The
French government is trying to reconcile its need for economic reforms
and its desire to maintain social stability. On June 20, France held the
first day of the "great social conference," a summit of businesses,
unions and government representatives, to address the country's main
social and economic reforms. Central to the summit was France's highly
controversial pension reform.
France
spends roughly 12.5 percent of its gross domestic product on pensions,
more than most almost any other Organization for Economic Co-operation
and Development member. (For reference, Germany spends about 11.4
percent of its GDP on pensions, and Japan spends roughly 8.7 percent.)
The
fact that an increasingly larger proportion of France's population
qualifies for pensions factors into the debate. In 1975, there were 31
workers paying contributions for every 10 retirees; today, there are 14
workers paying contributions for every 10 retirees. As the baby boomers
from the 1950s and 1960s begin to retire in the next decade, the
pressure on France's coffers will grow substantially. The deficit of the
French pension system is projected to double between 2010 and 2020,
when it will exceed 20 billion euros.
Most
French citizens admit that reforms are necessary, but they disagree on
how to apply them. On June 14, a group of economists and lawyers
submitted several proposals to the French government in a document known
as the Moreau report. Headed by Yannick Moreau, the commission that
authored the report was tasked by the government to formulate reform
proposals, which are nonbinding but nonetheless may guide Paris'
decisions.
The
proposals include a reform that would increase the number of
contributions necessary to qualify for a full pension, which would
extend contributions from 41.5 years to 44 years. Proposals also call
for a reduction of tax benefits for retirees and a modification to the
methodology for calculating pensions in the public sector. (In general,
pensions in the public sector tend to be higher than those of the
private sector).
Notably,
this is not the first "great social conference" undertaken by French
President Francois Hollande; he held one in July 2012, just two months
into his presidency. But unlike the first conference, the current summit
is taking place during a much less optimistic social climate. The
unemployment rate is higher than it has been since the mid-1990s, and
the economy is in recession. Hollande's popularity is below 30 percent,
and most French citizens doubt the president's ability to implement the
necessary reforms. Moreover, these reforms are particularly
controversial within the Socialist Party, which is forced to enact
policies that run counter to its convictions.
The
president's strategy is to look for consensus on the reforms to prevent
mass protests like those that accompanied reforms adopted by former
French President Nicolas Sarkozy in 2010. Hollande thus faces a dilemma:
He could try to push for comprehensive reforms unilaterally, but that
would be incredibly unpopular, at least in the short term. Otherwise, he
could try to enact diluted reforms, which would be more palatable for
French citizens but ultimately would be ineffective at reducing the
costs of the French pension system.
Hollande's
problem is shared by many Western European leaders, who have responded
to the ongoing economic crisis by implementing painful reforms in their
welfare states. The problem is that countries consider the welfare state
one of the defining economic, political and social features of postwar
Europe and a symbol of economic prosperity. The French have a long and
rich tradition of fighting for their civil and social rights, and the
notion of a social contract between rulers and the constituents is a key
feature of French politics. For the French -- not to mention the
Italians, Spanish or Germans -- a generous welfare state is an acquired
right, a part of the social contract in Europe.
Denying
citizens these rights comes at a high political cost. For example,
former German Chancellor Gerhard Schroder was forced to call for early
elections in 2005 because of the unpopularity of the reforms he applied
in the labor sector. In the long run, those reforms helped the German
economy regain its competitiveness.
During his first year in office, Hollande favored tax increases over structural reforms. But as the economic crisis worsens,
Paris is acknowledging the need to implement reforms to improve
France's competitiveness and reduce spending. With the parliament in
recess, Hollande has time in July and August to discuss reforms with
unions and employers. The big challenge will come in September, when the
National Assembly will begin analyzing the reforms discussed during the
summer. Two major French unions, Worker's Force and the General
Confederation of Labour, already have announced strikes against the
pension reform.
The
European crisis forced most eurozone governments to implement painful
economic reforms aimed at cutting state spending and making their
economies more competitive. Over the past two years, governments that
have implemented unpopular economic reforms -- Greece, Spain, Portugal,
Ireland, Slovenia and Italy, for example -- have been forced to resign
early. Today protests continue in most of these countries. And in the
coming months, Hollande faces the challenge of finding the right balance
between structural reforms and social stability.
|
