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France’s Pension Problem

September 10, 2010

The legendarily strike-happy French are again taking to the streets resisting pension reform. Pension reform is the third rail of French politics which few French politicians have dared touch, and when they have the results have been explosive. In 1995 newly minted President Jacques Chirac tried to change pension laws and increase the retirement age, and touched off a fury of virulent, widespread, and ultimately violent strikes which were widely supported in the public sphere. These demonstrations stymied the goals of the center-right Chirac presidency and subsequent attempts at reform were met with similar rebuttal. Ultimately Chirac had to leave pension laws mostly untouched for the rest of his twelve years in office. It would be November 2007 until Chirac’s successor Nicholas Sarkozy, having run on conservative platform to streamline the French bureaucracy and revitalize the economy, took it up again. He proposed a reform of so called “special pensions” enjoyed by some in jobs which have traditionally been especially dangerous. These special pensions were available for example to railroad workers performing jobs which were dangerous and physically destructive, and allowed the workers to retire early with full pension, giving them a fighting chance to get out before they were mutilated or killed on the job. Think of it as some sort of perk or signing bonus for an otherwise odious profession. However here in the twenty-first century many of those positions have evolved into something far less perilous and (at least according to Sarkozy) no longer require the early retirement benefits. Perhaps Sarkozy thought that in preceding years the unions had sufficiently weakened, or perhaps he wagered that he would enjoy more public support as these were just the policies he had vocally campaigned on during the election. However the still-powerful French unions quickly countered and called the SNCF to strike which left the transportation network crippled for over a week. And the strikes rapidly grew in scope, spreading to education, utilities, air traffic controllers, and may others. The strikes in 2007 , asserted the strenghth of the unions, brought the government and labor to the bargaining table, and dented Sarkozy’s popularity.

Now three years later, in light of the Great Recession and the Eurozone Crisis, Sarkozy is returning to the pension debate in force and not surprisingly the unions are fighting back. The government is proposing to raise the retirement age and the number of years one must pay social security taxes in an effort to augment the sector of the economy which is paying into the system and decrease the number of those actively drawing pension benefits. Not surprisingly the unions are standing their ground with a series of strikes over the Spring and Summer, the lastest being Tuesday September 7th when over a million workers nationwide went on strike. In a déjà vu moment for the Sarkozy government, the strikes have comprised a similar coalition of educators, air traffic controllers, and transportation workers, etc… Certainly the memories of 1995 and especially 2007 are fresh for the administration and for the strikers, and much remains to be negotiated or achieved, but perhaps this time will yield the results so badly needed to preserve French social security.

Much like the health care debate (one might say debacle) in the United States, pension reforms in France have been deferred and ignored as long as possible and reconciliation is long overdue. The rights to social security and retirement pensions are deeply cherished by the French who are extremely reluctant to allow any change in pension rules for anyone, fearing the possibility of setting a precedent. At the same time the French government is burdened with an untenable pay-as-you-go system supported by comparatively small current workforce and a rapidly aging population drawing pension funds. It seems that the French themselves are simply going to have to square themselves to the demographic picture and make some difficult decisions about not only pensions and the role that the government is to play in their lives, but also their role in the EU. France’s is the second largest economy in the Eurozone and has been an instrumental player in European integration dating back to the Marshall Plan and the European Coal and Steel Community and the continued success of the French economy as a major economic, research, and production center is vital to the success of the greater European Union project. If they want to continue to be a major force both within the EU and on the global stage they are going to have to make changes to their economy, and the pension debate illuminates some of the underlying issues at stake here. Just like the healthcare debate in the United States, the process of arriving at a conclusion on this sticky issue promises to be demanding and divisive, potentially yielding a compromise which pleases few, but it may yet provide the shock necessary to propel France and the greater EU into the second decade of the twenty-first century.

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