Pension Problem in Spain

1.     The economic issue that this article addresses is the need to rely on parent’s pensions since the unemployment rate in Spain is so high. Apparently, there is a debate on whether or not pensions rates should increase due to their importance in helping out the unemployed. According to the article, the unemployment rate in Spain is 26.3% and 27% of households survive from the pensions being received from retired family members. Both of these percentages are very high and indicate a significant problem occurring in Spain. The article also goes into detail about the pension reform that the current Prime Minister, Mariano Rajoy, is establishing which he says will help those with pensions. However, in 2014 pensions were only increased by a rate of 0.25%, below the inflation rate of 0.8%, which is enraging some of the citizens.

2.     This issue can be related to our discussion on markets that we discussed in class because the high levels of unemployment in Spain could be attributed in some way to an inefficient market. Whether it’s due to too much, too little, or inefficient government regulation, Spain’s economy hit rock bottom in 2008 and has been rebuilding ever since. Since Spain has such a high unemployment rate, consumption is low meaning that the overall market system in Spain is taking a hit and needs to recover quickly.

3.     This problem occurring in Spain was the result of poor government regulation, false confidence when borrowing and spending, poor investment decisions, and more. This caused an increase unemployment rate, which made it so that many had to depend on their retired family members pensions as a means for survival. As mentioned earlier, there are policies in order to help those with pensions, but according to the article they are false promises and are not working. Unions argue that the current reform will cause about 9 millions pensioners to lose 15-28% of their pensions which in turn will affect the consumption/spending of Spanish citizens, causing an even greater decrease in their economy. However, a Spanish economist claimed that it is necessary to lower pensions in the long run since the old pensions were not sustainable due to increased life expectancy. Honestly, I do not feel like I am in a position to have a viable opinion on what should be done, but I do know that whatever is currently being done is not working and the government must somehow find a way to make the market more efficient and decrease unemployment rates.