Massive strikes against French pension reform set a major hurdle for Macron’s reform agenda

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The French government tried this week to defuse the threat of a massive, prolonged strike over its planned but yet-unknown pension reform, by making a few concessions to public-sector unions. Considering the reactions, that is unlikely to mollify opponents. This doesn’t bode well for President Emmanuel Macron, who has made passing the plan a test of his reform agenda.

The president’s original hope was to devise the reform to end all reforms after the many changes enacted by left and right governments in the last three decades. France has a so-called “pay-as-you-go system,” financed by taxes, where workers’ contributions pay for retirees’ pensions. Private pension plans based on individual savings and corporate contributions are marginal. The legal retirement age is currently set at 62, on the condition of having worked a minimum amount of years. In practice, the French retire at 63, younger than the average of OECD countries (64) and in the U.K. or Germany (65).

The French system is, however, complicated by the variety of special pension schemes for some industries or professions, from train conductors to self-employed businesses. There are also the differences between the pension benefits of public- and private-sector employees.

Macron’s grand plan for reform aims both at unifying the systems in the name of fairness and taking the first steps to push up the retirement age, in stages, over the next years. The problem, noted in a Le Monde article by four economists who advised Macron during his 2017 presidential campaign, is that it has created anxiety on both sides. The reform, as unveiled this week by Prime Minister Édouard Philippe, will be implemented in gradual stages and so only apply in full to workers born after 1975 — who will only reach the new retirement age in 2039. In other words, French workers are striking today against a reform that will take their retirement age to the (current) OECD average in 20-years’ time…

The irony, as the Macron-friendly economists noted, is that the president didn’t even have to deal with the financial problem for now. The ratio of pension spending to GDP has been stable, at 14% of GDP, when adding together public and private schemes. That is significantly higher than in countries such as the U.K. (10.5%), Germany (10.9%) or even the U.S. (12%). But it is still being funded for now, and there is no immediate financial emergency requiring an urgent intervention of the state.

Macron’s reforms in the last two years, such as those of labor markets or unemployment benefits, were also greeted by strikes and demonstrations. But the French president managed to see them through, despite his regular communication blunders. He may think that he can weather this storm as well. But on pensions, the unpopular president has now placed himself in the position where he either keeps pushing, at the risk of sinking lower in the polls, or concedes and compromises, and loses his international luster as France’s great reformer.

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