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february 2015 the total amount paid out by the system in pensions was up 3 1 year on year but the number of pensioners was only up 1 3 so the average pension went up by 2 1 due to the fact that the most recent retirees have been earning more than earlier cohorts and are thus entitled to higher pensions we don t have data on this year s pension system income yet but at the end of last year it was rising at about 1 5 a year leaving a growing shortfall for the system to cover as i said under the former psoe the shortfall was funded out of the general government budget and possibly 1 5 percentage points of the 9 6 2011 fiscal deficit were the result of this financing with the arrival of the pp in government this policy changed and pension financing moved over to the reserve fund the attrition has been constant and the fund is now starting to dwindle in 2012 7 billion euros were withdrawn in 2013 it was 11 6 billion euros and in 2014 15 3 billion euros or 1 5 of gdp if you want to compare apples with apples and pears with pears you would need to add this 1 5 of gdp to the 5 6 fiscal deficit giving a 7 1 deficit using the same accounting criteria as 2011 put another way the deficit has really been reduced from 9 6 to 7 1 in 3 years hardly dramatic austerity instead of paying the pensions gap out of current income the government are using a credit card issued by future pensions to keep payments up even though the situation is obviously getting worse meaning it will be even more difficult to pay current pension levels in the future than it is as a result of all these withdrawals the size of the reserve fund has fallen from its 66 8 billion euro peak in 2011 to the current level of 41 6 billion euros at the moment the government have budgeted for another 8 4 billion euro withdrawal this year but this number could easily turn out to be larger so 2015 should close with around 30 billion euros outstanding about 3 years more money at the current rate it is clear that soon after the election changes will have to be made even though the number of contributors to the system is growing as the employment situation improves the rate of spending is rising faster financial sector deleveraging or less solvent demand for credit mario draghi understands that falling inflation expectations raise real interest rates by influencing the perceived cost of credit into the future if consumers anticipate inflation then that makes borrowing cheaper and people tend to advance purchases conversely expected price falls make the cost of borrowing greater make the desirability of advancing purchases via credit less and in this sense constitute monetary tightening i am aware of an ongoing debate about whether interest rates really are a key factor influencing investment decisions but i have never seen an argument suggesting that the cost of credit does not influence consumption and so it is in spain since the demand for household borrowing is not surging even though the country s banks keep telling us they are now ready to lend i am aware of an ongoing debate about whether interest rates really are a key factor influencing investment decisions but i have never seen an argument suggesting that the cost of credit does not influence consumption and so it is in spain since the demand for household borrowing is not surging even though the country s banks keep telling us they are now ready to lend in fact lending is still falling and was down an annual 3 2 to the private sector in february there may be many reasons beyond the strength of bank balance sheets which may explain why we are not seeing an increase in private sector credit in spain some may simply not be able to get loans because they already can t pay their existing debt the 4 million spaniards currently on the credit blacklist run by credit consulting firm asnef will have a hard time joining in the current consumer boom even if they have a job spain s economy minister luis de guindos put quite graphically when he said it s hard not to defer purchases when you ve got no money for them in the first place in the case of spanish unemployed i think they ve got more worries than waiting for a new sofa suite to drop by 50 so part of the reason for the no credit expansion is the high level of existing debt and the large number of unemployed or people working in low pay short term contract jobs many corporates are also still heavily indebted and those that aren t are still facing comparatively low levels of demand for their products which means they will not be engaging in large scale investment projects which anyway they would probably finance via the bond markets political uncertainty ahead when the imf said last year that spain s unemployment level was unacceptably high i was pretty critical of the fact that they didn t spell out the consequences of this or offer any substantial policy alternative the most obvious impact of this failure to find an alternative is being seen right now with the emergence of political movements which could well turn the country s two party system completely upside down and the steady flow of talented young people out of the country in search of work according to the latest metroscopia opinion poll carried out for the newspaper el país april 12 2015 four parties podemos 22 1 psoe 21 9 pp 20 8 and ciudadanos 19 4 are in close competition for first place in the forthcoming election the lastest arrival on the national political scene is citizens ciudadanos a movement which despite being difficult to pin down in terms of specific policy seems to lie somewhere to the centre right between pp and psoe in terms of its political ideology it is very hard to predict what the outcome of the coming general election due at the end of this year will be but it seems clear that no one party will have a majority so governmental arithmentic is about to get complicated the first indication of what the political landscape might start to look like should come in andalusia which has regional elections on march 22 then in may there will be regional elections in madrid and valencia and municipal ones in large cities like madrid valencia and barcelona such elections will however only give a vague impression since personality factors and local loyalties will also be important as for the concerns which are driving this earthquake these are clear enough from the opinion surveys unemployment corruption and the issues related to their current economic situation are by a long way the most important issues in voters minds indeed despite all the talk of recovery the vast majority of them continue to think the current economic situation is either bad 41 8 or very bad 33 8 forthcoming alliances are hard to predict ideologically podemos and citizens may seem far apart but the voter concerns which are driving their rise are often surprisingly similar even if the solutions they offer are quite different over the corruption issue for example the possibility must exist of a de facto alliance between the two movements to force major reform on the two traditional parties another issue which will probably unite them is that of debt many of spain s citizens are badly indebted and many still have difficulty paying their mortgages despite very low interest rates in addition there is the notorious full recourse rule which means people who can t pay can t simply return their home and liquidate their debt there is a wide feeling of injustice associated with the fact that property developers received limited liability mortgages many of which have now ended up with bad bank sareb with losses being met by taxpayers while ordinary citizens were given no such escape clause rescue the citizens not just the banks is a slogan you often hear these days it is unclear what citizens propose to do about the issue but podemos s opinion is clear enough and on this stance they enjoy widespread popular support going well beyond those who will actually vote for them they will revoke full recourse it s not a mere detail that the point pablo isglesias stressed in his interview with cnbc s michelle caruso cabrera was we can have governments that work for people and not for the banks as the interviewer commented one thing he s really got going for him is that in spain they can kick you out of the house and you still keep paying the mortgage it s a recourse loan the other big issue is austerity spain still runs a large fiscal deficit 5 6 of gdp in 2014 the largest in the euro area at first glance with so many elections taking place it doesn t seem likely this will come down that much this year and in 2016 it is hard to imagine there won t be a parliamentary majority in favour of prioritizing bringing down unemployment over reducing the deficit making some sort of clash with the eu commission not improbable nevertheless as long as ecb qe stays in place investors are hardly going to worry too much so yields wouldn t necessarily be affected but what if the ecb wanted to taper posted by edward hugh at 7 56 pm no comments thursday march 12 2015 spain fuelling today s retail sales by spending tomorrow s pensions spain s pension system is on the rocks before the crisis it was running constant surpluses but now the trend has reversed and it is in constant deficit and the shortfalls look set to stretch forwards as far as the eye can see the curious detail about this situation is that even as the crisis deepens the government keeps raising the real value of pensions being paid this post is an edited extract from my larger piece why is spain s population loss an economic problem on the other hand household consumption is surging it was up an annual 3 9 in the last three months of 2014 a phenomenon which is leading many to talk of good deflation in spain but what proponents of this argument tend to forget is that someone if paying for this deflation boost party i the case of salaried workers the cost is carried by their employers but in the case of pensioners the fiesta is being charged directly to the account of future generations of pensioners as spain s mini boom becomes increasingly consumption driven shifting the burden onto the reserve fund the fact that spain s pension system was going to have problem maintaining the level of payments has long been known in fact in recent years there have been two reforms which have tried to address different aspects of the problem but it is really the huge loss of employment during the crisis that has really highlighted the chronic nature of the underfunding the system is being subjected to initially the then socialist government plugged the growing funding gap out of general government finances but as financial markets started to focus on the size of the country s fiscal deficit this practice became increasingly problematic with the arrival of the pp there was a change in strategy and since 2012 the pensions deficit has been funded by drawing down on the reserve fund this was established in 2000 and was meant to ensure the long term sustainability of the system especially as demographic pressure mounted towards the end of this decade the fund had been accumulating the surpluses generated in the 2000 2007 boom years the financing switch has helped the headline fiscal deficit number but the decline in the reserve fund that has been the result is starting to make a growing number of spaniards increasingly nervous one part of the problem the system is having is simply the result of population ageing the balance shifts as the number of pensioners rises and the number of contributors for each pensioner falls another part is the result of the recent economic crisis since with so much unemployment less people contribute while a third contributing factor are the recent changes in the labour market structure which mean that young people now earn a lot less than those retiring leading average contributions to fall while average pensions rise some of the results of this sea change can be seen in the chart below sorry about the spanish but i think the main points are easily grasped the number of contributors for each pensioner hit a high of 2 71 in 2007 since then it has been falling and was at 2 25 in 2014 the number of pensioners has risen from 7 6 million in 2007 to 8 4 million in 2014 the average pension paid is also rising in february 2015 the total amount paid out by the system in pensions was up 3 1 year on year but the number of pensioners was only up 1 3 so the average pension went up by 2 1 due to the fact that the most recent retirees have been earning more than earlier cohorts and are thus entitled to higher pensions we don t have data on this year s pension system income yet but at the end of last year it was rising at about 1 5 a year leaving a growing shortfall for the system to cover as i said under the former psoe the shortfall was funded out of the general government budget and possibly 1 5 percentage points of the 9 6 2011 fiscal deficit were the result of this financing with the arrival of the pp in government this policy changed and pension financing moved over to the reserve fund the attrition has been constant and the fund is now starting to dwindle in 2012 7 billion euros were withdrawn in 2013 it was 11 6 billion euros and in 2014 15 3 billion euros or 1 5 of gdp if you want to compare apples with apples and pears with pears you would need to add this 1 5 of gdp to the 5 6 fiscal deficit giving a 7 1 deficit using the same accounting criteria as 2011 put another way the deficit has really been reduced from 9 6 to 7 1 in 3 years hardly dramatic austerity instead of paying the pensions gap out of current income the government are using a credit card issued by future pensions to keep payments up even though the situation is obviously getting worse meaning it will be even more difficult to pay current pension levels in the future than it is now as a result of all these withdrawals the size of the reserve fund has fallen from its 66 8 billion euro peak in 2011 to the current level of 41 6 billion euros at the moment the government have budgeted for another 8 4 billion euro withdrawal this year but this number could easily turn out to be larger so 2015 should close with around 30 billion euros outstanding about 3 years more money at the current rate it is clear that soon after the election changes will have to be made even though the number of contributors to the system is growing as the employment situation improves the rate of spending is rising faster there was a pension reform in 2013 which was intended to address the problem by making the system self financing a complicated formula was introduced whose intention was to ensure that more money didn t go out on a structural basis than came in but this was in the era when spaniards still expected inflation as their economic default setting as a result and as a way of selling the reform a minimum increase of 0 25 was set last december consumer prices were...