American states aren’t the only ones facing major pension crises. France’s pension system now has a deficit of €14 billion, and it is expected to rise to €18.8 billion by 2017 unless significant changes are made.
Reforms put in place under former President Nicolas Sarkozy to raise the retirement age and increase pension contributions were supposed to put the program in shape by 2020, but they have been counteracted by a sputtering European economy and years of slow growth. Now French pensions are in worse shape than ever.
Yet despite these dire predictions, the Hollande government is completely unwilling to make changes, as The FT reports:
Mr Hollande, who is expected to convene talks on the issue with employers and trade unions in the new year, is likely to be reluctant to raise the retirement age. But the alternatives of increasing pension contributions, favoured by the unions, cutting pension payments or raising the number of years of contributions required to qualify are also unpalatable.
Medef, the employers’ federation, called this week for the minimum retirement age to be raised to 63 and the contributions’ period to be upped to 43 years. It opposes any increase in contribution costs for employers or employees.
The scenarios set out by COR, the pensions’ council, showed that unemployment would have to be more than halved from its present level to 4.5 per cent and productivity growth increased to 1.8 per cent to bring the pension system back into surplus by 2060; if unemployment averaged 7 per cent and productivity growth 1.3 per cent, the deficit would widen to more than €60bn in the same period.
France is between a rock and a hard place. French public debt is almost 90 percent of GDP, and the French people are unwilling to give up any more, even though France’s average retirement rate is lower than elsewhere in Europe. Sarkozy’s original reforms met with large protests, and any change in the retirement age by Hollande is likely to engender a similar reaction.
As in America, years of disastrous blue policies and overgenerous pension promises are finally catching up with France. Now policymakers are left with with a depressing choice: renege on promises to workers or watch the system go broke. Hollande has made it clear that he doesn’t want to do anything that could be seen as an attack on the workers, but he may have no choice. When the money isn’t there, it isn’t there.