MacroScope

Spanish Prime Minister Mariano Rajoy meets labour union and business leaders to discuss reforms to pensions and public institutions. After some fairly brutal cutting, Rajoy has grown more cautious. He is negotiating a new formula for calculating pension payoffs but is wary of going further for fear of sparking greater protest. And all the time, recession put the country’s debt targets further out of reach.

There’s still some pretty serious stuff on the table. Rajoy’s cabinet has proposed a “stability factor” for the pension system, which would periodically adjust pay-outs and retirement age based on economic performance, demographics and other factors. The government is also studying a major reform to public administrations that could mean numerous job cuts in the public sector at a time when unemployment is at 27 percent.

The EU has granted France, Spain and others more time to meet their deficit targets in an attempt to foster some growth. But it is also insistent the pace of structural reforms must be stepped up. The French parliament voted through labour reforms on Tuesday which will make hiring and firing somewhat easier. President Francois Hollande will hold a rare news conference having travelled to Brussels yesterday to declare he would use the leeway to boost competitiveness and growth. Details? There were none. The European Commission will spell out its recommendations at the end of the month.

Labour reform, along with public spending cuts and steps to plug a funding shortfall in France’s pension system, are among measures the European Commission is seeking from Paris in return for granting it two more years this month to bring its public deficit down to below 3 percent of national output.

One of Hollande’s problems has been the mixed messages coming out of his cabinet. Speculation is rising of an imminent cabinet reshuffle after persistent rows between Finance Minister Pierre Moscovici and junior industry minister Arnaud Montebourg. Hollande’s ratings are tumbling, as is the French economy which has slid back into recession.

This morning, we exclusively report that Spanish Prime Minister Rajoy could be about to break another promise by freezing pensions and bringing forward a planned rise in the retirement age.

This latest austerity policy will be political poison at home but will give Madrid more credibility with its euro zone peers since that was one of Brussels’ policy recommendations for the country back in May. We know that at the end of next week the government will unveil its 2013 budget and further structural reforms which all smacks of an attempt to get its retaliation in first so that the euro zone and IMF won’t ask for any more cuts if and when Madrid makes its request for aid.

The pensions shift could well be kept under wraps until regional elections in late October are out of the way. It is less likely that the government can defer a request for help from the euro zone rescue fund, after which the ECB can pile into the secondary market, for that long given some daunting debt refinancing bills falling due at the end of next month.

The babushka, that embodiment of Russian grandmotherly goodness that has spawned iconic dolls and inspired a Kate Bush song, poses one of the gravest threat to the Russian economy.

Moscow-based investment bank Renaissance Capital also expects this segment of the demography to spur politically risky pension reforms.

Russia's pension system is coming under increasing strain thanks to growing life expectancy -- particularly among women -- and a shrinking labour force due to the collapse in birth rates in the 1990s.