The French Pension System.. A Reform Worth the Risk
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The French word for this month is chienlit, dating back centuries and literally meaning “staining the bed”, and today used to describe the chaos on the streets. The term was popularized in the days of Charles de Gaulle during the student riots of 1968, and returned to prominence after ten days of strikes sparked by the recent increase in the minimum retirement age from 62 to 64.
The expression is French, as have recent images of uncollected rubbish being set on fire and clashes with riot police all showing that the root problem may well extend beyond France. We are in the grip of what Charles Goodhart and Manoj Pradhan called in 2020 “the great demographic regression.” This means an end to decades of benign economic trends in inflation, interest rates and inequality.
It is troubling that just as climate change denial is being receded, demographic denial is growing. And the numbers are repeated. The population of the European continent is aging after the baby boomers in the post-World War II period began to disappear, as the percentage of those over the age of 65 reached about 21.1 percent of the population in the European Union last year, up from 18 percent a decade ago. from time. In a region where the average life is 44 and fertility rates are declining, the legal retirement age is overshadowed by reality.
In a recent Bloomberg survey on life expectancy versus actual retirement age, European countries dominated the top 20, led by France and Luxembourg, where people enjoy about 18 years of good health after retirement. This seems like a happy outcome of living longer, but it leads to inevitable social conflict. The burden of financing pension systems is being passed on to future generations, as is the cost of climate change. A 2020 study found that the average pension system deficit in Europe was around 2.5 percent of GDP, rising to 4 percent of GDP.
And in the next three decades. France’s prepaid system will have only 1.2 workers per pensioner by 2070. The current high school students who set fire to rubbish are effectively defending a status quo that is not particularly in their favour. Governments are rarely willing to penalize pensioners because they are the ones most likely to vote. Inflation and inequality are also set to worsen as a result, according to Goodhart and Pradhan. Growth in the ranks of older dependents means more consumers are adding to inflationary pressures, and improving the bargaining power of a shrinking workforce demanding a better wage.
Income inequality and wealth inequality have worsened in many economies. Inequality has risen in Germany, and French retirees have enjoyed a higher standard of living than workers during the pandemic. Central banks raising interest rates fuel a backlash from countries. The reaction to all this has been something bordering on denial, or at least myopia. Strike unions and the government’s political opponents suggest that more redistribution is enough, even in one of the rich world’s highest-taxed countries, leading to bewildering reactions in Spain, where unions have taken a more open approach in negotiations with employers’ organizations.
Pension reforms do not always gain support. Even the French centre-right, which should have been a natural ally for pension reform, could not agree to support it. The CEO class has been lax on the issue, one senior Banque Paris executive told me, saying that they rarely have the courage to speak up. Geoffroy Roux de Bisio, president of the MedEF business activist group, has called for pension reform but criticized measures to encourage hiring of older workers.
Unlike London in the 1850s, which smelled of opportunities to improve sanitation systems as the city’s population doubled, what we face now is symptomatic of demographic and urban decline. All of this has deafened the populist right, which has campaigned for a retirement age of just 60. This should be the catalyst for Macron to detoxify the pension issue, which none of his predecessors could do, by giving more power to new organisations, including employers and employee unions. And if that is not possible, stopping chienlit and getting back on the path of reform is worth the risk.
* Journalist specializing in European affairs.
Published by special arrangement with The Washington Post Leasing and Syndication Service.
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