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'Dangerous' pension reforms to test Hollande

AFP/The Local · 2 Sep 2013, 09:04

Published: 02 Sep 2013 09:04 GMT+02:00

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Pension reforms are highly contentious in France - with previous efforts in 1995 and 2010 unleashing mass protests and damaging strikes - and this latest effort could be the biggest test yet for President Francois Hollande.

Hollande's government stuck to his promise not to increase the current retirement age of 62 as many other countries have done following Brussels' recommendation.

The reform plan, which will be officially tabled September 18, avoids some of the more controversial proposals floated in recent weeks that included slapping a new tax on French retirees.

Instead, the government proposes that employees as well as businesses pay more every month to France's retirement system, a measure sure to raise eyebrows with the cost of the generous social net already one of the highest in the world.

French businesses had campaigned against a rise in taxes or contributions, fearing the impact they would have have on competitiveness. The French economy is grappling with record unemployment, a high cost of labour and a huge tax burden.

The plan also incrementally raises a French worker's contribution period from the current 41.5 years to 43 years by 2035. This effectively means that most people will have to work beyond 62 to qualify for a full pension.

The government said the measures would save the state's strained retirement system 7.3 billion euros ($9.6 billion) by 2020, with the books balanced by 2040.

But there is growing criticism that the reforms are not deep enough.

"The measures are disappointing. They will only address the deficit of the general pension scheme for private sector employees, not that of the overall pension system," said HSBC Global Research.

It said the pension system will be "still in a deficit of 13.6 billion euros in 2020 according to the French pension council even if all the measures announced are applied."

Sixty-two percent of French people said they were opposed to the reforms, in an opinion poll published Saturday for i-Tele and conducted by BVA.

And 67 percent said they felt the proposals were not "fair". The poll comprised 1,010 persons and was conducted over August 29 and 30.

Pierre Gattaz, the new head of Medef - France's largest employers' confederation - said the plans amounted to zero.

"This is a dangerous reform that is not acceptable to us. In reality, it is a non-reform: no structural problem is resolved," he told Le Figaro newspaper.

The European Commission, the EU's executive arm, had asked France to increase both the minimum and full pension ages and to review many exemptions in the system.

HSBC Global Research warned that "the European Commission could tell France that the proposed reforms do not go far enough," as the plan "addresses the pension deficit through tax hikes rather than spending measures."

Saying they would not sever the index-linking of pensions to inflation, HSBC warned that "the nominal pension spending will continue to rise sharply; by 3.9 percent per year according to our calculations between 2014 and 2020."

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It also said that the contribution period would only be extended from 2020 and therefore not help the government to achieve its public deficit target in 2013 and 2014 or to reduce the structural deficit until 2020.

"We expect a public deficit of 4.2 percent of GDP in 2013 and of 4.2 percent of GDP in 2014 in spite of 3.9 percent and of 3.6 percent announced by the government," HSBC said.

Finance Minister Pierre Moscovici sought to douse fears last week by saying that the rise in employers' contributions would be offset by cuts in family welfare schemes from next year.

French unions have been divided. The CFDT sees the reforms as "even and moderate efforts" but the more vocal CGT has threatened strikes and protests on September 18 when the proposals are presented to government ministers.

The French parliament will get the chance to consider the measures in October.

AFP/The Local (ben.mcpartland@thelocal.com)

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