First Spanish Bailouts Conditions Revealed: Pension Freeze, Retirement Age Hike

Tyler Durden's picture

As we reported first thing this morning, Spain, while happy to receive the effect of plunging bond yields, most certainly does not want the cause - requesting the inevitable sovereign bailout. To paraphrase Italy's undersecretary of finance, Gianfranco Polillo: "There won’t be any nation that voluntarily, with a preemptive move, even if rationally justified, would go to an international body and say -- ‘I give up my national sovereignty." He is spot on. However, the one thing that will force countries to request a bailout is the inevitable outcome of soaring budget deficits: i.e., running out of cash (as calculated here previously, an event Spain has to certainly look forward to all else equal). Which simply means that sooner or later Mariano Rajoy will have to throw in the towel and push the red button, knowing full well it most certainly means the end of his administration, and very likely substantial social and political unrest for a country which already has 25% unemployment, all just to preserve the ability to fund its deficits, instead of biting the bullet and slashing public spending (and funding needs), which too would cause social unrest - hence no way out. But why would a bailout request result in unrest? Reuters finally brings us the details of what the Spanish bailout would entail, and they are not pretty: "Spain is considering freezing pensions and speeding up a planned rise in the retirement age as it races to cut spending and meet conditions of an expected international sovereign aid package, sources with knowledge of the matter said...The accelerated raising of the retirement age to 67 from 65, currently scheduled to take place over 15 years, is a done deal, the sources said. The elimination of an inflation-linked annual pension hike is still being considered."

More from Reuters:

The new pensions steps, which could be announced as soon as next week along with the 2013 budget, would send a strong signal to investors that Spain is serious about implementing structural reforms it has delayed because of the political cost.


Prime Minister Mariano Rajoy, who was forced earlier this year to break campaign pledges such as not raising taxes, has repeatedly said he would not touch pensions, but he has few options left to trim the budget after drastic cost cuts.


He toned down his language last week and said it would be "the last thing" he would do. On Tuesday, Deputy Prime Minister Soraya Saenz de Santamaria said the government was not implementing any cut on the pensions "for the time being".


Sources with knowledge of the government's thinking said Rajoy's comments were a sign that his stance was shifting.


"He just said that he would not cut the pensions. But did you hear anything else? We both know that there are several ways of cutting. One is to simply leave them steady against inflation," said one of the sources.


A second source said the acceleration in the change in the retirement age was backed by the government while a third source, who discussed the issue with senior Spanish officials, said a freeze was expected.


"Not increasing them is also an adjustment," the third source said.




"There is no way around it. You have to cut the link with inflation and freeze the pensions next year," said Jose Carlos Diez, chief economist at Intermoney brokerage in Madrid.


"And to me, that would be just a start... The pensions, the unemployment benefits and the borrowing costs are eating up all the efforts on the spending side so you need to act in those areas," he added.


Both removing the inflation adjustment and accelerating the retirement age increase are long-standing European Union demands and any bond-buying programme to help Spain finance its debt would insist on this, senior euro zone sources said.


Countries which were previously rescued, such as Greece, Ireland and Portugal all had to pass steep cuts on pensions.


In Greece, the cuts ranged from 20 percent to 40 percent, while new pensioners had a 10 percent pay cut in Ireland and Portugal scrapped the Christmas and summer extra payments.

Key word: "that's just the start" - meaning it's all downhill from here, as true austerity, long delayed, is finally implemented (on Germany's dime of course).

First cue Spanish official denials it will do no such thing (a la Rajoy saying Spanish banks will not get a bailout two weeks before they, well, were bailed out). Then cue riots.

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LongSoupLine's picture

A Greece cut-n-paste production.

Oh regional Indian's picture

Actually it's Greece x 10 or more.

Spain held the lazy part of the EU together in it's Hey day. Like Hey, life's good eh?

It's fall will be that much harder and more painful and the ripple effects much greater. 

Basically, good times based on cheap-shit money are over.

Thank god, even though tough times ahead.


YuropeanImbecille's picture

Love it! Let the goyim work until their death!





GetZeeGold's picture



We surrender.....and here's our conditions.


Desert Irish's picture

You missed first post!!! what happened piss break?

GetZeeGold's picture



I sense some disapproval.


On behalf of the 53%...allow me to apologize.


YuropeanImbecille's picture

Here are the lyrics for those who are about to go out on the streets:

LongSoupLine's picture

Actually it's Greece x 10 or more

ori, the result may be 10x, however the "production", (i.e. - solution template),  I refer to remains the same.  Why?...because it's not about the's about the banks.

Vincent Vega's picture

Coming to America.

Debtonation's picture

Catalonia will secede and Spain will default.

AUD's picture

Isn't that more or less what happened in Spain in the 1930's, plus a civil war?

Dr. Engali's picture

Let's see Spain you can retire at 67.. in Germany at 69.....and in France at Greece at 58.     Looks like Greece wins.

HelluvaEngineer's picture

...and we won't get to retire at all.  #winning

kito's picture

quite the opposite......when the unemployment rate hits zero based on BLS math, everyone will be retired!!!!!..................

dwdollar's picture

Depends on what your definition of retire is.

Anglo Hondo's picture

I'm retarded, have been for 12 years.  No gettin up early and driving to work, just a stroll to the bar.

Life is good ;-)


Satan's picture

Is there anything funnier than drunk retards?

TwoShortPlanks's picture

There are times when the 'Full Retard' clause should be ignored.

downrodeo's picture

'"Not increasing them is also an adjustment," the third source said.'

Paraphrasing: Leaving them unadjusted is also an adjustment.


"We've got to get governement out of governement" - (stolen from an old rocky and bullwinkle cartoon).


Wow, we have really crossed the lexicon, i mean comicon, i mean mastadon, i mean, i mean.... damn, my brain doesn't work right in this universe. i seem to have found myself in backwards land :/

downrodeo's picture

'"Not increasing them is also an adjustment," the third source said.'

Paraphrasing: Leaving them unadjusted is also an adjustment.


"We've got to get governement out of governement" - (stolen from an old rocky and bullwinkle cartoon).


Wow, we have really crossed the lexicon, i mean comicon, i mean mastadon, i mean, i mean.... damn, my brain doesn't work right in this universe. i seem to have found myself in backwards land :/

caimen garou's picture

that should be by november,right!

Eally Ucked's picture

Better check your facts before posting stupid data.

Eally Ucked's picture

It may rise in Greece to 75 or 105 shortly but for now normal retirement age in Greece is 65 and in Germany is 67.  

Desert Irish's picture

Domino theory bitchez...

LawsofPhysics's picture

So, no jobs for the youth then.  Yeah, this will end well.  Bullish on companies that sell riot gear.

petolo's picture

...and build prisons and rent out robo-cops, guards. Oops forgot barbed wire. Long on razor wire, surveilance cameras.

PaperBear's picture

The holders of Spanish bonds are going to be saved by sacrificing the Spanish people, do I understand the bailout conditions correctly ?

LawsofPhysics's picture

If you have faith in paper promises, then yes.

darkpool2's picture

The cuts and freezes and deferrals arent really that big a deal....just the gutless politicians who refuse to bite any bullets. However, what it will do to the economy, via consumer sentiment, spending patterns and savings ratios is another matter. No way out ....thats a given. But, they choose one voluntarily, or have the markets force one on them. Whats it going to be boy ? !!!

g3h's picture

Is it a coincidence that Rajoy is called Mariano, together with two other Mario from Italy?

Element's picture

OK! That's more like it! That Greece archetype has arrived. The outcome will of course be nothing like a gigantic version of Greece though.  There's is no bailout that's that big, that can be sustained that loooong ... just ask Finland.  It will get worse, and sooner than in Greece.  We are about to see the hidden debt multiply, just as with Greece, and the scale of the bailout needed will keep pushing higher. 

Dr. Engali's picture

A nice big war should take care of all the problems. We lost around 70 million people in WWII I'm sure they can get that number up to a couple billion in the next war. That should leave plenty of room for growth.

machineh's picture

New Boomer recruitment campaign: 'Senior Soldiers'

Hey, you, get offa my lawn! *KABOOM*

timbo_em's picture

The Spaniards are not considering that option. In order to save some money they plan to send their only aircraft carrier in early retirement. Apart from the french nulcear arsenal the eurozone has no firepower.

Element's picture

If you mean the Juan Carlos LHD, I'm pretty sure Australia would buy a third one.  Two for ops and one for training and refitting.

Mercury's picture

"There won’t be any nation that voluntarily, with a preemptive move, even if rationally justified, would go to an international body and say -- ‘I give up my national sovereignty." He is spot on.

Well, individual leaders and bureaucrats might be so tempted and maybe that's all it would take.

Certainly there are many among such people who believe very strongly in the primacy of European or even “world” government and think nationhood itself is passé.

Just exactly what is still constrained by democratic or constitutional approval in the average EU country these days?

PaperBear's picture

Any Spaniards foolish enough or desperate enough to have become dependent on government are now learning they were had.

orangedrinkandchips's picture

PENSIONS.....the heart of it all.....the endless pensions grow exponentially.

PENSIONS are the main driver in higher education costs.....


not feasible. period.

jerry_theking_lawler's picture

actually, in a sound money economy, pensions would be viable.

i love cholas's picture

I'm sure Zirp has nothing to do with Pensions unable to meet their % targets.

spanish inquisition's picture

Pensions are a point in time reference where 2 parties sit down and agree to a future retirement plan based on specific metrics that everyone agrees is sustainable. What happens? The Fed is unable to steal a couple of pennies a day because of inflation overrides, so pensions are generally insulated from the process you and I experience every day. They are time capsules of what was suppose to be and they tell you how much the Fed and Government has stolen from you over the last few decades. I find it hard to get pissed off at pensions and unions for financial planning, they are getting screwed just like everyone else and an easy mark for the Fed and Government to say "Don't look at us!"

intric8's picture

Out with the old order, in with the new!

Dareconomics's picture

Durden is right. Whatever Rajoy says, Spain will have to request a bailout. I think by the end of the year:

Element's picture

Good stuff.  Either boomberg and Co aren't running the numbers, or they aren't reporting what they find.  I'm going for the former.  One thing's for sure though, the politicians and ECB know and are pretending it's not really happening.

jjsilver's picture

Hale v. Henkel, 201 U.S. 43(1906) Page 201 U. S. 74

"The individual may stand upon his constitutional rights as a citizen. He is entitled to carry on his private business in his own way. His power to contract is unlimited. He owes no duty to the State or to his neighbors to divulge his business, or to open his doors to an investigation, so far as it may tend to criminate him. He owes no such duty to the State, since he receives nothing therefrom beyond the protection of his life and property. His rights are such as existed by the law of the land long antecedent to the organization of the State, and can only be taken from him by due process of law, and in accordance with the Constitution. Among his rights are a refusal to incriminate himself and the immunity of himself and his property from arrest or seizure except under a warrant of the law. He owes nothing to the public so long as he does not trespass upon their rights."

No other Supreme Court case has ever overturned Hale v. Henkel.

None of the various issues of Hale v. Henkel have ever been overruled.

timbo_em's picture

As long as the Spanish government can continue to totally kill BBVA, Santander, etc. by making them buy bonds directly from the government, there is no need to ask for help. Only when nobody wants to do business with those banks any more, the Rajoy government will give in.

In contrast to what reuters write(s) I don't expect any bad news or the 2013 budget (which is also bad news) to be revealed before the regional elections at the end of October. After all Rajoy is still a politician.

Element's picture

Until the debt load goes, profitable investments wont take in that environment, all disposable income goes to the 'saved' failed banks, so aggregate demand is crippled, with no end in sight.  As long as bailed-out zombie banks stay the economy must wither.

The system needs to hard-crash to clear it's financial poop-chute before a genuine and meaningful investor "stock market" is even viable.