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The economic — and political — consequences of reforming France’s pensions

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Protesters take part in a students' demonstration against the French government's pension reforms. Thomas Samson/AFP via Getty Images

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Earlier this month, French President Emmanuel Macron followed through on his long-touted promise to reform the country’s pension system, raising the retirement age from 62 to 64.

How he did it though — essentially forcing the legislation through without a vote in the lower house of parliament — hit a nerve. Since then, over a million people have taken to the streets across France; social media has been filled with images of uncollected garbage piling on the streets of Paris and mobs of people clashing with police.

Macron’s government has said the reforms are needed to address the increasingly high cost of the pension system as the population ages. Protesters say the president has gone too far and is defying the will of the people. To help us make sense of this ongoing situation, Marketplace’s Sabri Ben-Achour spoke with Sophie Pedder, The Economist magazine’s Paris bureau chief.

The following is an edited transcript of their conversation.

Sabri Ben-Achour: So you’ve been reporting on the ground. What’s the situation like in Paris right now?

Sophie Pedder: Well, I was out there on Tuesday when there was the tenth of these one-day national strikes that have been going on since January. And you know, it’s a mix, there’s a sort of festive mood because a lot of people are out there protesting, but there’s a lot of anger. And then at the end of the day, what tends to happen is that these things turn violent. And that’s when it gets pretty nasty. It’s a strange mix. But I would say that the overall mood is tense still and a lot of anger at the French president.

The economics behind the pension law

Ben-Achour: Well, just how bad are French finances that the president says he needed to raise the retirement age to cover pensions?

Pedder: Well, I think there are two things. I mean, one of them is the sort of sustainability in the long term of the French pension system. France does spend more than most of its neighbors as a percentage of GDP on public pensions. And yet it has an aging population, you know, the French live to a good age. And at some point, something has to give. There are 4 million more pensioners now than there were 15 years ago. So I think that it’s about making that system sustainable. Now, obviously, financially, France is heavily indebted at the moment, it’s got a big budget deficit, it’s got a big public debt, but it’s about making the system sustainable. Short of bringing down pensions or putting up taxes, which President Macron really doesn’t want to do and has ruled out, it means asking people to work a little bit longer — two more years — is probably the soundest way of responding to this kind of a problem.

Ben-Achour: Will adding two years really make that much of a difference? Or is this just like incremental?

Pedder: No, absolutely it will. It won’t resolve the problem in 20 years time because there will have to probably be another pension reform well before that. But in the immediate term of the next decade, it certainly would put the system onto a financially sound footing. And it’s exactly the same reform that’s been put in place across Europe if you look at almost any of France’s neighbors, whether it’s the UK or Germany, or almost any other country. I think in some respects, people look at this reform and think, well, it’s sensible, it’s sound, it’s actually quite modest, you know, it’s not going to resolve things in the long term. And yet, as it is, it’s already created this incredible unrest in France that we’re seeing on the streets now.

Hitting a cultural nerve

Ben-Achour: Yeah, if the implicit social contract around retirement is that you work X percent of your life and you retire Y percent, if life expectancy increases, that kind of just by math necessitates people work longer. And 64 is still below the retirement age of many other Western countries. What is it about this that incenses the French so much?

Pedder: Well, I think this is the key question and trying to understand what’s going on in France. And I think there are a couple of things. One of them is that it comes at a very difficult time, you know, we’ve just come out of lockdown and the pandemic, people feel that their relationship to work has changed. There is a cost of living crisis because of Russia’s war in Ukraine. So prices are rising, inflation is high. And it’s it feels like the pretty much the most difficult time to persuade the French to work longer. But I think there’s something else in France. And that’s, over time, if you look at the past presidents, Francois Mitterand, in the 1980s, he brought down the retirement age. French sort of society often have been about improving the work-life balance, improving the quality of life and bringing down the pension age. He brought it down from 65 to 60. So it’s difficult for the French then to accept, I think that you reverse that. It looks like a kind of society going backwards. And I think culturally, that’s what has really also angered a lot of people in France, that this is not what France is all about.

Ben-Achour: There is a call among some protesters to pay for longer pensions by taxing the wealthy more, and others will say that the wealthy there have an extremely high marginal tax rate already. Who’s right there?

Pedder: When I think you know, symbolically, it’s extremely appealing right now. That would theoretically mathematically plug the pension deficit. But you know, what, Emmanuel Macron, the French president, has been all about ever since he was elected in 2017 is trying to put an end to this, you know, a very heavily-taxed country that constantly tries to tax the rich, tax entrepreneurs, tax business. And I think France has changed over the last six years has become a much more business-friendly country. And I think if you were to start now taxing big companies or the wealthy in order to pay for pensions, it would be neither sustainable but it would It would also send a wrong message, I think, to foreign investors about what sort of country France now is.

Ben-Achour: These nationwide strikes have included really crucial areas: schools, transportation. And you have tourist season coming, especially in Paris. What could it mean if these protests continue for longer, economically?

Pedder: Well, I mean, there are all sorts of implications already. You’ve seen that the British King Charles, his visit to France has been cancelled or at least postponed now. He’s gone to Germany instead. That was a very important visit both for France and for the UK and it couldn’t happen because it would have been probably — or at least the risk was — that it was going to be disrupted. And then, you know, looking even further ahead, don’t forget Paris is hosting the Olympic Games next summer. So that’s 2024. You know, economically, it all depends on how long this goes on. Obviously, there’s a hit to everybody at the moment, small businesses in particular who are having to close. You know, and I was on the streets on Tuesday this week — a lot of shops were boarded up in order to protect themselves and closed for the day. It all depends how long this goes on. I think we’re looking at a very difficult few weeks, the hope from the presidency is that this will then calm down, that people will accept that this has happened. But I think even if that’s the case, the anger will still be there. And I think that’s what’s the sort of worrying, you know, [a] powder keg in France.

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