Tony Barber, European comment editor of the Financial Times publishes an in-depth article on a European country every Saturday. He quotes many references to back up the points he is making and I always find that I have learnt something new when I have finished reading him.
Last Saturday, his article was on France:Europe Express Weekend: Macron’s troubles go deeper than pension reforms
and was critical of Emmanuel Macron's approach to governing in general and pension reform in particular. I felt moved to make some comments and they eventually ran to three pages. I am happy to post them here on my blog:
"Dear Tony Barber
I enjoyed reading your Europe Express Weekend piece, as always, but I don’t think you have been entirely fair to Macron nor put the policies he has been pursuing in their context.
First off, I think it’s fair to say that he is the first President for 40 years who is attempting, with method and determination, to belatedly repair the slow burning damage done to the French economy by Mitterrand’s decision to cut the retirement age from 65 to 60, at a stroke, in 1981 and the introduction of the 35-hour working week by a socialist Prime Minister in 2000. It was already clear in 1981 that demographic trends would put the pension system under pressure within a few years. But once the genie was out of the bottle, it has proved very difficult, as always, to put it back in. In 1995, Chirac made the first attempt to roll back the abnormal pension privileges (les régimes spéciaux i.e retirement on a full and generous pension well before 60) of the workers and employees in the nationalised railway and energy sectors. The unions fought this tooth and nail and brought the country to a standstill for several weeks at the end of 1995. Chirac, who was not a great reformer at heart, capitulated and the reform was withdrawn. He subsequently endured a long period of “cohabitation” with a socialist majority in parliament and Prime Minister Jospin took advantage of the situation to introduce a statutory 35-hour working week - a one-size fits-all reform that was fine for office workers in the lower and middle ranks of the civil service but totally inappropriate to private industry, not to speak of nurses and doctors in public hospitals. The private sector, fed with large dollops of subsidy, adapted over time but many parts of the public sector, particularly public hospitals, have been thoroughly disorganised, which largely explains, in passing, the sorry state of French public hospitals and particularly A & E services today. Chirac served out his first term, was re-elected in a landslide against Jean-Marie le Pen in 2002 and proceeded …..to do practically nothing (except keep France out of the Irak war) during his second term, now reduced to 5 years. Denouncing “immobilisme”, Nicolas Sarkozy was elected in 2007 to get things moving again. He loosened up labour laws to enable private sector companies to work around the 35-hour working week more easily and introduced tax incentives for overtime (i.e anything over 35 hours - “ travailler plus pour gagner plus”) but did not attempt to amend the statutory working week, that the public sector in particular was keen to keep. He also had a go at reforming pensions but took the relatively easy option of reforming the private sector system, raising the statutory retirement age to 62, amid widespread protests from the same quarters as today, but did not dare tackle the public sector in any serious way and kept very clear of stirring up the unions by trying to reform the “regimes spéciaux”. By this time, both the public sector pension system and the régimes spéciaux were becoming increasingly unbalanced. It is now estimated, (something that has been little mentioned in the current debate) that the pension deficit of the public sector, carefully concealed by some creative accounting, is around €30 billion a year and that of the “régimes speciaux” another €5 billion. After Sarkozy’s stinging defeat by François Hollande in 2012, his 5-year term introduced some tweaks to labour legislation and a very gradual increase in the number of contribution years required to receive a full pension, to the considerable ire of many in his party and the street, that turned out en masse to protest.
In the 2017 campaign, Macron appeared to many as a breath of fresh air. Although he started his political career as Hollande’s economic advisor and subsequently Minister of economic affairs, his recipes for change were anything but socialist. He promised to liberalise labour laws, reduce taxes, particularly on businesses, and sketched out a vision for pension reform to the effect that everyone, whether in the public or private sector, would be subject to the same rules and the same contributions would generate the same pension benefits. He also promised to reduce unemployment in general and improve job prospects for young people in particular by promoting apprenticeships and vocational training.
It is only too easy at this moment, with pictures of mountains of rubbish in the streets of Paris and the ancient gate of Bordeaux Town Hall going up in flames, to lose sight of the fact that Macron and his government have delivered on many of these pledges. Labour laws were liberalised very early in his first term, punitive taxes on the wealthy were reduced, taxes on business have been cut and investment, from both France and abroad, has been actively courted and landed. Last year the number of new factories outstripped the number of factory closures; new apprenticeships reached a record of over 800 000 and are still rising. France’s previously very generous unemployment benefits have been curtailed to encourage people back into work more quickly. What economists refer to as supply side reforms have never been part of the French “dirigiste” approach in the past and the cultural changes they have brought about in the French economy have passed largely unnoticed. To take just one telling example: for many years, manual work was considered in France as vaguely demeaning, only fit for dimwits and dropouts, not bright enough to complete the broad curriculum that culminates in the “baccalauréat” and a free pass into university. This attitude is still the basic assumption of the left-wing teaching unions who hold inordinate sway in the centralised ministry of education. But at last, skilled manual work is coming to be seen as a reasonable and profitable alternative to general education, as it is in Germany; parents are less reluctant to see their offspring take apprenticeships or vocational courses rather than scrape through their baccalauréat and waste a few years at taxpayers’ expense in university courses that offer doubtful job prospects.
As Macron has projected and implemented this very focused vision of the French economy, it has not always been appreciated, to say the least. But he has used the considerable powers of a 5th Republic President to push these reforms forward, with the conviction that they are essential to making the French economy competitive once again and produce more high-value goods and service after so many years of drift and a widespread feeling of complacency and entitlement. And despite the inevitable protests from the unions and political opponents.
I think it is only fair to see the current debate on pension reform against this background. Macron was unfortunate in his first, and probably overambitious attempt, which played itself out between the gilets jaunes and the COVID pandemic. Although it did in principle enjoy the support of the more moderate unions, it had to be abandoned as protests and the COVID emergency took their toll. But Macron made it clear that pension reform would be back on the agenda if he were re-elected in 2022. He was, with a majority of 58%, although he lost his parliamentary majority just a month later. The current reform is less ambitious than the first and has been contested by all the unions. It is simpler, raising the retirement age from 62 to 64, does not change the way in which public sector pensions are calculated (70% of final salary as opposed to 50% of the best 25 years for the private sector) but it does abolish the régimes spéciaux, albeit only for new entrants and therefore very slowly. My feeling is that this is once again the core of what the unions are protesting about. They are far more powerful in the public sector than elsewhere and many of their members currently retiring on a full pension at the ridiculously early age of 58 to 60 will indeed be required to work two years longer. For employees in the private sector, who, as a result of previous reforms, must work until 64 anyway, if not more, its effect will be marginal.
A lot can and has been said about what Is seen as Macron’s high-handed way of pushing the reform through parliament. Personally, I would have preferred to see it put to a vote and withdrawn if the vote had been lost, with a return to the original plan of 2017-2018. But Macron clearly judged that he had better things to do in the remaining four years of his mandate than spend yet more time and dwindling political capital on a third version of pension reform. The best thing that can be said about the 49.3 procedure is that it has at least made clear that there is no alternative majority in the Assemblée Nationale.
Especially, as you clearly point out, as this version of pension reform will not have a huge impact on overall public spending. But there are two counter arguments here: the first is that it will at least stop the fiscal deficit and public debt from increasing further, and if it obviates the need for a taxpayer subsidy of €35b. a year, this is definitely progress. Unfortunately however, the French still expect the state to continue to massively subsidise businesses and consumers to shield them from economic headwinds. On top of that, the “whatever it takes” of the last three years has given many the sentiment that the pension deficit is indeed peanuts. By comparison, blanket energy subsidies cost the taxpayer €80b. in 2022 and have been extended for the whole of 2023. Meanwhile, the German finance minister is up in arms over an unforeseen €70b. he is being asked to spend in 2023….
But there is a second argument which is more valid over the longer term and which, I suspect, is more important to Macron and explains why he never ceases to explain, in every interview he gives, that France must re-industrialise and produce more high-value goods and services: if the size of the overall GDP pie can be increased, each individual slice will represent less of the whole. Knowing how difficult it is to cut public spending in any country, let alone France with its very generous welfare state, this is surely the logic behind his supply-side reforms referred to earlier.
On the relative strength of Macron and Le Pen at the last presidential election, the map you chose shows that Macron not only won in the major cites but also in large swathes of the rural centre of France as well as almost the whole of Brittany. MLP garners her support mainly from the North (area of mine closures and declining industries, long a bastion of the Communist party) the East (idem in Lorraine, but Alsace has a more Germanic culture and places more store by law and order) and along the Mediterranean coast from Marseille to Nice, where support is primarily driven by, sometimes rabid, anti-immigrant sentiment, a hangover from the Algerian war and the many pied noirs and their descendants keeping their resentment very much alive. It is no accident that Eric Zemmour, even more extreme than MLP, tried, unsuccessfully, to gain a parliamentary seat in Saint Tropez! How well MLP and her party can weld these disparate strands into an election winning coalition by simply being anti-Macron and highlighting cost of living issues (as she did in 2022) will be one of the factors determining whether she wins the presidency in 2027. Many commentators seem to think that she will, but I beg to differ. I am fairly sure that in a bitterly fought campaign, she will, on the contrary, be shown up for what she is, a Trump style populist with Trump style friends, notably Putin, a large debt to a Russian bank and facing a judicial investigation over possible misappropriation of European Parliament funds, a demagogue, quick to identify scapegoats but with no coherent vision of the future."
