented it's own kind of perpetual motion wind-yourself-down machine
In fact the situation on the pensions front has deteriorated even since the initial experts' report. I think the main change which has occurred is that the INE population estimates have changed. The Committee based their analysis on data from the long term population forecast provided by the INE. This assumed net positive immigration into Spain of 120,000 a year between now and 2060. This softened the looming population drop, and made it possibly more plausible to say that pensions wouldn't have to be reduced. But the latest short term forecast (covering the decade 2013 to 2023) have net NEGATIVE migration of between 200,000 and 300,000 a year. This seems much more plausible, is basically what the IMF is on about when it asks for a 10% internal devaluation to try and generate more work, and essentially changes everything about pensions. If not, bye, bye, Spain in every sense.
What I like least about what is happening at the moment in Spain is the way in which the political class as a whole are completely unable to come clean with the population about what it happening. Whether this is simply because they are stupid and don't themselves understand or whether there is some other reason I couldn't tell you.[/quote]
