Features

What's behind the great French pensions revolt?

Workers in France are on strike and taking to the streets to protest against President Macron’s reforms. We’ve seen this play before – but this time the ending may be different.

French Unions Take To The Streets Again In National Strike Effort
French protests are a "dragon that must be slain"

What's going on in France?

The country has been crippled for the past two weeks by strikes and street protests against President Macron's planned pension reforms, which he hopes will streamline a complex and outdated system. The reforms aim to encourage (but not force) people to work longer, encourage job mobility and (in the long run) shrink the cost to the state.

The current system is a hotch-potch of 42 different sector-specific schemes, each with different levels of contributions and benefits, and which grant early retirement on high pensions to particular groups, such as rail workers and Paris bus drivers. The state pension kicks in at 62 and France spends 14% of GDP on public pensions, among the highest in the world (the OECD average is 8%).

What are Macron's proposals?

Under Macron's plan, France will move to a single, universal state pension system based on average salaries and how long people have worked, rather than final salaries. Those with stop-start careers, including many women, will benefit. There'd be a monthly minimum of €1,000 (higher than in the UK); the reforms would be introduced gradually between 2022 and 2037; and the legal retirement age would remain at 62, although incentives will coax workers to stay on longer.

The government says the new system will be "fairer", although one obvious effect of the gradualist approach will be to push the biggest burden of the changes onto younger generations. Many workers, though, fear that they will see their pensions and privileges slashed and are taking to the streets in protest.

Sounds familiar

Macron is not the first president to attempt reform only to meet with mass protests. If there is a sense of dj vu, it's because there have been street protests in France against pension reforms in 1993, 1995, 1999, 2003, 2007 and 2010.

What typically happens, says John Lichfield in The Guardian, is that after a period of conflict the two sides government and people "retire, exhausted. Small concessions of ground are made. No clear goals are scored by either side." This time round, the precedent being widely cited is 1995, when the "France versus Jacques Chirac and Alain Jupp game went into prolonged extra time (three weeks of transport strikes) before the government caved in more or less completely. A rare, undisputed goal for the people'."

Who will win this time round?

The turmoil is ongoing. Macron's side has been weakened by the enforced resignation, on Monday, of his pensions tsar, Jean-Paul Delevoye. He had failed to disclose 13 private-sector positions he held alongside his cabinet role. So it's possible Macron will come to regret his ambition. He has pushed through difficult reforms to the tax system, the railways and the labour market, and has only just fought the gilets jaunes movement to a standstill. A period of quiet retrenchment might have been wise.

The reason he is pursuing the issue so doggedly, says Lichfield, is he wants to change the way the country thinks. Pensions reform has become the great symbol of a "supposedly immovable France. It is, Macron believes, a dragon that must be slain if the country is to be prepared for the opportunities and cruel tests of the 21st century".

How's France doing more broadly?

Not badly. It is less exposed to slowdowns in global trade and manufacturing and to Donald Trump's trade wars than Germany, say. And while German growth in GDP has slowed sharply, to the point of recession, France's growth is holding up reasonably well (the economy is projected to expand by 1.3% in 2019).

There are even signs of hope in the notoriously rigid labour market. France still has the highest jobless rate in the EU after Italy, Spain and Greece, but it fell to its lowest level in a decade in the second quarter, to 8.5%. Macron's target of cutting it to 7% by the end of his term in 2022, from 9.7% at the start, now looks feasible.

How has he reformed labour markets?

Macron has made long-term contracts less onerous for employers by capping the cost of unfair dismissal, says Hannah Copeland in the FT and he has also reformed taxes and benefits to make low-wage work more attractive.

He has also accelerated training and skills initiatives, including a five-year, €15bn scheme to train long-term and young unemployed people, while at the same time tightening unemployment benefits for higher earners (who enjoyed especially generous treatment, with benefits based on previous salary levels).

"His plan is more systematic and consistent than previous governments," argues Stphane Carcillo, head of the OECD's jobs and income division. According to the OECD, France now has a more flexible labour market when it comes to permanent workers than Germany, Italy or Sweden. It also has the second-lowest tax rate in the OECD for people on the minimum wage, after Japan.

So things are looking up for France?

Broadly, yes. The hard data on consumer demand, business investment and overall growth in the final quarter of 2019 are "encouraging", says Julien Manceaux of ING.

However, the beginning of 2020 has the potential to be "accident prone". Business investment growth is set to abate with "the manufacturing slowdown and a renewed period of uncertainty triggered by social unrest".

Meanwhile, the labour market which is "still the main factor supporting current growth could also slow down earlier than expected because of this instability, sending consumer confidence back down," says the ING analyst.

Looking further ahead, the key positive is that (notwithstanding the strikes and protests) Macron's structural-reform agenda remains in place, argues Cdric Gemehl of Gavekal Research. That should continue to improve the long-term growth potential of the French economy.

Things across the Channel currently look stormy, but the overall picture is one of quiet progress.

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