Guest Commentary: Spain- Cutting Pensions Could Break the Camel's Back
Many have wondered how Spain keeps going on with an unemployment rate of around 25%. How come there aren't riots on the streets?
There are three main reasons cited for the stability, but one of these could now collapse.
What are the legs of the Spanish stool?
- Welfare state: despite the cuts, Spain still pays out to the unemployed through various programs. People can still receive a minimum payment.
- Underground economy: Some say that the 25% figure is somewhat exaggerated, as many people perform various types of work and report as unemployment. The phenomenon is common in Spain, more than in other places.
- Family ties: Families certainly help each other in Spain - those who are better off help members that aren't doing well. One example is going back to living with your parents - something that weighs on the already struggling job market.
Another aspect of this help for the younger generations (where unemployment is much higher), is through pensions: older people use some of their pension money to help out their children and grandchildren.
This is about to change: pension payouts will be trimmed in various forms, including CPI calculations. In addition, the government is discussing a rise in the retirement age. A cut in pensions means that pensioners will have less money for the younger ones.
Will this take the younger ones back to the streets? The popular M-15 movement is still active, but far from its peak in the spring of 2011. Many feel that they cannot bring about a change. Some are leaving the country.
Could pensions serve as the straw that will break the camel's back?
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By Yohay Elam, ForexCrunch
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