France's pension reforms

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France's pension reforms

The Economist, May 15th 2003

AFP

Huge protests tie up the country. We'll go ahead, says the government.

Paris - “The street can give its views, but the street doesn't govern,” said the prime minister, Jean-Pierre Raffarin, just before huge demonstrations on May 13th against his plans for pension reform brought France almost to a halt. Is he right? Or will the protests fatally undermine his government, as happened to his party colleague, Alain Juppé, an earlier prime minister who attempted fundamental reforms? For all the scale of the demos (the trade unions claim 2m people took part, the police guess is 1m), the odds must favour Mr Raffarin.

One reason is that Mr Juppé's downfall came when President Jacques Chirac rashly called early elections in 1997, letting those millions of voters who had taken to the streets in 1995 have their say at the ballot box too. He will not make the same mistake twice; the next general election will not be until 2007. Second, unlike the intellectually arrogant Mr Juppé, Mr Raffarin is rumpled and friendly; he can talk of “grassroots France” without seeming to despise it. Third, even his most dogged opponents recognise that as people live longer, some pensions reform is a necessity.

Mr Juppé's attempt at it, prepared in secret, came as a bombshell to public opinion. Mr Raffarin has spent months consulting just about everyone. Add a huge centre-right majority in parliament and an opposition in disarray, and he may well seem safe enough.

Yet the security is relative, especially as some strikes continued beyond the one day originally planned. As Libération, a leading paper of the left, pointed out on May 14th: “It's not the street that governs, but it's the street that gives a government a slap in the face—and since yesterday Raffarin's cheeks are red.” And public opinion is in two minds: pollsters find a majority agreeing that the pensions system must be reformed, but 48% are against Mr Raffarin's proposals and only 42% for them—with two-thirds supporting the demonstrators.

That is no great surprise. One essential element of the reform is that public-sector workers, who can now retire on full pension after just 37½ years of contributions, will by 2008 have to work the same 40 years as their counterparts in the private sector; and a quarter of France's workforce is in the public sector, while half of all households have at least one family member there. Another proposal is that, as life-expectancy increases, so should contribution periods; for example, to 41 years by 2012 and to 42 by 2020. Many young people feel they're being condemned to work for ever.

Nor is the economy supplying any countervailing feel-good factor. Unemployment in March was 9.3% of the workforce, up from 8.9% a year earlier; and investment, household spending and consumer confidence are all weakening. Moreover, the European Commission and France's EU partners are telling France to slim its public-sector deficit from this year's likely 3.7% of GDP and its public debt, some 61% of GDP, as against the EU limits of 3% and 60% respectively.

Mr Raffarin's response has been to talk tough—but not too tough. He has told ministers that the state “must not spend a single euro more” next year than this, while rejecting “a France of rigour, because rigour means more taxes and higher charges.” Similarly, he has told the unions he will be tough on those who want to block reform but will listen to “constructive suggestions”. Even before meeting the unions on May 14th, the social-affairs minister, François Fillon, said there was room to negotiate on several issues: a rise in the minimum pension for the low-paid, for instance, or over penalties on those who retire after paying too few contributions.

Crossed fingers

Whether this makes financial sense is doubtful. Short of an unexpected and sustained burst of economic growth, most pundits reckon that even unmodified the reform package will not be enough to pay for pensions over the next 40 years. But it makes good political sense. Mr Raffarin has to juggle Mr Chirac's insistence on cutting taxes, his commitment to pensions reform and the European Commission's insistence on balanced books. The effort looks likely to fail; but as the unions prepare yet more strikes in the run-up to next month's parliamentary debate on the reform, at least Mr Raffarin can hope to escape the fate of Mr Juppé.