The first important pact with labor

The importance of the pact sealed between the government and the labor unions cannot be overstated. A long-term deal, it is unique among the measures the government has introduced to combat the current recession in having garnered widespread support. It is also a success for the country's two main labor unions, UGT and CCOO, and marks a break with their tooth-and-nail defense of rights that has no place at the moment, given this country's unemployment levels. At the same time, the deal sends a message to foreign investors that the country's pension system is not in danger.

All that is needed now is for the opposition Popular Party (PP) to show that supporting the government in its efforts to implement much-needed reform doesn't mean losing votes. Reforms are usually painful, but if they are to work, they need cross-party support. The PP would convey the message that it supports the economic stability of this country by making it clear that it intends to support the measures when they are put before Congress.

The government and unions agree that the main objective of the pact is to extend the retirement age from 65 to 67. That said, it will still be possible to retire at 65, after 38.5 years of contributions to the Social Security system. For everybody else, entitlement to a full pension means paying in for 37 years.

The two sides also agreed to new rules that, if passed by Congress, would allow individuals who stay home to take care of their children and young people interning as they prepare for professional careers to build up a maximum of two years in contributions. Pensions could account for 14 percent of Spain's public expenditure by 2040-2050, compared with about nine percent in 2010. Last year was the first that Spain's pension system did not run a surplus.

It is hard to understand why the government has delayed the full implementation of the new measures extending our working lives. As things stand, the process will begin in 2013 and end in 2027, meaning that our working lives will increase by around a month and a half every year. The aim is to respect the rights of workers, but a 10-year transition period would hardly have been abusive and would have sent out a clear message that the government is firm in its decision to reform the system.

The central question is whether this reform will be sufficient to prevent the collapse of the system. The answer in all likelihood is that any risk of a collapse has been put off for at least the next 40 years. This will depend in large part, however, on the Spanish economy returning to annual growth rates of 2 percent and above, along with job creation. The important thing about the reform is that it has broken the taboo that the pension system is sacrosanct, and sets the precedent that it can be periodically revised to correct imbalances in the system without generating social unrest. In broad terms it represents a success for a government that has stood firm, and for unions that have shown flexibility.

It can only be hoped that this deal will set a precedent for both sides' approaches to negotiations, and lead the way for other reforms, such as making collective bargaining less rigid.