The Spanish government has said it will not agree to a pensions hike large enough to counteract inflation in the country. While retirees will not be amused, Madrid's focus these days is solely on budget consolidation.
The government of Spain announced on Friday it would not raise pensions to fully compensate for inflation next year. The move came despite Prime Minister Mariano Rajoy's earlier promise not to play with pensions to help slash the country's budget deficit.
Madrid said pensions would increase by 1 percent for those receiving more than 1,000 euros ($1,300 dollar) per month, and by 2 percent for those receiving less.
But Deputy Prime Minister Soraya Saenz de Santamaria acknowledged that this increase would not equate to unchanged purchasing power for pensioner, with inflation standing at 2.9 percent at present. In effect, therefore, retirees' increased 2013 incomes will not go as far as their 2012 pensions did.
A matter of priorities
Labor Minister Fatima Banez said the decision not to align pensions with inflation was "a very difficult one." But she added that the government's number-one priority was to reduce the budget deficit.
Considering that Madrid had already penciled in a rise in consumer prices of 1.0 percent, allowing pensions to rise by 2.9 percent would have cost the government an additional 3.8 billion euros.
The decoupling of pension increases from inflation rates will mean a worse deal not just for retirees; pensioners often share their income with family members in Spain, where the jobless rate is hovering around 25 percent, the highest among all OECD member countries.