French STRIKES over pension reform hold lesson for the US and other countries
French strikes in 1995 caused Paris to back off of pension reform. Now the French government is trying again, and it is again being met by massive strikes. Delay, however, only makes pension reform more costly.
By the Monitor’s Editorial Board / October 12, 2010
Cash-strapped and pension-burdened governments around the world – from the United States to Britain – should look at what’s unfolding in France today and take heed:
Massive strikes, supported by students, are halting air and train travel, while closed ports threaten French fuel supplies. It is the fifth round of protests against a proposed rise in the retirement age.
You can chalk up part of the popular pushback to being French. As sure as lovers stroll along the banks of the Seine, protesters clog the streets whenever the government tries to pare back the generous benefits of the welfare state. In 1995, for instance, French President Jacques Chirac tried his hand at pension reform. A three-week transport strike forced him to back down.
It’s not the protests themselves, but the passage of time – the difference between Mr. Chirac’s day and this autumn day 15 years later – that holds the lesson for other governments with pensions they can’t afford.
You see, back in 1995, Chirac proposed only modest changes in the French retirement system. His government zeroed in on pensions for certain government workers, such as transit employees who were allowed to retire at age 50 – a decade before most other French workers.
Fifteen years later, French President Nicolas Sarkozy can no longer afford the luxury of nip-and-tuck pension reform. His proposed changes – which are now working their way through Parliament – are far more widespread, and thus more upsetting for the population.
With a few exceptions, he plans to raise the minimum retirement age for all workers from 60 to 62, and the age at which one can get full pension benefits from 65 to 67.
Why the more painful reform? Well, the day of reckoning that got put off in 1995 can no longer be postponed. Unfortunately, delaying the fix has made it more costly, and more urgent.
Unlike in Chirac’s time, pressure from global financial markets is bearing down on European countries that have high deficits and costly pensions. Mr. Sarkozy warns that France’s coveted AAA credit rating is at risk if pensions aren’t fixed. He’s not kidding.
And not just the markets, but other European governments are insisting on national fiscal discipline – this in the wake of the Greek debt debacle that nearly sank the euro currency last spring. Chirac also did not have this pressure to worry about.
Meanwhile, negative demographic trends march on. Developed countries are grappling with the same problem that France has: As birthrates decline, fewer workers support more retirees. France’s pension system is expected to produce a deficit of $39 billion this year. It will rise rapidly unless lawmakers intervene.
Like Chirac, political leaders – from heads of state to state governors – have known for a long time about the pension crisis. This year, the American Social Security system will pay out more benefits than it receives in payroll taxes for the first time since 1983. By 2037, Social Security reserves will be gone and income flowing into the system will only be able to cover about 75 percent of benefits.
America’s state and local public employee pensions are underfunded by as much as $3 trillion. That’s why governors such as California’s Arnold Schwarzenegger have insisted on pension reforms. Wisely, 15 other states have moved to cut pension costs this year.
Will Washington follow suit? Its track record so far is poor. Perhaps it can be nudged by France’s president. Sarkozy can do his own country, and others, a favor by hanging tough in the face of strikes. The longer everyone waits for pension reform, the harder – and more expensive – it gets.
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