French Government Readying Decree On Retirement Age

By Catherine Bremer, Leigh Thomas and Alexandria Sage, Reuters

June 1, 2012

France


Image Credit: Charles Platiau, Reuters
  Francois Hollande attends an election campaign rally where a supporter holds a sign about retirement at 60 which reads, ''60 years, 171 trimesters, and work 8 months more'' in Laon, April 24, 2012.

France's new government will sign off on a decree next week to roll back the pension age for people who have worked since early in life, its prime minister said on Friday, reversing in part a reform that had been welcomed by financial markets.
 
Premier Jean-Marc Ayrault said in an interview with BFM TV that there was no need to pass a law to make the changes to a 2010 pension reform, and instead a decree would be presented at the Socialist government's June 6 cabinet meeting.

"Restoring the retirement age to 60 for those who have worked 41 years will be the main issue of next week's cabinet meeting. A decree will be presented to the cabinet on June 6 for approval," Ayrault said.

"This is for people who started very early in laborious jobs and have been contributing (to the system) for many years."

President Francois Hollande, who took power in mid-May, made rolling back his predecessor Nicolas Sarkozy's pension reform a key part of his election manifesto. The decision to press ahead with it comes despite an EU warning that France will struggle to meet its fiscal targets without spending cuts.

Sarkozy's hard-won reform, which raised the age at which people can retire on a full pension to 62 from 60, was applauded by financial markets concerned about France's ability to cut its debt and deficit levels in the face of stagnant economic growth.

Credit ratings agencies have said the 2010 reform is a key element underpinning France's triple-A status, which Standard & Poor's nonetheless downgraded in January over concerns about the impact of the euro crisis. Moody's and Fitch still assign France their highest ratings.

Ayrault said the tweaks to the pension system would be financed by increased contributions and that the new government was fully committed to meeting a target to cut the public deficit to within 3 percent of gross domestic product next year.

"All the measures that I am announcing are financed. That's the case for the pensions. It will be financed and it shouldn't weigh on the public accounts," he said.

In addition to the initial changes, Hollande's government is due to start talks with unions and employers in the coming months on a broader overhaul of the retirement system and how it is financed.

In its annual assessment of French public finances, the European Commission said on Wednesday that the financing of the pension system needed to be closely monitored.

The European Union's executive arm urged the new government to detail new measures for reaching its deficit targets, which the Commission said France would otherwise miss.

Despite concerns it might not meet its deficit targets, France is enjoying record low borrowing costs, with the yield on its benchmark 10-year government bond hitting an all-time low of 2.3 percent on Friday.

Ayrault ruled out a sweeping overhaul of the tax system, but said he stood by Hollande's campaign pledge to increase taxes on the wealthy. He also said the accumulation of tax breaks and exemptions, which the French tax system is riddled with, would be capped at 10,000 euros annually.

Hollande's victory on May 6 was viewed as part of a backlash by European voters against austerity imposed to tackle the debt crisis now in its third year but which has choked growth. He and other European leaders argue that the euro zone's new fiscal pact, aimed at tightening budget discipline and averting any future repeat of the crisis, must be accompanied by measures to promote growth and investment.

Ayrault said the tax changes would be made provided that the Socialists emerge from a two-round legislative election on June 10 and 17 with a majority in parliament.

He also said the government would raise the minimum wage, as Hollande also promised during his campaign, in July, although he said it would be a moderate increase to reflect the fact that many small companies are struggling financially.

The government is also preparing a plan for mid-June that would force pay cuts among senior executives in state-controlled companies to ensure none of them earn more than 20 times the salary of the lowest-paid employee.