As European debt makes headlines around the world, the euro remains in free fall and E.U. leaders feel the pressure to deal with deficits at home, the government of French president Nicolas Sarkozy is working to put the country’s pension system back in the black while avoiding popular revolt.
France has received less scrutiny than other European nations facing catastrophic debt, but its fiscal picture is only a bit better than places like Greece, Spain, and Ireland. Like other European nations, French public finances were hit hard by the Wall Street meltdown. The country’s budget deficit will reach 8 percent of GDP this year, and its public debt is at 84 percent of GDP. According to The Economist, the European Commission predicts that France’s debt could be up to 95 percent of GDP by 2020.
The famously generous French pension system, which allows workers to retire at age 60 on a high percentage of their lifetime salary, is in particular trouble. The constant focus of mostly unsuccessful reform attempts over the past two decades, it continues to balloon beyond its means. A council advising the government says the system’s deficit will be €10 billion year, and could multiply to €103 billion ($127 billion) by 2050.
Faltering pension systems are sending chills across Europe, where, as the New York Times reported on May 22, “the assumptions and gains of a lifetime are suddenly in doubt.” The secure life of social democracy, the pride of Europeans who sniff at the harshness of American capitalism, suddenly seems uncertain, and raises specters of the doomsday predictions that have been haunting France over the past decade.
The social crisis does not, however, have much to do with the reckless spendthrifts in Athens or the gamblers on Wall Street. The main culprit is population. France’s system depends on younger workers to pay for their parents’ generation as they finish out their lives in comfort and stability. For several decades it seemed to work. But now, as longevity increases and population decreases, the ratios of workers to retraitées (retirees) is slipping to dangerous levels. By 2050, according to state statistics, France will have only 1.2 workers for each rétraitée. In 1960, it was four to one.
Forecasters knew as early as the 1990s that the twin forces of an increasingly elderly population and an unreplentishing work force would strain the system. The state threw money at families in a half-hearted (and apparently unsuccessful) attempt to inspire procreation, but significant reform was put off. Meanwhile, books were given titles like France on the Brink, by a British journalist, and Our Children Will Hate Us, by two French authors. The doomsday authors even got their own collective pejorative: les déclinologues.
The idea of imposing rigeur, or austerity measures, is wildly unpopular in France, though there is evidence that the public theoretically accepts that reforms are necessary. Jacques Chirac, the country’s previous was elected on a platform of job creation (or as TAS’ resident Frenchman informs me, “a wishy-washy platform of healing France’s ‘social rift.’”) But high unemployment continued to drive social unrest and the country revolted against Chirac’s proposed budget cuts. Alain Juppé, his conservative prime minister, became a hated national figure for proposing a system of welfare cuts, and his agenda sparked a wave of strikes in 1995 that marked the largest social movement in France in three decades.
The pension system was one of Juppé‘s targets. His “Plan for the Reform of Social Welfare” proposed a slight increase to the required years of work and ending “special schemes” for certain government workers, like transit employees, who were allowed to retire at age 50-a decade earlier than the already-low national average. The Juppé plan overwhelmingly passed the National Assembly, but after protests shut down the country’s infrastructure for three weeks, the government caved on the reforms and let the transit workers keep retiring at 50. Juppé was soon out of a job in Paris. (A scandal involving his relatives mysteriously occupying domaine privé apartments on the Left Bank didn’t help.)
Pension reform has come up at the beginning of every new administration since, as presidents try to broach the prickly subject before the public returns to its usual cynicism about the political establishment. Chirac’s second prime minister, Jean-Pierre Raffarin, proposed cuts after Chirac was re-elected in 2002. Raffarin’s plan had the modest goal of getting the average French worker to pay more over a slightly longer period of working years before sallying forth into government-cushioned retirement. Again, protests shut down national transit systems. Parisians walked, skateboarded, and biked to work. C’est la vie. The result was a minuscule increase of the time French workers are required to contribute to their pension.
Nicolas Sarkozy, a member of Chirac’s right-wing party, won the presidency in 2007 after promising tax relief for the burdened French upper class. Although 77 percent of the French public supported his reforms, he promised to put off pension reform until his second term after a wave of strikes. But Europe’s continued state of financial worry has motivated him to move it higher up on the agenda. He now says he will have a plan by fall that will raise the retirement age.
The French left — the Socialist Party, the Communist Party, union leaders, the newspaper Libération — immediately accused Sarkozy’s ministers of working on a secret plot to raise the age of retirement, which one Libération blogger called “the cornerstone of our system.” Socialist Party leader Martine Aubry said she would consider increasing the retirement age to 61 or 62, as long as measures were taken to protect older workers who might have difficulty finding work as they age. Aubry said her party would be willing to work with Sarkozy if he would have “an honest debate.”
Le Monde reported that the Sarkozy plan, to be outlined fully in June, will increase the retirement age as much as three years, to 63, in installments. It will try to reduce disparities between public and private employs by limiting some of the sweetheart deals – like extra-early retirement – that are the hallmark of government jobs in France. Finally, it will levy a “symbolic” new tax on high earners that would generate €2 billion to €3 billion for pensions.
Sarkozy’s ministers have tried to quiet a media frenzy by saying they have made no decisions about raising the retirement age. Labor minister Eric Woerth said it is the “only logical option” for the government, but union leaders began a “general strike” on May 27. Sarkozy’s approval ratings currently stand at around 30 percent.
Reform measures since Chirac have not typically had difficulty passing the National Assembly, but the question will be whether or not Sarkozy’s government sticks to its guns without allowing the reforms to be obstructed, derailed by popular outrage, or gradually repealed.
Some critics think the plan is too weak from the beginning. The Economist called it “too timid by half,” and called the tax plan “the sort of soak-the-rich policy that Mr Sarkozy once eschewed.” In a 2003 interview, OECD deputy secretary Martine Durand also said increased taxation was a non-starter, since France’s tax burden is already high by international standards. Durand said the retirement age was a factor, but that France should “eliminate provisions that subsidise early withdrawal from active life – first and foremost, early retirement schemes.”