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Tuesday, June 03, 2003

France on the Pensions Boil

As I have been arguing, none of this transition is going to be at all easy politically. US commentators tend to have an easy opt-out by suggesting the Europeans are over-pampered. But now Brad and Paul are alerting people to the fact that in the light of the changed demography some will argue that the US itself is 'over pampered'. This would be Krugman's 'train crash' theory. Give the US citizen a fait accompli. Looking at what is being said about the WMD argument, this rings true (but I still think they can see the value in 'creating' inflation expectations). The point is, love it or hate it, there isn't too much alternative. This is why I think we all need to get onto discussing the 'big questions' about what all this will mean, and how we can try and manage it better. Economic theories about inflation targetting which don't take onboard political impacts are 'theory light' in my view. And a French population 'in denial' won't work either (look at Argentina). France is near the top of the list of 'countries at risk' of financial ruin. This is despite France's relatively more favourable demography. These reforms are very minor in comparison with what will be needed, but you can understand that people are not happy, after paying all their lives, to find that the money won't be there in the way they expected. I think the problem of Trust is going to be a central one (and with the Iraq war we just got off to a very bad start). If the politicians insist on running this as a 'show' there will be problems.

With barely a week to go before the French parliament debates a bill to reform the national pension system, France faces another day of strikes that will cripple public transport and restrict services at post offices, hospitals and even tax offices.Tuesday's general strike will be the latest test of the political resolve of Jean-Pierre Raffarin, the prime minister, whose popularity has tumbled in recent weeks, a reflection of widespread sympathy with the strikers' concerns. Jacques Chirac, president, has weighed in to support the government, declaring the reform "fair and urgent". It will become clear on Tuesday whether Mr Raffarin has succeeded in his efforts to isolate the issue of pension reform from other union grievances, notably among teachers. The government last week decided to postpone a controversial reform of universities until the autumn in a concession to union negotiators.

Mr Raffarin reiterated he would stand by his plans to raise the period of public sector pension contributions to 40 years from 37.5 - in line with the private sector - by 2008. But he may make more concessions to teachers, who are demanding the status of their profession be improved. With the holiday season approaching, the government will lose credibility if it backs away from a reform that is being watched throughout "old Europe". Mr Raffarin last month warned strikers the time for protest was running out. "The street can give its views, but it does not govern," he said. A key test for the government will be whether the strikes draw sympathy action from sectors exempted by the pensions reform. Air France said on Monday a strike by air traffic controllers would lead to the cancellation of 65 per cent of Tuesday's short and medium-haul flights.
Source: Financial Times

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