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Consensus for pension reform

Rajoy’s urgency to push through a deal by decree is guided by concerns about a bailout

With his pension reforms, the prime minister is preparing to redeploy the same political procedure he followed to push through labor reforms. The executive will first seek consensus with the main opposition party and the unions, and if an agreement is not reached, it will approve its reforms by decree. Once again, the government is about to resort to decrees to change legislation that will have a huge effect on all Spanish citizens; again, it is setting an urgent deadline that contradicts its alleged willingness to negotiate. Rajoy feels it is more important to act swiftly to shore up an "unsustainable" system than to hammer out a wide-reaching social pact, implying that neither the Socialist Party nor the unions are in a position to negotiate.

The current pension system is unsustainable for several reasons that are certainly not new; two of them stand out above the others: demographic pressure leading to an aging population and, even more importantly, to more years in retirement. On the other side of the coin is a swift drop in the number of contributors to the Social Security system, which reduces the contributor-to-recipient ratio.

There is an evident need for urgent reform: the faster the government acts to change the contribution and eligibility conditions and the retirement age, the sooner consolidation of pension financing will be achieved. But it is wrong to focus solely on the urgency of reform, or in other words, there is no need to stick to the strict three-month deadline granted by the government, if one truly considers consensus to be the greater good; even if it took three extra months to reach an agreement (if one were possible), reform would take place equally fast.

As for the content of this necessary pension reform, it must include a gradual raising of the retirement age from the current 65 years to at least 67; additionally, a pension-calculation scheme is needed that takes into account the entire working life of individuals, or at least more than their last 15 working years as is the case now; finally, the age for early retirement must be raised as well.

Using a decree once again, the cabinet has approved a freeze on a portion of the pension reforms proposed by the previous Socialist administration of José Luis Rodríguez Zapatero, which fixed the minimum age for early retirement at 61. But the part of the reforms that progressively raised the retirement age to 67 will go into effect. This should in fact be the linchpin of pension reform. The 67-year-old limit must be enforced significantly sooner than the previous executive was planning on. Ideally, it should be the rule by 2016.

The limits of pension policy are defined by the delays in addressing it; this circumstance only increases the sense of urgency and the conviction that the European Commission will end up demanding action in exchange for a bailout request (intervention by the European Central Bank on the debt market).

This is the real reason why Rajoy wants to act within the next three months, since he cannot rule out the need for a bailout to be requested before that period of time is over.

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