France pension reforms: Emmanuel Macron forced to take on French protesters once again

The last time President Emmanuel Macron tried to cut back on the French state’s huge public spending bills, he faced weeks of disruptive and frequently violent protests. Having first advocated for economic justice, the protest movement spread to call for wider political reforms. Ambitious though their objectives may have been, it was actually the atmosphere of chaos and anarchy the demonstrators created that caused lasting damage to the Macron presidency. It was that perception of damage that so inspired both the far left and right in last year’s presidential and parliamentary elections, leaving Macron without a majority and significantly neutered.

As if the war of attrition with the so-called Yellow Vest movement over its demand for lower fuel taxes, a wealth tax and a minimum wage increase was not enough, President Macron is now gnawing at another central fiber of the Fifth Republic: France’s relaxed pension system. Though the French can currently expect to retire at 62, alongside the other generous benefits the state has to offer, this system, which in many respects has its roots in the “minimum vieillesse” (minimum pension) that can be traced back to 1942, is increasingly burdensome for a country with 15 million retirees.

Under current rules, French pensioners enjoy monthly pay cheques of 61 percent of their previous salaries, while in neighboring Germany this figure is a paltry 38 percent. France’s pensions — widely considered to take up a staggering 12 percent to 14 percent of gross domestic product in a country that already has the largest government expenditures among OECD nations at 55.6 percent of GDP — are unsustainable.

Macron, the youngest French leader since Napoleon, wanted his legacy to be a more open, competitive French economy, built on the banking and billion-dollar tech startups that the country has lured post-Brexit. However, as he now looks to make urgent changes to France’s pensions system, his hard-won second term looks increasingly like a Tantalean punishment, with his beleaguered government struggling to pass any legislation.

The president has sought to draw attention away from the precariousness of his administration by focusing on foreign affairs, while having his Prime Minister Elisabeth Borne fight his domestic political battles. However, public sector reform has always been a feature of his political philosophy and, having so doggedly sought reforms to labor laws, he has now turned his attention to the pensions system.

As expressed by Borne, the fundamentals are clear: “The retirement age must be raised from 62 to 64 by the end of the decade to prevent a major pension system deficit.” There was a time when such a change would have been unthinkable. Indeed, in 1995, President Jacques Chirac had to forget his plans to reform the system as Paris was brought to gridlock after weeks of strikes. The “hyper-president” Nicolas Sarkozy, in whose mold Macron is made, attempted the same in 2010 but fell short of achieving any meaningful change.

A great deal of whether Macron will be able to implement these pension reforms is the scale of the public backlash

Zaid M. Belbagi

Today, however, when French life expectancy at birth is among the highest in the world (80 for men and 85 for women), the low retirement age is especially hard to justify. But with a staggering 80 percent of citizens opposed to reform, Macron is facing another round of widespread protests — with more than a million people taking to the streets this week — as he embarks on bringing down another pillar of France’s generous state.

The proposed changes are tabled to go before parliament early next month, but they are controversial amid a cost-of-living crisis and given that the government does not have an absolute majority. The road to a vote will be fraught. Most sensitive are France’s cradled public sector workers. Under the new rules, new entrants will not be eligible for the special pension regimes enjoyed by their predecessors. The proposal has energized Macron’s rivals from last year’s presidential election. Hard-left political leader Jean-Luc Melenchon has described the proposal as amounting to “severe social regression,” while far-right leader Marine Le Pen said: “The French can count on all our determination to block this unjust reform.”

The problem is not that the French do not see the need for reform, as almost half say the system needs to change to secure its future. With more than 40 different pension systems working in parallel, France has one of the most fragmented arrangements in the world, having a gross impact on job mobility, and it is, as it stands, unsuitable. Though opposition is significant, there are reasons to assume that Macron will succeed. The government is counting on getting the reforms accepted by increasing the minimum pension for low-income workers who have had a full career to 85 percent of the net minimum wage. Extending this measure to current pensioners would improve the circumstances of 2 million citizens overnight.

France has no option but to close the looming deficit and, since pensions are funded by active workers, the government’s alternative to raising the retirement age is raising pension contributions. Currently, workers pay 7 percent of their salaries to the state pension fund and 3 percent to 8 percent to an occupational pension plan. Faced with the option of working for 24 months longer later in life or losing much-needed disposable income while raising families, many are likely to choose the former. The threshold of 64 is already a concession from the proposed 65 and a reasonable climb, given that the Netherlands last month confirmed it would increase its retirement age to 67 in 2028.

A great deal of whether Macron will be able to implement these reforms is the scale of the public backlash. Though the president’s haughty and confrontational style has won him few friends, he has an opportunity to ensure a lasting legacy and to get France moving, “En Marche,” as he had initially hoped. The scale of these reforms only increases with the failure of each president to implement them. Today’s challenges are a direct result of the government's failure to build the Pensions Reserve Fund, which was set up in 2001 with the aim of financing the future shortfall of the state pay-as-you-go system. Having targeted creating a fund totaling €150 billion ($162 billion) by 2020, it is today worth only a fraction of that, while France only grows older and the bill to care for its aged only increases.

• Zaid M. Belbagi is a political commentator and an adviser to private clients between London and the GCC.

Twitter: @Moulay_Zaid