Spain retirement age going to 67 in austerity push

By Alan Clendenning

Associated Press

Published: Friday, Jan. 28 2011 3:00 a.m. MST

A man crosses a street in front of two tractors holding banners calling for a general strike by Basque Nationalist trade union in Bilbao, northern Spain Thursday Jan. 272011 against the Spanish Government approving a new Pensions Law. The Spanish government said Thursday it had reached a preliminary agreement with unions on key pension reforms, a deal that could avert a general strike that threatens to hamper efforts to ease the debt crisis.

Alvaro Barrientos, Associated Press

Enlarge photo»

MADRID — Spain was due to raise its retirement age from 65 to 67 on Friday in a key step for its debt-crisis-fueled austerity drive after Prime Minister Jose Luiz Rodriguez Zapatero struck a deal with unions aimed at limiting damage to his governing Socialist Party in upcoming elections.

Zapatero's Cabinet was meeting to approve the pension reform plan that investors say is crucial to bolstering public finances and ensuring that the eurozone's fourth largest economy avoids being forced to take a bailout, as happened to Greece and Ireland.

With the reform, Spain joins France and Germany in forcing people to work more years before claiming retirement benefits. France did so late last year — raising the minimum retirement age from 60 to 62 despite a series of angry street protests — while Germany lifted its retirement age from 65 to 67 in 2007.

The deal, reached with unions in the early hours on Friday morning, means that Spain's major unions will back off threats to hold a general strike to protest the reform, easing pressure on the government as it faces regional and municipal elections in May.

But protesters opposed to the new retirement age clashed with police Thursday night, and television images showed vandalized bank branches. Three people were arrested and eight police officers suffered minor injuries, said a spokeswoman for the National Police who spoke on condition of anonymity in keeping with policy.

Investors seemed to welcome the reform plan, however, pushing the main stock index in Madrid up 0.6 percent on Friday morning.

Spain is under extreme pressure to fix its delicate public finances as it struggles with a 20 percent unemployment rate and grim growth prospects.

While the retirement age is going up for most workers, those who contribute for 38 years and six months to the system will still be able to retire at age 65. If approved in Parliament, the retirement age will rise gradually starting in 2013 and the reform will be complete in 2027.

The scale of the country's problems was highlighted Friday in government figures showing the jobless rate rose back above the 20 percent level in the fourth quarter of 2010 — to 20.3 percent, the highest since 1997. The number of unemployed people increased by 121,900 to nearly 4.7 million.

The fourth quarter rate compares to about 19.8 in the previous three months, already the highest in the eurozone. Not counting the third quarter, the jobless rate was above 20 percent for all of 2010.

The numbers published by the National Statistics Institute show the country's unemployment rate has now risen for four straight years.

Analysts have said the economic shock therapy being imposed by the administration of Prime Minister Jose Luis Rodriguez Zapatero could translate into a high cost for his party in the upcoming regional and local elections. The government has already pushed through a host of other austerity measures that have slashed government spending and civil servants' pay while raising VAT sales taxes.

Spain's retirement pension system is now solvent, albeit barely, but the government has warned that will no longer be the case in a few decades' time because of rising life expectancy and a very low birth rate — meaning a shrinking ratio of workers supporting more and more retirees.

Daniel Woolls contributed from Madrid.

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