Spain’s Pension System Hits Crisis Point (and Everyone Ignores it)

But how did things get this bad?

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

By most measures, sun-blessed Spain is an idyllic place to grow old in. Life expectancy is among the highest in the world, and the national pension fund’s payout ratio (pension as percent of final salary) is the second highest in Europe after Greece. But if current trends are any indication, that may soon be about to change.

The country’s Social Security Reserve Fund, which was meant to serve as a nationwide nest egg to guarantee future pension payouts — given Spain’s burgeoning ranks of pensioners — has been bled virtually dry by the government. This started ever so quietly in 2012 when the government began withdrawing cash from the fund. Some of it was used to fill part of the government’s own fiscal gaps while billions more were tapped to cover the Social Security system’s growing deficits. As a result the pension pot has shrunk from over €66 billion in 2011 to just €15 billion in 2016.

To avoid wiping out the fund altogether this year, the Spanish government extended a €10.1 billion interest-free loan to Spain’s social security system, which enabled it to pay out the two extra pension payments due in June and December. That way, only €7-7.5 billion will be tapped from Spain’s public pension nest egg. Emptying the pot altogether this year would have been politically unpalatable, says El País. Instead, it will be emptied next year as the social security system racks up yet another massive annual shortfall.

Last year it registered its biggest deficit in its history (€18.1 billion), which was covered by the pension pot. In 2017, the deficit is forecast to be €16.6 billion, according to the government’s own projections. That’s roughly 1.5% of Spanish GDP. Another €18-20 billion will be needed next year. Successive deficits are expected until at least 2020, when there will still be an annual deficit of around 0.5% of GDP — and that’s according to the government’s own rosy figures!

Without large annual cash transfusions paid for with freshly issued government debt, the system would have collapsed this year. But the fix is merely temporary and it’s likely to store up a whole new slew of problems for a country that’s already seen its public debt-to-GDP ratio triple over the last ten years. If, as expected, the interest on that debt continues its slow upward trajectory as the European Central Bank gradually pares back its purchases of European sovereign debt, the strain could become too much.

But how did things get this bad?

There are two main causes for Spain’s pensions nightmare: the rapid ageing of Spanish society, and the mass destruction of decent or semi-decent paying jobs in the wake of the financial crisis. Both problems are evident across most advanced Western economies, but they are particularly pronounced in Spain.

When Deaths Outperform Births. For the last two years Spain has registered more deaths than births. The last time that happened for a sustained period of time was during the bloody Civil War years (1936-39) when more than half a million people perished.

The current trend has only just begun. In 2014 Spain’s National Statistics Institute (INE) predicted that an era of more deaths than births would begin in 2015 and the gap would continue to widen until 2062. It said the country’s population, now numbering more than 46 million, would probably fall by more than a million over the next 15 years and by 5.6 million over the next 50 years. It’s a trend that is already having very serious implications for the sustainability of Spain’s public pensions system.

Bullshit Jobs, Bullshit Pensions. The popping of Spain’s mind boggling property bubble and the subsequent collapse of most of its savings banks triggered a wave of job destruction in Spain that was virtually unparalleled in other parts of Europe.

In return for a €60 billion financial sector bailout, the Troika demanded harsh wage cuts and sweeping labor reforms. The Rajoy administration was more than happy to oblige, with the result that most of the new jobs that have been created in recent years are both poorly paid and highly precarious, which may be good news for cost-cutting employers (at least in the short term), but terrible news for Spain’s pension scheme.

Many of Spain’s young workers cannot even support themselves financially, let alone millions of their grandparents’ generation. Even though unemployment has declined from the mind-watering 27% apex reached in 2013 to today’s still depression-level 16.5% and the number of people paying into the social security has steadily increased, there’s no way that Spain’s new generation of unemployed, underemployed, badly paid, or “ni-nis” (Not in Employment, Education or Training or NEETs) will be able to maintain 8.6 million pensioners, who are living longer than ever and are used to earning an average state pension of €921 a month, one of the highest as a percentage of final salary in Europe. Their number is expected to almost double to 15 million by 2042.

At some point in the near future the Spanish government will have to make a very uncomfortable choice: either the average state pension will have to drop precipitously (unlikely, given that 60% of voters for Rajoy’s governing party are over 55 and 40% are over 65) or taxes are going to have to rise, big time.

Yet the government, which enjoys a hard-earned reputation for not tackling problems until they’re too big to tackle is talking about tax cuts, not rises. As El País reports, there’s little sign of any workable solution in the offing even as the ranks of retiring baby boomers grow by the day. By Don Quijones.

For Italy’s teetering banks, there a sharp dose of Deja Vu. Read…  The Next Italian Bank Threatens to Topple

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  65 comments for “Spain’s Pension System Hits Crisis Point (and Everyone Ignores it)

  1. Gershon says:

    Pensioners should do our oligarch overlords a favor and step up their shuffle off this mortal coil. The important thing here is that we make all banks whole, and then some, despite their recklessness and greed.

    • Haus-Targaryen says:

      While I always appreciate DQ’s Spain-related analysis — perhaps in a parallel universe somewhere it is relevant.

      Then again, perhaps I’ve turned into a pessimist extraordinaire.

      The fact of the matter is, The ECB can allow a Spanish pension implosion to occur to the same extent it can allow the Italian finance system’s credit lines to find price discovery — it can’t.

      As the ECB and the EU clearly showed everyone in 2010 and 2012 — when the continued existence of the euro as a currency is called into material question if a given event occurs — the ECB will do literally “whatever it takes” (be it legal, illegal, moral, immoral, sane, crazy, or any permutation thereof) to prevent that event from happening.

      Thus, the ECB will magically find a way to keep this plate spinning as it has done with the Italian finance system or the Greek banks … lots of funny money moving across national borders out of public sight and mind for the exclusive purpose of ensuring its own sustainability.

      I am coming to the opinion this continues much longer than any of us anticipate it can.

      • Nick says:

        The costs to a country of leaving the Eurozone are almost unimaginable — when Greece was facing that situation, the best estimates were comparable to a devastating war, followed by punitive reparations. Everyone thinks of the Euro as fragile, and maybe it is; but I wouldn’t be surprised, when push comes to shove and shove comes to ‘fall off the table and shatter’, that Europe moves closer towards true fiscal union rather than away.

        • Haus-Targaryen says:

          As long as the creditor nations “take it” and there is this myth (<– focus on that word) floating out there that the collapse of the euro would immediately result in the Bundeswehr marching down the Champs-élysées then sure — you're right. Things will continue as is and the next financial crisis will result in a direct transfer union, similar in comparison to the U.S.

          The big difference in Rainbowland … ehrm … I mean the European Monetary Union is two fold:

          1) the U.S. took some 150 years to develop the USD into how we know it today on the backbone of a common "monoculture" across all the states. It was a new nation with a new currency. This is not the case in the EMZ, the currency was developed in the span of a decade an implemented "head first" with problems arising and being addressed later. Further, there is no "European People" (see page 4 of pdf paragraph 4 as a great example of even the EU admitting this) nor a common European culture — which is necessary to build a stable currency. The Soviets attempted a single currency across the USSR a couple times — it never worked, due mainly to cultural differences and resource allocation. What you're describing (and you're correct in your analysis) makes the euro more akin to a suicide pact than a currency union.

          2) There are more net "payers" (in nominal terms) in the U.S. transfer union than there are net "takers". Add the GDP of all the U.S. states that pay into the transfer union and they completely dwarf those that take out. The EMZ doesn't fall into this same category as those that need to take out (including France, mind you) blew their economies up with massive debt-financing and can only sustain their quality of living and debt service costs with continued and exponentially increasing borrowing supplemented with a transfer union. What happens to Austria if it has to pay some 6% of its annual GDP to the PIGS to keep them solvent, with THEIR ageing population? Finland? See, this is the lynch-pin that will blow up a fully integrated transfer union is basic demographics as the "payer nations" one-by-one become "taker nations" until there is just Germany there — standing alone some 10 years into the future paying through the nose — not because they can but because of post-war guilt.

          The euro as a currency is completely unsustainable from a economic point of view — and socially is a time-bomb.

          Death to the euro.

        • Crysangle says:

          Haus – I pretty much agree with that, except that Germany chose this route. It is no good only blaming the debtors and not those who credit that debt. There are those in Germany willing to fully leverage their creditor status ( which was partly achieved by using the Eurozone system to advantage) for power and political gain. I seem to remember Germany/France were first to break the deficit rule also, no? In fact reports from meetings in Lisbon had Axel Weber suggest/resigning to monetization post gfc. Also the single currency is an old project, it was lauded openly on British EEC entry, later dropped by UK, but goes back to pre-war. You even have the latin monetary union as first example, or Roman empire currency system if you go back further.

        • d says:

          Greek club med and french banking NPL ‘s are what is preventing a Pan European FDIC, Euro bond’s, and closer fiscal union.

          The North is simply not going to put itself on the hook for the Souths NPL’S.

          The Souths NPL’S will be resolved to the satisfaction of the north, or:

          1 the euro will split.

          2 the euro will implode.

          The Answer. I dont have, is the, When.

        • Crysangle says:

          d – it can be reasoned that the boom and resulting npls are secondary to a purposeful busting of southern sovereign debt ( Spain had “reasonable” levels before gfc) , implementing nirp ( which is as close to mutual debt as possible without combined issuance), creating a more closely integrated banking system monitoring, and ultimately obliging a transfer union (to address the imbalances) at a political level, the political level being now dependent on ECB and EU “generosity and resolution”. All countries or their finance are directly reliant on continuous central coordination now, Euro is systemic, and so they are obliged ( or obliged, or obliged) to fit in with whatever the larger plan is.

          There is no escape except to return to own currency, and therefore regain a sovereign management.

        • Kraig says:

          It already is. Germany has been forced into minimum wage laws to increase labour costs relative to the rest of the eurozone

      • d says:

        “I am coming to the opinion this continues much longer than any of us anticipate it can.”

        Yes but all these ECB games still reinforce the US $ and Sterling, as the two least dirty shirts in the game and SDR.

        whereas the Eur and CNY/RMB are still competing for the title of dirtiest shirt in the Basket. Neither should really be in the SDR.

  2. Ishkabibble says:

    Don’t worry one bit. The “invisible hand” will solve all of life’s little problems. Just follow your greed, have 10 kids and everything will be just fine.

  3. JR says:

    Well historically – it goes like this theme:

    1 Euro (2002) = 166 pesetas (1869-2002) = (5/2x) 415 silver escudos (1864-1869) = (10x) 6640 gold escudos (1535 – 1864) = (3x) 19920 reals (1450 – 1535).

    About a 99.5 percent drop over the centuries. Not bad actually. So it is reasonable to expect some sort of monetary decoupling and devaluation and default to cover the outflow.

    • Ed says:

      I don’t know how monetary decoupling works. If it didn’t happen in Greece, I doubt it’ll happen in Spain, which is somewhat less of a hard case, I think.

      The solution in the U.S. to imbalances in economic strength has been to transfer money, year after year, to the states with weaker productivity. Those transfers enable lower tax rates than would otherwise prevail and, in fact, I think helps those states attract new business because of the “business friendly environment” == “low taxes”.

      (It must be deeply disturbing to people in Minnesota, Illinois, New York, California, etc. see those transfers help people in S. Carolina and Alabama poach their established businesses, not just new businesses like BMW or Mercedes plants.)

      Spain won’t get the nice treatment S. Carolina has been getting. Perhaps the whole Euro will be devalued to inflate German and Dutch wages and balance labor rates in the E.U. ?

      That seems unlikely and problematic externally even if it were popular with the countries of the E.U. itself. But I raise it because “monetary decoupling” seems even more unlikely to me.

    • George McDuffee says:

      Interest – (inflation + taxes) < 0

  4. Tom Welsh says:

    I trust those responsible will meet with condign punishment – either after, or without trial.

  5. GSH says:

    I’m just amazed that Spain has or had a pension fund with real money in it. Not like what we have in the US where the social security money gets spent as soon as it makes it to Washington.

  6. Stan says:

    Sounds like California with CALPERS bleeding 8 Billion + per year. Our govt employees are paid and pensioned the highest in the country. Teachers with pensions of 14k a month? Try that in the private sector. Illinois has pension problems with unfunded liabilities of 250 Billion. Calif has 750 Billion ! This will only stop when the middle-class is taxed out of existence. Our new gas tax, registration tax and tax on recorded documents is not just for roads. It’s for govt pensions. We have the highest state income tax and if the new tax reform act passes with no deductions for state and local taxes, watch the middle-class in Calif go to no-tax states like Nevada and Texas. All that we be left will be high-tech millionaires and state employees – the new royalty.

    • John k says:

      Not worried.
      Apres moi Le deluge.

    • Wolf Richter says:


      We actually have a website that tracks the highest public pensions in California. At the top is a former deputy chief of police of LA with an annual pension and benefits package of $1.47 million. Most of the next hundreds of recipients are either former police of former firefighters from LA, and occasionally some other place, making over $500K a year ($42,000 a month)!

      The highest paid “teacher” related job I found in the data base made $121K… that was “Mary Armstrong” last working on the “Commission on Teacher Credentialing.”

      The highest pension going to an actual teacher was $120K or $10,000 a month.

      So according to this data base, teachers aren’t the biggest problems, and none of them get $14,000 a month in pensions. But look at police and fire department pensions.

      • Ed says:

        Naively, I would have supposed northern California would top the list, just because of the liberal politics.

        I see it’s L.A., Long Beach, and San Diego. All southern CA. Interesting.

      • Kent says:

        Police and fire guys are the ones with the big pensions. But it’s ok. They vote Republican.

      • Petunia says:

        In south Florida the police and firemen get high salaries, more than double the average salary, and the high pensions too. The state allows double dipping, you can leave one state job with a pension then move to another agency and work. Local politicians are the biggest abusers of double dipping.

      • Nick says:

        Many police contracts let them count accumulated overtime towards vesting in the pension — since staffing requirements are strict, this means that it’s not unusual (depending on the department) for officers to work two consecutive shifts, receiving overtime & credit towards a pension for the second. One effect of this is that many cops are able to retire with full pensions in their 40s; another is that those who keep working may accumulate truly massive credits. If they also move up the ladder, their pensions can be quite impressive.

        I don’t know about firemen in the States, but here in Canada a lot of the issues are the same.

    • MaryR says:

      My retired sister lives in Reno and has seen the low end rents jump up a huge amount (say from $600 to $750 or more per month) in just the past two years, as hordes of retirees from Northern California move in.

      The retirees cannot afford to live in the Golden State on their reduced incomes and the Reno rents would be laughable in the Bay Area. With no state income tax Nevada is booming…

  7. John says:

    Stan, teachers receive a pension of $14,000 per month? WTF?

    • Stan says:

      All govt salaries and pensions are public record in Calif. Just go to You can look up by salary and pension, by job, etc. Yes I have a client who was a high school English teacher and he retired at 60 with 14k a month. Teachers have a pension plan called CALSTRS. It’s bleeding a deficit of 12 million a day. I have a fireman fritnd who also makes 14k a month. My neighbor, a city police sergeant, makes 202k a year. Pensions are usually 90% of salary, and all pensions increase every year. The state will try to tax us but at some date it will have to end. Maybe the next recession will wake up the state. Remember, state employees take no economic risk. Their pensions are guaranteed by the State Constitution.

      • RLP says:

        I always love when people claim pensions are guaranteed by a state constitution. So just how does their work if everyone packs up and leaves the state and leaves only the pensioners left?

        • John Doyle says:

          No way can pensions be guaranteed by any state. None of the states are monetary sovereign. They have to earn or borrow to get money to spend. However the Federal government IS monetary sovereign, so it can step in and make the pensions whole at any time. Time is that it cannot escape doing that.

      • QQQBall says:

        The first-responders juice the last few years of work to pump the retirement level. It maybe 90%, but the base is juiced so they retire on more than 90% of pay. Promotions near retirement are also not uncommon.

        I predicted long ago that peeps would move to Reno from Cali… Sell the casa in Sactown, but a small apt project in Reno and live/retire comfortably.

        When is Prop 13 getting repealed? First on C&I and MFD with owner-occupied SFRs being spared?

  8. OutLookingIn says:


    …and have been for some time.

    There is no way the actuaries in ALL pension plans, have hit their 8% return requirements, so as to remain solvent and satisfy their fiduciary duty.

    Governmental based pension schemes are even worse off than the present situation appears. Very large union pension pools have already seen reductions of benefits, some quite severe. At least the government pensions can stay solvent by printing more currency to satisfy payout requirements. Mind you, the dollar won’t buy much of anything.

    Those who have neglected to prepare, or have trusted their pension “trustee’s”, will be left twisting in the wind. Many will perish. Few will survive. Fewer still, will survive and thrive.

    • Paulo says:

      Your comment on pensions might apply to California, but not to where I live in BC. Certainly not to Spain, either.

      I have a very modest pension having worked as a teacher for 17 years. In BC, the max a teacher can ever make is 70% of salary, provided he/she worked 35 years full time. The pension Plan is funded to 105%, and is evaluated continually to ensure a COLA is available for retirees. It is as sound as gold, actually.

      If a BC teacher has a masters degree and approx 11 years full time work experience, and works full time, he/she might earn $85,000/year. This is what I made when I retired and is about $40,000 less per year than my 32 year old son who works as an Industrial Electrician. He works the same number of days that I did over the course of the year, plus is flown to work and home again and provided food and lodging as part of his renumeration. (Non-union, too. ) Oh yeah, his company matches his pension contributions, as well.

      Your California wage rates are unsustainable. Of course a new teacher could never afford to live in California much like Vancouver BC. It is all relative, I suppose. But I have never, ever heard of pension rates at 90% of salary. It is crazy, imho.

      The standard Govt. pension in Canada is 2% per year to a maximum of 70% of your best (sometimes average or last) 5 years.

      Regardless, if people, whether in Spain, California, or BC feel they are being shafted by the system there will be unrest. My response to right-wing threats of pension reductions has always been the same, “Sure, I’ll give up my pension and benefits (that I paid for)….just give me one exactly like yours”. My response to my friends who do not have a pension is always this, “I paid +$1,000 per month into it, and membership was mandatory. How much do you pay into your plan”. (Of course they never bothered to think about retirement until they were in their late fifties.) often, belonging to a pension plan is mandatory, just like being in the Union that negotiated it. Of course, if that’s a problem one could always move to Wisconsin.

      Like the article said, “Bullshit jobs and bullshit pensions”. But those poor banks always seem to get bailed out, don’t they?

      • wizzy says:

        “If a BC teacher has a masters degree and approx 11 years full time work experience, and works full time, he/she might earn $85,000/year. This is what I made when I retired and is about $40,000 less per year than my 32 year old son who works as an Industrial Electrician. He works the same number of days that I did over the course of the year, plus is flown to work and home again and provided food and lodging as part of his renumeration. (Non-union, too. ) Oh yeah, his company matches his pension contributions, as well.”

        …because he does something far more useful… that can’t be done via YouTube… teaching was always overrated..

        • Nick says:

          What a jerk comment — do you understand that her son, who does something ‘far more useful’ had to learn how to do that? And before he was in a position to learn to be an electrician, he had to learn the basics necessary to learn advanced subjects? And how to learn?

          I don’t know if you actually believe what you’ve written here, or if you’ve been trained somehow to think that it reflects a virtuous contrarian statement, but a culture that devalues teachers in the way that you do is not one that is going to succeed.

        • MarkinSF says:

          Probably the most ignorant comment ever posted on this site.

    • Tom says:

      calculations for pension payouts in cali. could be limited to the funds yearly income and issue a state IOU for the difference:It’s not like they haven’t done it before.

    • QQQBall says:

      you got a pension after17 years? hahahhaha! That will never work long-term

  9. nick kelly says:

    There are two narratives: one is that harsh conditions imposed by the Troika caused Spain’s current problems of high unemployment and low salaries. The other is that Spain had a real estate bubble and crash exceeding anywhere except maybe Ireland.

    At the height of the bubble 20 percent of Spain’s work force was engaged in housing construction, low tech jobs that don’t lead anywhere but pay well while they last. With a lot of them evaporating ( along with realtors, conveyancing etc.) what would replace them? The only sector that could hope to match the salaries would be manufacturing, which is nowhere big enough.

    I think Spain’s unemployment etc. are more likely due to the second factor and home- grown inefficiency than to the Troika’s loan conditions.

    • Crysangle says:

      It is complex. Spain always had a high ‘structural’ unemployment level (say 5 to 10 % depending). What happened after joining the Euro is something else though.

      First you had low ECB set rates (for the environment), increased trust for foreign investment to Spain (no fx), and a population migration to Spain. The resulting boom saw high employment, high wages, and large increase in private debt levels. Basically all the work (construction) that could (should) have been carried out sensibly over the next say twenty years was crammed into five years…result no work afterwards.

      The Troika loan conditions are just political theatre and leverage, the ECB is propping the whole show. Point is that if Spain had kept own currency this circumstance would not have occurred, fx would have stalled foreign investment, plus the BoEsp. would have had every control over the market overheating. They are not stupid. With Euro ECB set rates, all finance rushing to Spain was not directly Spain’s problem – they could not be blamed. Resolution is neither Spain’s problem, TBTF… but it is all a problem for the average person there, as they will be charged for the excesses. ZP tried the classic countercyclical spending, no good, nowhere near enough to compensate for the size of the boom, its effect on prices, work, income. This all suits creditor nations, as long as they are backstopped by ECB.

      So what or who is to blame?

      Greed, fraud, transfer of power to EU, and monetary policy to ECB…. unless you are a believer in the overall direction, in which case ze projekt eez going to ze plan.

      • Maximus Minimus says:

        The issues are multiple. The blind rush to increase the EU is still under way, even as the core is already breaking. Secondly, the same hurray approach was applied to Euro membership. Notorious deficit makers were allowed in whenever their budget was “on the right trajectory” to the already generously lax entry criteria. Maximum optimism was pervasive.
        Yet another issue, maybe not so minor, is the education standards. While there are not pushing the boundaries in Germany or Switzerland (Swiss pharma companies regularly acquire US startups), the statistics show, the standards are even lower in ClubMed. Does that bode well for hightech creation which would compete with say China?

        • Crysangle says:

          There are many factors at work. Just checking on ESO ( obligatory education to 16yrs) and Spain has double the European average, at 35%, of people between 25 and 34 who only attain that level. That is even a 10% improvement compaired to 2000

          I remember an article somewhere that stated that almost all PP paid advisors were at that level. Same goes for other businesses.

          But it is more than that ( the above culture in a sense). The country is not geared to innovation, so you have traditional sectors ( some agriculture, manufacturing, now tourism) but the rest is very much ad hoc, a lot of that based on realty, family reliance, temporary work.

          Then there is work contract law. People over 45 generally had, and have, permanent contracts, very hard to fire. So when there is trouble the group that made up most of the newly unemployed were the under 35s , and the newly released to the workforce simply not finding a first job ( almost 50% unemployment for the under 24s). Now it seems most new contracts are temporary, so low wages and precarity. The only other group that has a strong foothold is public position , basically secured till retirement.

          It is like the country is pretending to be what it isn’t ( and this reality aside it does have a lot to commend it), and is more like an organised chaos than the northern ideals it somewhat naively thinks are worth emulating… the ones that are happy to con a people ( who considered themselves somehow inferior by comparison) out of their own country. By the time they understand that they were really not that clever after all, their savings and whatever good future they had hoped for their families, will have dissapeared into the pockets of their new masters. I suppose Spain gets to sit with the grownups until it realises being juvenile was better , but how to rid itself of the new progressive mantra that has infiltrated the space where once there was cheerfulness and play no matter circumstance. You would have to have known the country a long while to really understand the mood that has descended on it.

        • Crysangle says:

          The Valencians were out today protesting, this about financial mistreatment ( fair regional allocation of resources).

          Wait till they cut pensions and see how everyone reacts.

  10. Maximus Minimus says:

    The Spanish pension fund seams to have kicked the can to the very end of the road. If there is positive to it, maybe when it goes bankrupt, the rest of them will have to come out, and speak the plain truth to the recipients.
    Birth rates are declining throughout the western world, but not only as a result of hedonistic lifestyle, but the result of economic upheaval, and uncertainty.
    Automation did it’s bit, but it is not alone.
    Removal of local production, monopolization, and concentration of production in ever fewer locations with lowest production costs (i.e. outside the benefit rich west) is another major factor.
    This was sold as a great benefit, and no effort was spared to advance it with lowering tariffs and such. Those who will be effected most, either lacked the mind to process it, or did not pay attention. When the chicken will come home to roost, the chicken will be too old and tired to fight.
    On the positive note, those who did the outsourcing, the dealing and wheeling, will be just fine.

  11. Rates says:

    Impossible by definition. If a true crisis point has been reached, absolutely EVERYONE will notice it.

    Another bear trap.

    • Wolf Richter says:

      I never “noticed” the Financial Crisis. It had no impact on me personally. I only saw it in the news and in the data. It wasn’t a crisis for me personally. Many people were that way. A pension crisis works the same way. If it isn’t your pension that gets cut, you won’t notice. You’ll just read about it. See Detroit. You didn’t notice that. You just read about it and shrugged. But lots of people got their pensions cut, and THEY noticed, and it’s a real crisis for them.

      • wkevinw says:

        OK, but the question is becoming “when do the state and local government pensions (and eventually Social Security/Medicare) become systemic to the whole economy and financial system”?- especially to a specific state or local area. I think Detroit has paid for this, in addition to all the other economic losses in the area.

        Illinois/Chicago might be next, and I left CA a long time ago thinking it couldn’t last. For me, actually, the last two bear markets were (big) money makers. I can see what is happening around me, however.

        If you are wealthy, yes, none of this matters much. That’s the whole point of the last election. About 30-50% of the people are being hurt by how this is all playing out.

        Un/Underemployment, especially in the young, especially males, coupled with pharma abuse, etc. It’s ugly for a large fraction of the population all over the world.

        • Johnson34 says:

          “If you are wealthy, yes, none of this matters much.”

          …until they start freezing accounts… or the ‘system’ itself freezes. Then it matter to everyone. (well, almost)

      • Rates says:

        Wolf, my point was the word “crisis” is overused. Someone pointed out correctly during the “credit crisis” that it’s not a credit crisis if you can still get a mortgage for 5-7% provided your credit score is good/excellent.

        Various European countries have been in “crisis” for so long one is starting to suspect that these people have more money than reported.

        Same with Murica. You see articles saying “60% of Americans have no savings” or how “60% would struggle to pay emergency bills”, bla, bla, bla, but a new iPhone X gets released, voila, the required cash suddenly appears. Opioid supply? Never an issue either.

  12. George McDuffee says:

    RE: But how did things get this bad?
    Old joke — at first little by little, but then all at once.

    • Gershon says:

      “How did you go bankrupt?”
      Two ways. Gradually, then suddenly.”

      ― Ernest Hemingway, The Sun Also Rises

  13. Bobber says:

    Imagine how bad the pension crisis will be if interest rates go up and pension fund assets drop in value. Imagine how bad the pension crisis will be if interest rates stay low and investments don’t grow. No matter what happens, we’re screwed because of the asset bubble the central banks created, as well as the debts racked up by corrupt political parties.

  14. Crysangle says:

    I am not sure if it is relevant, but it is part of the larger (re)cycle. After the gfc the Spanish wealth funds were used to buy up national debt, sort of a re-nationalisation. So the pension fund went from ( if memory serves) about a third sovereign debt composition to near a hundred percent. ECB QE has allowed that to be cashed in on. I wonder if there is a wider coincidence of organised bailout this way across EU, and winding down QE signals a new phase where the loss of value of pre-existing sovereign debt is not a major snag in any country’s workings.

  15. R Davis says:

    “given Spain’s burgeoning ranks of pensioners”

    Q: –
    According to who’s figures – that we may decide if it is true ?
    Or is the Spanish government crying poor ?

    Why would they do such a thing … you ask.
    Because the monies no longer exist due to pilfering.

  16. Hiho says:

    Wolf, as an spaniard I feel that I must intervene here:

    First of all, you forgot to talk about the flat tax rate that has been implemented for new contracts and that is bleeding social security accounts. By all means that is a stealth subsidy to employers, especially big employers, who by the way are having nice profits this year. So, this is a well designed wealth-transfer scheme.

    Our belovd gov has also been cutting income tax (without any special regard for low income brackets) and that has exacerbated the deficit. To make up for the difference, they have looted the SS fund.

    In the end of course, the fact that jobs are crappy and wages are miserable (minimum wage 645€/month, average wage around 1000€/month) is also one of the main driving forces behind this deficit.

    What I want to say here is that this is neither and accident nor a crisis. This is a thoroughly thought and designed wealth transfer scheme that intends to bankrupt the system altogether, push our savings to the private pension sector (which is marginal on Spain) and allow for more privatizations.

    • Hiho says:

      Oh shit, delete this comment wolf, by mistake I have copy pasted some random text.

      • Stan Barber says:

        No, Hiho, don’t delete the last comment. That was the best part. How very true.

    • Wolf Richter says:

      Hiho, I can undelete the comment you asked me to delete. I’m not sure why you asked me to delete it. If you want me to undelete it, let me know.

  17. d says:

    The decision has been made that the vast majority of state funded pension systems globally must end, for all but the completely destitute, as they re being abused by the leftist and their unions.

    In many states the simplest way to end many of the pension systems, is to break them.

    It would appear that Spain has chosen the break route, and chosen to do so, much earlier than may other States.

    If you are under 50 and relying on a state funded pension system, as your primary late life income, you are probably in big trouble.

    The problem for many in private ones, is finding one that isnt being stripped or deliberately malinvested by its overpaid managers.

  18. Hkan says:

    Kicking the can avoiding all kind of problems endanger ur career is universal. Make sure everything is great under ur watch…no matter what it takes….drain the system of maximum benefits.
    This been going on for soo long….the collapse is natural.
    Why did my car broke down TODAY!? It was working fine yesterday….

  19. Kent says:

    Reducing pensions simply means reducing the purchasing power of the elderly. Not that the elderly spend that much to start with, except on medical issues. And that reduction in demand from the elderly will also mean fewer jobs and profits in those sectors which serve the elderly.

    I think it is important to consider the efficacy of an economic system which cannot support the population. When the young cannot possibly produce enough to support their aged parents, one should consider a system which might be able to create a higher level of productivity.

    • George McDuffee says:


      When evaluating/rating a culture/economy/society, the way it treats its helpless members, i. e. its children, its elderly and its physically/mentally challenged, tells us all we need to know.

      • Cynic says:

        The Circassians, to take one culture used to put the senile and crippled out of their misery: they were shocked by those who allowed them to linger on.

        Only abundant coal, oil and gas allow us the luxury of our social services, pensions, etc.

        Only effective antibiotics keep the very elderly alive.

        This is all changing, and our ethics will have to adapt to new (old) circumstances.

  20. Cynic says:

    One thing to bear in mind regarding the ‘vulnerable’ southern economies, as Draghi calls them, is that pensions are the keystone in the household economies of many poorer families: with low wages even when in work, younger generations are depending on those with pensions to help them out and even to survive.

    As also on the wages of better-placed and secure older workers in industry and the bureaucracy.

    Remove those pensions, or cut them below a certain level, and things will implode, much as African and Asian countries riot when bread and rice prices rise above what is affordable for the mass of people.

    Everything in Spain is now tilted in favour of the upper middle class, who have recovered very nicely after the GFC.

    Unscrupulous employers also know that they can truly screw their workers with late, irregular and even non-payment of wages: the black sheep of my family does this, lives high on the hog and the workers are powerless, too afraid to walk away.

  21. Bob says:

    The pensions are out of control. Municipals, states have to file for bankruptcies and force 401-K on public employees especially police and fire employees. It is mind boggling how they work 20 years then double dip on other state jobs. New Mexico is swamped with free loading public employees with exception to teachers in NM!

  22. Martin says:

    The lack of jobs is partly due to EU regulations with regard to the employer’s care of employees.
    If a small business had an ill employee they were obliged to continue paying, albeit a lower wage, and have to employ someone else.
    Who would want to start a business?

  23. Christoph Weise says:

    Excellent report. Rather than hunting down the people in Catalonia Mr. Rajoy should turn his attention to the havoc caused by the EURO in Spain and look for solutions.

    • d says:

      “Excellent report. Rather than hunting down the people in Catalonia Mr. Rajoy should turn his attention to the havoc caused by the EURO in Spain and look for solutions.”

      The Havoc in Spain you blame on the Eur, is in fact the fault of successive Spanish administration’s.

      It is Insanity, for a country that has continually resolved it’s economic inefficiency, by continually devaluing its currency, to join a currency union. Where it can no longer do that.

      Without first reforming its Economy. Spain committed that act of insanity, now blames its woes on the Eur. Chutzpa in the extreme.

      Rajoy need only to look in the mirror, after looking upon the elected PP members, to find the first things that must be replaced, to begin the majority of solutions, to Spains many problems,

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