France’s Hollande Unlikely to Enact Comprehensive Pension Reform

French president François Hollande answers questions from reporters at the Elysée Palace in Paris, April 13

French president François Hollande answers questions from reporters at the Elysée Palace in Paris, April 13 (Valsts Kanceleja)

French president François Hollande is unlikely to pull off a comprehensive overhaul of his nation’s pension system even as it faces a €14 billion shortfall this year.

Reuters reports that in spite of calls to reform from the European Commission and other European Union member states, Hollande’s own lawmakers “are determined to prevent any erosion in the old age provision enjoyed by the French.”

The European Commission in May urged France to initiate pension reforms by raising the retirement age. Hollande, who partially rolled back a retirement age increase enacted by his conservative predecessor, responded, saying the commission didn’t “dictate” policy. “It’s up to us and us alone to decide what path to take to obtain the objective,” he said.

Although average French pensions are lower than in many other industrialized nations, they are paid almost entirely by the state. Public pension spending accounts for 14.4 percent of annual French economic output compared to 12.9 percent in the rest of the European Union.

Since the end of the Second War War, French social security spending has nearly tripled. Altogether, it now accounts for a third of gross domestic product, more than in any Western country.

The pension fund’s deficit is projected to increase by €6 billion by 2020.

Hollande has warned the French that they might “have to work a bit longer” but rather than proposing changes of his own, his government has drawn in employers’ organizations and trade unions to negotiate a deal. “The merit of his consensus approach is that it avoids confrontation,” The Economist wrote last month. “But the downside is that all steps forward have to be balanced by concessions, so the overall result tends to be a soft fudge.”

A government panel has advised making wealthy pensioners pay more tax and extending the mandatory pension contribution period to forty-four years — which would push up the retirement age for those that started working late, for instance after they finished a college degree, while allowing others to still retire in their early sixties. Labor unions, which usually support Hollande’s Socialist Party in elections, might get that number down or negotiate a longer period through which a rise is implemented, however.

The Economist pointed out that Hollande’s cautious approach is partly due to his low approval rating. No previous postwar French president was so unpopular one year into office. Hollande can ill afford to jeopardize his thin parliamentary majority by proposing bold entitlement reforms that would inevitably be rejected by the far left, even when a majority of French voters could welcome them.

An Ipsos poll in May found 61 percent supporting a rise in the retirement age while a BVA survey last month found 75 percent of respondents favoring public-sector pensions being brought in line with those in the private sector.

Many civil servants, such as bus and metro workers, can retire in their early fifties, a source of much grievance in a country where one in five is employed by the government. Yet here, too, the president is unlikely to act. Reform, The Economist wrote, “would touch the backbone of Mr Hollande’s public-sector electorate, particularly the nearly one million teachers.”