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Spanish government reaches deal to raise retirement age

By Sarah Rainsford BBC News, Madrid 28 January 2011

The government was very keen to avoid a threatened general strike. Spain's socialist government has
struck a deal with the country's trade unions to raise the age of retirement. All parties have agreed that the
compulsory retirement age will increase from 65 to 67, one of the highest in Europe.

The deal is a crucial step to convince investors the government is committed to structural reform to
revive the economy and avoid a bail-out. Aware it was under international scrutiny, the government had
threatened to impose the changes by decree if necessary. Spain's trade unions had warned of another general
strike.

With a low birth rate and increasing life expectancy, government figures suggest 32% of Spain's
population will be aged 64 or over by 2050. The number of pensioners is expected to rise from eight million to
12 million over the next 3 decades. Under the current system, pension payments account for around 9% of
public spending. By 2040, that figure could rise to 14%, according to the Economy Ministry.

Unemployment is also straining the system. Figures released by the national statistics institute on
Friday revealed that the number of people out of work had surged to a 13-year record high of 20.33% in 2010.

Last year, for the first time, the social security system was not in surplus. A social security crisis is
looming in Spain, as elsewhere. So despite disagreement over the details, there is broad consensus about the
need for change.

"If the reform is finally approved, the government will have chalked-up a success and the unions will
not have taken a step back," was the reflection of an El País newspaper editorial on Thursday, which
calculates that the reform maintains the solvency of the system. "The general acceptance of the reasons for the
change, and the spirit of negotiation, allow us to be optimistic," the paper concludes.

Not everyone accepts the deal, though. The first real protests erupted on Thursday as a demonstration
against the reforms by far left-wing groups turned violent. Riot police clashed with dozens of young
protestors who overturned and burned rubbish containers, threw firecrackers and smashed the glass facades of
several banks. El País reported that eight police officers were injured. There have been demonstrations by
some unions against the pension reforms. Last week, trades unionists staged sit-ins at social security offices.

By reaching agreement with Spain's most powerful unions, though, the government appears to have
deflected the danger of major social unrest. It is particularly keen to avoid another general strike, with local
elections looming in May. But it has been forced to row back somewhat from its initial proposal for reform. It
had insisted that to retire on a full pension, a person would have to work and pay into the system for 41 years,
up from 35. The unions pushed for 38. The final agreement is 38.5. The age of retirement will also increase
progressively, from 2013, so that those close to pension age now will not be affected.

The reform appears daunting to some of Spain's younger generation. Forty per cent of young people
here are unemployed; many are approaching the age of 30 without work, never having paid into the social
security system.

Although the impact on Spain's budget deficit will not be seen in the short-run, the reform is likely to
be welcomed by investors, but some analysts believe it could have gone further. "The government is carrying
out minimalist reforms to survive," believes Michele Boldrin, research fellow with the economic think-tank,
FEDEA. He believes the same is true for pensions as for the government's earlier labour and banking reforms,
that they were intended not to provoke too much unrest. "They could have done more, done better, gone
deeper. This way, they can make it to the general elections in 2012. But it's not enough to resurrect the
economy and fly."