For months, France's ruling conservatives have been shouting down even mere mention of the a-word. No, they purred, France would not imperil its timid economic recovery by applying austerity policies that other debt-concerned countries have adopted to cut deficits. But on Tuesday morning, all pretense of reprise without pain bit the dust when Labor Minister Eric Woerth announced that France's highly symbolic 60-year retirement age would be extended to take pressure off of the country's swamped pension system. And that, it turns out, is only the start.
Standing before a backdrop reading "Let's Save Our Pensions," Woerth confirmed long-circulating reports that the government will gradually add time to the current retirement age of 60 until the legal reference of 62 years is reached in 2018. The minister said the move was necessary to keep France's pension system afloat the pay-as-you-go operation currently runs a $13 billion deficit, which is expected to rise to nearly $123 billion within 40 years as the bulk of baby boomers retire out, leaving behind a workforce with fewer active workers to pay into the scheme. The measure will affect private- and public-sector employees alike the latter fact ensuring that unions will be able to muster large turnouts for protests being organized in the coming weeks.
"All our European partners have done this by working longer, and we can't avoid joining this movement," Woerth explained, promising that the move will balance increasingly indebted pension finances within eight years. "There is no magic solution."
Indeed, unable to find ways to cut debt painlessly, the government of President Nicolas Sarkozy is now planning to continue rolling out what would be and in fact are called austerity measures in other parts of Europe. Responding to continued market concern about over-indebted European economies, Greece, Germany and Spain where unions have called a general strike to protest labor reforms due to be announced on Wednesday have already detailed massive spending cuts to reel in escalating budget deficits. And the U.K.'s new Conservative-led government has said it's preparing to similarly hack back state outlays for many years, even perhaps decades. Up until now, France has been one of the few nations to decry such frugality, echoing the arguments of Nobel Prize-winning economists such as Joseph Stiglitz and Paul Krugman who have said that slashing public spending before confirmed recovery is the best recipe for pushing sputtering economies back into recession.
However, after weeks of hectoring France's cost-cutting partners about the counter-productive risks of such moves, Sarkozy and his cabinet are now preparing to copy them in an effort to forestall markets from turning against France's lofty debt as they have those of Greece, Spain, and Portugal. French Prime Minister François Fillon a fiscal conservative who has long chaffed at Sarkozy's economic pragmatism has recently acknowledged that he's looking for $123 billion in savings to reduce France's current 8% budget deficit to 3% by 2013. Roughly half of that is expected to come from cuts in spending, and most economists expect a significant portion of the rest will inevitably be generated by another term Sarkozy and Fillon have banished until now: tax increases.
Indeed, as part of Woerth's mix of pension reforms, the government will raise income taxes on wealthier workers and on capital gains by 1% an ideological surrender in part aimed at warding off criticism from leftists that the burden of retirement reorganization falls primarily on the mass of less affluent wage earners who will now be forced to stay in work longer.
Its refusal to join its belt-tightening neighbors in using the word "austerity" notwithstanding, France's reversal of course carries heavy risks for Sarkozy even beyond the usual unpopularity of cuts. First, Sarkozy's own approval ratings are at record lows, with polls showing that a majority of the French public thinks his government's management of the economic crisis is poor and is skeptical of its ability to lead the nation to recovery. That's significant just two years ahead of Sarkozy's expected re-election bid, especially as Dominique Strauss-Kahn a potential Socialist Party presidential candidate and current Managing Director of the International Monetary Fund (IMF) is getting rave reviews for his work at the IMF. French surveys also indicate that were the election to be held now, Strauss-Kahn would beat Sarkozy for the office of president.
Still, public mood would likely shift back in Sarkozy's favor if the unfolding series of (non)austerity measures actually allow France to lower its deficits and debts and steer its economy to recovery without another dip into recession. But by beginning his cost-cutting assault with France's 60-year-old retirement age one of the first major progressive measures introduced by former Socialist François Mitterrand in 1982 Sarkozy is taking on a symbolic entitlement held dear by voters across the political landscape. Should the pain of that significant sacrifice lead to anything other than gain, it's possible that the electoral consequences for Sarkozy would be equally momentous.