We are looking at yet another horrendous legacy from Zapatero's socialist party regime: Social Security accounts are starting to dip into the red. This is an alarming result of intense economic crisis in Spain and the resulting impact on the country's high unemployment rate. The Social Security system continues to lose workers who contribute to it. Barely 17 million workers are contributing funds needed to support 8.8 citizens' pension plans.
While exact data through the end of 2011 are still not available, it is estimated that the deficit could reach 0.2% of GDP. For now, the only lifeline preventing an even greater shortage of funds has been interest payments from the Social Security program's reserve fund, the majority of which is invested in Spanish debt. It is time to cut off this route, not just because there are five million unemployed workers in the country, but also to avoid liquidity problems.
Hard months are up ahead, and any improvement to business activity, when it occurs, will be followed by a slow spell of hiring. This dynamic is one of the cons of our rigid labor market. When the GDP falls, rapid and deep layoffs occur. And when activity resumes, the recovery is slow and delayed.
For this reason, serious and integral labor reforms must happen as soon as possible. Such reforms should deal with the thorniest issues: lowering layoff costs and eliminated hiring barriers associated with complex contract laws. Bañez faces some challenging decisions ahead. Next Saturday social agents will have to make a decision about their stance on labor reform as their grace period comes to an end.
Although a clear consensus is wanted, the Minister of Labor will have to take action if a consensus cannot be reached. Pensioners and the unemployed need rapid and decisive measures, because they have lost too much time already.