France: Another Shot at Pension Reform

On May 13, thousands of French workers took to the streets to protest Prime Minister Jean-Pierre Raffarin's proposed pension reforms. Previous governments have tried to reform the system and failed. Despite the protests, however, the odds for success are good.

Raffarin has unveiled a host of reforms to be put before the National Assembly in June. The changes are aimed at the public sector, which makes up close to 25% of the workforce. Tops on the list is a 2008 target to match the private-sector level of 40 years of work for a full pension. Currently, government workers must toil only 37.5 years. Next would be an increase in the contribution period to 42 years for all workers by 2020. Other reforms include larger pensions for those who hold off on retirement and tax laws to promote employee-contribution savings plans.

Like most of the euro zone, France faces a demographic time bomb. The government says the current pay-as-you-go pension system had two workers subsidizing every retiree in 2000. By 2020, the ratio will be 1 to 1. That reality has changed public sentiment, with 70% of the public, including 43% of government workers, recognizing the need to scale back public-sector pensions. Plus, solidarity among unions has waned. In 1995, long strikes against pension reforms led to the downfall of Prime Minister Alain Juppé and the center-right government in 1997. Now, France's largest union isn't calling for prolonged strikes.

To be sure, overhauling the pension system won't be easy. Raffarin may need to compromise when it comes to the proposed increase in civil-servant contributions and to raising the period for full pension to 42 years. But if the government succeeds in getting significant changes, Raffarin could gain leverage for further reforms, such as in health care. The success also could boost efforts in Germany and Italy, where unions are battling governments over pension and labor reforms.

By James Mehring in New York, with Carol Matlack in Paris

— With assistance by Carol Matlack

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