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Monday, May 12, 2003

Euroland: Pension Reform and Strife on the Agenda

Now the euro is about to face rising social protest from within. First it was Germany, now it is France, soon it may be Italy. While I have no difficulty in sympathising with all those who will feel cheated by having paid - the pensions of others - all their working lives only to arrive at retirment age to find that there will not be so much money to pay for them, there is, unfortunately, an air of ineviatability about all this. But inevitability and resignation - as we can see from Argentina - are not the same thing. Hence we can only expect more such protests as time passes, and the 'reforms' gather momentum. What is striking in the French case is the minimalist nature of the proposals, we will now have to wait and see whether the protests will be equally minimalist. By the way, hoping to use the EU as a shield against voters at home, Berlusconi seens to be suggesting he will use the forthcoming Italian EU presidency to promote a 'pensions Maastricht' intended to be binding on member governments. This promises to be interesting.

France's centre-right government faces the first serious challenge to its policies on Tuesday when trades unions hold a national day of strikes and demonstrations against plans to reform the costly state-run pensions system. The protest is expected to see disruptions to public transport and the civil service in what is likely to be little short of a general strike. It is the biggest demonstration so far of union muscle, with all the three main federations burying their differences to press the government to water down its proposed reforms. Jean-Pierre Raffarin, prime minister, has insisted that the government will stick to its plans to end the privileged position of public sector pensions by 2008 and then raise the contribution period for all in phases to 41 years by 2012. Nevertheless the government's nerve will be tested by this union opposition, which is strongest in the public sector.

This is centred round raising the level of public sector contributions to 10 per cent of pay from 7 per cent by 2008 in line with the private sector. The contribution period will also be extended from 37.5 to 40 years over the same timescale.The government is confident the public understands the urgent need to overhaul pensions and that the union mood is different from the mid-90s when damaging strikes led to the shelving of plans to overhaul railway workers' pensions. In a publicity campaign in the form of an open letter to French citizens, Mr Raffarin is reminding the country of the dangers of failing to address the growing cost of pensions. In 1960, he says, four people in work were able to fund one pensioner; by 2000 there were only two people in work to fund each pensioner.But the depressed economic climate and the need to impose tight budgetary constraints to head off sanctions from Brussels for breaching the European Union's stability pact make the reforms harder to sell. Only last week, Mr Raffarin sent out the annual budget guideline letters to individual ministries on the basis that overall public spending in 2004 would not increase in real terms. Even so the budget deficit is likely to remain above the 3 per cent ceiling imposed by the EU.
Source: Financial Times

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