Zapatero Says Spain `Can't Close Eyes' Over Pension System Overhaul Need

Spain must overhaul its pension system, raising the retirement age and changing the way payments are calculated, Prime Minister Jose Luis Rodriguez Zapatero said, as the country tries to put its public finances in order.

The government wants to raise the retirement age to 67 from 65 and may increase the number of years of contributions that are used to calculate pensions. That step might lead to lower average payouts. Any changes must go through a cross-party parliamentary commission and Zapatero said he wanted to seek “consensus” on the revamp.

“We can’t close our eyes; we have to adapt our pension system to demographic changes,” Zapatero told lawmakers in Madrid today in his annual state-of-the-nation address. “We want to clear up as soon as possible the uncertainties about the sustainability of the system” and “strengthen the credibility of our public finances,” he said.

Spain’s Socialist government is trying to cut the euro region’s third-largest budget deficit while bolstering its savings banks and returning the economy to growth after a two- year recession. Zapatero, who lacks a parliamentary majority, has riled former allies in the unions and smaller political parties with a policy U-turn aimed at cutting the deficit by half in two years and taming a surge in borrowing costs.

Elsewhere in Europe

The Spanish plans coincide with steps by other European countries to shore up their pension systems. The French Cabinet approved an overhaul yesterday that raises the retirement age to 62 from 60. The parliament in Greece, which avoided default with a European bailout, pushed back retirement ages and cut pension payments last week.

Zapatero’s government, which had previously defended the sustainability of the pension system, said in January it aimed to increase the retirement age, in a move that angered unions and some in his party. Antonio Gutierrez, a senior Socialist lawmaker, attacked the proposals in a March opinion piece in El Pais newspaper, and unions are planning a general strike on Sept. 29.

The next hurdle for Zapatero, who is seven seats short of a majority, is to gather sufficient support in parliament to get the 2011 budget approved. The first stage of the budget process, which establishes the overall spending limit, will be put to a vote next week in the legislature.

The budget bill will be presented to parliament in September, and the Catalan CiU party has warned Zapatero its 10 members won’t support it. The Basque Nationalist Party may offer support, though at a price, because backing the budget would mean “giving Zapatero political life,” Pedro Aspiazu, the party’s economic spokesman, said in an interview last month.

Both parties criticized his address today, with CiU spokesman Josep Duran saying Zapatero was in “another galaxy.”

Support for Zapatero is also waning among voters. A poll by ABC newspaper published on June 14 showed the opposition People’s Party, which has started billing itself as the party of “workers,” opened up an 11.8 percentage-point lead over the Socialists.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net.

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.