Tomás Burgo said yesterday that the pension system will experience "significant liquidity problems in July." The system's accounts are not aligned with the planned budget. In July they will have to deal with bonus payments to pensioners and civil servants.
Revenues from worker contributions are less than predicted due to falling employment, and spending is greater than the budget expected.
If inflation exceeds 1% in November and pensioners have to be compensated, we could see a deficit near 10 billion euros this year. It was a big mistake not to keep pension payment rates frozen this year, because the government could be forced to lower them next year if the economy does not improve.
This year the Spanish government has issued two rounds of financial reforms that require banks to raise their provision levels. With the latest round of reforms, the effort to secure the banks was particularly strong, which forced some mid-size banks to merge in order to avoid losses that would have resulted from having to increase their level of required provisions. Further, banks were given an extra year to complete the provisioning process.
