Macron’s call to raise the minimum age to start collecting government pension benefits to 65, from 62, comes as Europe feels the pinch of demographic and economic decline. The Old Continent is also the oldest continent by median age (42). Its population has fallen since Covid and it’s set to post the weakest economic growth of any region in the world this year. Living longer and better is something to be celebrated, but it also adds to the strain of pension payouts.
The message being sent is that France needs a more sustainable system at a time of ballooning deficits and debt loads. There were 2.1 workers paying into the system for every retiree at the end of the 20th century; that fell to 1.7 in 2020 and will be 1.2 in 2070, according to state-appointed experts. Without some kind of adjustment, a pension deficit of 10 billion euros ($10.6 billion) annually is projected sometime in the next few years.
After the disaster of “Trussonomics” in the UK, which had French officials warning of a canary-in-the-coal mine moment for the euro area, it’s easy to see why the International Monetary Fund is among those pushing Macron’s plan as a key step on the road to more responsible debt management by Paris. European Central Bank official Francois Villeroy de Galhau has called it “indispensable.”
Yet talk of working longer in the name of healthier state finances has somewhat predictably gone down like a lead balloon. All the top unions are against it, and polls show the only demographic in favor is the over-65s. Unlike the relatively less sensitive debates seen in Germany or the Netherlands, France still lives in the shadow of the 1980s move to retirement at 60 under Francois Mitterrand. Since 1991, four pension overhauls have been proposed in the face of protests and two have failed — including Macron’s 2019 attempt.
The goal here should be more than budgetary. It should be about curbing “generational privilege,” says Maxime Sbaihi, economist and author of a book on French demographics (formerly of Bloomberg Intelligence). The winners of an unchanged system would be those boomers leaving or about to leave the job market; the losers would be workers now paying some of the highest levies in the rich world.
It wouldn’t be the first time. Years of low interest rates after the 2008 crisis put housing and financial assets increasingly out of reach of young Europeans while government spending shifted away from education and children to pensioners. The Covid crisis hurt young people’s job prospects more than any other age group. Already, going into the pandemic, French pensioners had a better standard of living than workers.
The return of inflation and war has also had a lopsided impact. For all the effort in reducing energy bills through government handouts and windfall taxes, pensioners seem more protected than workers agitating for a pay rise. Pensions were increased 4%-5% in France, while the UK Conservative government reinstated its “triple-lock” guarantee that state pensions would rise with inflation. It’s not surprising to see new generations aren’t turning “conservative” as they get older.
Macron is the first French president in a decade who isn’t a baby boomer — he should live up to it. He might have better luck promoting reform by asking pensioners themselves to contribute alongside those who will work longer, or by scrapping other tax cuts to dampen the pain. Long-term goals include more effective investment in education and skills.
This is only the beginning of a political struggle to win allies in parliament and defuse protests in the streets. But it’s also a key part of aging Europe’s economic struggle. Failure would be bleak — and not just for France.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.
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