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Mariano Rajoy's Next Challenge Could Come From an Unlikely Source

Updated on
  • Spanish Prime Minister Rajoy risks losing pensioners’ support
  • Inflation eats into pensioner spending power as economy grows

After working for 47 years, Spaniard Alfonso Blas says the paltry pension increase he’s being offered is a scandal.

“They tell us the crisis is gone, so why is my pension going up by one euro?” the 65-year-old retired bank branch worker asked. “I worked my entire adult life -- this didn’t come for free.”

As Spain enters its fifth year of economic recovery, a campaign of nationwide protests by pensioners like Blas -- a group traditionally sympathetic to the conservative policies of the ruling People’s Party -- is posing an unexpected challenge to Prime Minister Mariano Rajoy. Mindful of its potential cost to his party as his support plunges in opinion polls, Rajoy called a parliamentary session on Wednesday at which he appealed for calm over the future of the system and pledged to propose increases for minimum pensions and payments to widows.

“We don’t understand any society that won’t guarantee payments sufficient to ensure a dignified life for our elderly,” said Rajoy in his speech to parliament. “An economic policy that creates jobs and increases the number of contributors to social security is key.”

Elderly Spaniards are going on the offensive as rising prices erode the spending power of their pensions, which will increase a mere 0.25 percent for a fifth year in a row. Although Rajoy has said the pension debate will be one of the key issues of his second term, other groups whose living standards suffered during the crisis are also clamoring for more.

“The government has been flagging that the economic recovery is a tangible reality, so segments of the society including policemen, civil servants, women and of course pensioners want to make sure they’re benefiting from it,” said Veronica Fumanal, a political marketing expert, who used to work for the Socialist party and the liberals of Ciudadanos.

Spanish Pensioners Want More

Consumer prices set to rise eroding pension value

Source: National Statistics Institute INE

Note: Inflation future projections as per Bloomberg economic forecasts survey

Rajoy sought to protect older voters as Spain grappled with an economic crash that forced him to seek a 41 billion-euro ($50.6 billion) bailout to rescue its banking system in 2012. He continued to raise pensions by small amounts even as he increased taxes and cut public wages, education spending and aid for young families.

Under Strain

Elderly voters returned the compliment by helping Rajoy secure the extra seats he needed to form a minority government after general elections in 2016. That alliance is now under strain as Spain reaps the benefits of a recovery that has seen the economy expand for 17 straight quarters, setting the country on course to grow more than 2.5 percent this year.

Inflation averaged 2 percent last year after three years of falling prices. The Bank of Spain predicts prices will rise 1.5 percent this year, further eroding the value of pensions.

The prospect of falling living standards sparked protests across Spain last month. Pensioners broke through police lines to reach the steps of parliament in Madrid carrying banners reading “Misery for Pensioners," echoing scenes seen during the economic crisis in 2012.

Restive Pensioners

The government had inadvertently helped fan the discontent by sending letters to pensioners’ homes spelling out the 0.25 percent increase. The minimum monthly state pension would rise by 1.50 euros a month to 606.60 euros, barely enough for a coffee in a Madrid bar.

“The letter was the trigger,” said Fumanal. “The cost of sending it was more than the actual increase.”

Spain isn’t the only country where pensioners are getting restive.

French President Emmanuel Macron, who’s been fighting claims his policies are tailored for rich people since his election in May, last month saw drops in his approval rating reflecting concern about purchasing power. According to a BVA poll published in newspaper La Tribune on Feb. 14, 82 percent of pensioners said they were losing out versus two thirds of the general population.

Pensioners in Greece have seen their payments slashed several times as part of the country’s bailout program.

No Consensus

In Spain, the chances of building any cross-party consensus to tackle the pensions problem looks slim. The opposition Socialists have called for pension increases to be pegged to inflation, something Rajoy says would be unsustainable. He says the best way to protect pensions is to create jobs for workers who would then contribute to social security.

Meanwhile the strains on public finances are starting to show as Spain moves closer to exhausting a pension reserve that stood at 67 billion euros as recently as 2011. The Treasury will make a 15 billion-euro loan to fund the system, adding to a 10 billion credit line to fund the system in 2017.

“We’re starting to realize that we’re losing out and prices are rising and our standard of living won’t improve,” said Saturnino Alvarez, 78, who used to sell computer equipment before he took retirement. “The PP is going to have to do something because Rajoy is alone, and we are his voters.”

— With assistance by Ainhoa Goyeneche, and Angeline Benoit

(Updates with Rajoy comment in fourth paragraph.)
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