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Showtime for Sarkozy

Monday, October 29, 2007

With a shift in French public opinion, landmark pension reforms may finally be possible, writes JURGEN REINHOUDT.

SarkozyFew serious observers would dispute the need to reform France’s “special” pension regimes. They currently allow a select number of state employees to retire at the age of 50 or 55 with a full pension. At a time when French life expectancy is increasing into the low 80s, this program will not be sustainable over future decades. In fact, the system is already unsustainable. Just 500,000 active workers finance the pensions of 1.1 million retired workers covered under the “special regimes.” In some sectors, the imbalance is far more severe: for example, a mere 14,000 or so active miners finance the pensions of more than 150,000 retired miners.The special pension system’s annual deficit, about 7 billion euros, is financed by French taxpayers through the general slush fund of government revenues. Most French workers have to make 40 years of pension contributions—not 37.5, as in the case of “special regime” workers—before being allowed to retire with a full pension.

So why is there so much resistance to altering the special retirement privileges of a select few? For one thing, the special entitlements are old and ingrained. French sailors have enjoyed the right to early retirement since the time of Louis XIV in the 17th century. For staff at the Paris Opera, similar privileges trace back to the 18th century. Still others—such as bus and train drivers and miners at certain state companies—have enjoyed the privilege since the mid-1900s or earlier.

Such retirement policies have now become symbolic of the modern French welfare state. Powerful special interests, especially labor unions, have ferociously guarded them in the past. The last French government leader to seek abolition of the special regimes was Prime Minister Alain Juppé in 1995. The result was paralyzing strikes and, in a nation normally unfazed by tumultuous union activism, troubling social tensions. In the end, the center-right government bore the brunt of public dissatisfaction. Prime Minister Juppé was forced to withdraw his reforms and his government essentially became a lame duck until the Socialists swept into power in 1997. Surprisingly, the Socialist prime minister, Lionel Jospin, then embarked on an extraordinary campaign of privatization, but he did not alter the special regimes, nor did his successors. Jacques Chirac, who served as French president from May 1995 to May 2007, was sufficiently disillusioned with the ill-fated 1995 reforms that he resisted any similar efforts for the rest of his tenure.

By contrast, Chirac’s successor, Nicolas Sarkozy, stormed into office this year with aggressive plans to make the French economy more globally competitive, to renew the national work ethic, and to reinvigorate the overall vitality of society. By electing Sarkozy over his Socialist opponent, Ségolène Royal, the French public voted in favor of bold change, by a margin of 53 percent to 47 percent.

Despite widespread skepticism of free-market economics and 'Anglo-Saxon liberalism,' French public opinion has begun to lean in favor of pension reform.

But now France’s labor unions are seeking to achieve through coercion what they could not achieve democratically: a stop to structural reforms. Through recent general strikes, the unions demonstrated their power to disable France’s public transportation system. The striking workers are pressuring Sarkozy to reverse course and leave the special regimes untouched, just as they forced Prime Minister Juppé to do so in 1995.

The beneficiaries of the special regimes are not alone in their campaign. Sarkozy has pledged to replace only two out of every three retiring government workers in order to shrink the French bureaucracy, which has swollen tremendously since the 1970s. In retaliation, government employee unions have announced a major day of protest on November 20th. The beneficiaries of special pension regimes may even coordinate their own protests with those of the civil servants.

Unfortunately for the special pensioners, public opinion is slowly turning against them, despite the widespread French skepticism of free-market economics and “Anglo-Saxon liberalism.” Prime Minister François Fillon wants all workers to put in 40 years on the job before retiring, instead of the 37.5 years currently asked of special pension beneficiaries. Fillon calls this reform “non-negotiable.” More and more Frenchmen are coming around to his view. According to a recent poll, 57 percent think the proposed reforms of special pensions are a step in the right direction, while just 32 percent feel they are a step in the wrong direction. In the same poll, a majority (55 percent) of respondents said the anti-reform strike was not justified. Astonishingly, even 45 percent of French Socialists said they support the current efforts to revamp special pensions.

Thus far, apart from some significant tax cuts, Sarkozy has been fairly restrained in his reform drive. This has disappointed some of his center-right supporters. (They were especially miffed when Sarkozy softened his approach to trimming the government bureaucracy.) At times, Sarkozy has even publicly corrected cabinet ministers who spoke too grandiosely of pushing through structural reforms.

This may be smart politics. Sarkozy knows that if he pushes too hard, he will quickly lose support for further reforms. His tempered reform drive will make it harder for the unions to win public sympathy. Some trade unionists are aware of this. François Chérèque, leader of the more moderate CFDT union, had this to say about the recent strike: “We are now pissing off everybody for not very much. We are making life unpleasant for tens of thousands of people going to work.”

So is Sarkozy assured of victory? Hardly. But the climate for reforming the special pension regimes is much more favorable today than it was in 1995. It is stunning to see just how much French opinion has shifted. For Sarkozy, the fate of this reform is not merely symbolic. It will also set the tone for further structural reforms over the coming years.

Jurgen Reinhoudt is a research assistant at the American Enterprise Institute.

Image credit: Getty Images, 2007.

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