It was almost a year ago. An eternity, almost another world. In the summer humidity, L’Express met Michel Barnier, under the shade of a parasol pine during the traditional Rencontres économiques d’Aix-en-Provence, a big annual circus where politicians, bosses, trade unionists and economists discuss the state of the world. “We must not confuse populism and popular sentiment. Popular sentiment must be listened to, it explains the yellow vest crisis and the vote for the extremes,” the future head of government told us at the time. Barely fourteen months later, on the steps of the Hôtel Matignon, during the rapid transfer of power, the new Prime Minister promised the French to tell them the whole truth about the country’s debt.
Listening to popular sentiment while coming out of denial… This is the precarious balance that Michel Barnier must find in the coming weeks, as the country faces one of the most serious crises in its public finances since the Second World War. Unsurprisingly, the subject of pensions is at the top of the pile of files that the former European Commissioner discovered on his desk. Invited to the 8pm news on TF1 the day after his appointment, he immediately declared that he wanted to “open the debate on improving this law for the most vulnerable people”, while ruling out “calling everything into question”. Nearly two-thirds of French people voted last June for parties that wanted to reverse the increase in the legal retirement age from 62 to 64. Repeal or freeze, the promise sounds good to public opinion but quickly shatters on the cold figures.
The unsustainable weight of public finances
The truth is that the mark of demographic ageing on our accounts is relentless. “The pay-as-you-go pension system as it was created in 1945 is a system of intergenerational solidarity. For it to survive, it must be balanced by nature,” recalls Olivier Klein, professor of economics at HEC and CEO of Lazard Frères Banque. If in 1960, there were 4.1 workers for 1 retiree, the ratio is now 1.7 to 1. Unsustainable. The truth is also that pension spending is the largest item of public spending: it absorbs 14.4% of GDP, compared to 12.3% on average in the euro zone. The truth, finally, is that our public finances are drifting dangerously.
A note recently written by Treasury experts reveals that the hole in public accounts would reach 5.6% of GDP this year, compared to 5.1% initially forecast, and nearly 6.2% next year, with unchanged policy. However, if we are to believe the latest report from the Pensions Advisory Council (COR) published in June, the general system would remain unbalanced in the very long term, even taking into account the reform voted on last year. Eliminating it would cost at least 15 to 20 billion euros each year from 2030. “The fundamentals that justify this reform are still there and have never been so significant. Going back on it would be dramatic from a public finance perspective,” worries Ensemble MP and former budget rapporteur for the Assembly, Jean-René Cazeneuve.
Narrow room for maneuver
Michel Barnier knows this well, he who advocated for a postponement of the retirement age to 65 during the campaign for the LR investiture in 2021. But can he do without a gesture of appeasement today? “We can always do better”, acknowledges the former Minister of Labor, Olivier Dussopt, who had led the project with Elisabeth Borne. “In the current situation, we must not rule out anything, we must find a way through”, continues Ensemble MP Marc Ferracci. Yes, but at what price? The first, crucial step will take place on October 31 during the RN’s parliamentary niche where the repeal of the text will be included on the agenda. Until then, Michel Barnier will have to seek compromises on the issue, as the opposition, on the far right as well as the left, will continue to heat up an already distraught public opinion.
The room for maneuver is narrow. “The fundamental basis is that we must collectively work more and that this effort must be fairly distributed,” maintains Jean-René Cazeneuve. Concretely, the government can, in theory, activate four levers to restore balance: the retirement age, the number of annuities, the contribution rate and the amount of pensions. For each of them, the range of possibilities is considerable. “All past reforms have been made thanks to a cocktail of measures,” recalls economist Michaël Zemmour, member of the High Council of Public Finances. A hint of additional contributions, a zest of additional annuities and a touch of deindexation of pensions… We could also imagine a modification of the method of calculating pensions, by taking as a reference the salary of the 30 best years and not the 25. Except that each of these avenues comes up against head-on opposition. The Medef does not want to hear about an increase in contributions. As for the left, it wants to preserve the purchasing power of retirees, even if their poverty rate is significantly lower than that of the population as a whole.
“We must not rule out broadening the focus,” adds Marc Ferracci. In the ranks of Macronists, a little tune is rising, that of the universal regime. The original reform of the president’s 2017 program could make its return to the debates. A long-term discussion, which could bring together part of the social-democratic left and in particular the CFDT which has been campaigning for such a change for decades. “It is the system that generates the most convergence and transparency,” agrees Olivier Dussopt. And why not add a dose of collective capitalization, the effectiveness of which has been proven in the Nordic countries? “It has one advantage: it is insensitive to the demographic question,” recalls Bertrand Martinot, associate expert at the Montaigne Institute and former social advisor to Nicolas Sarkozy.
The future of the pension system at stake
Behind this financial mess, the question of the future of the retirement system also refers to the central subject of the employment rate, and in particular that of seniors. In this regard, France remains today in the soft underbelly of Europe with a rate of 55.9% for 55-64 year-olds, while Germany exceeds 70%. According to the calculations of the president of the COR, the economist Gilbert Cette, if France had the employment rate of the Netherlands, the country’s wealth would be 12% higher than the current level. No more worries about financing retirement, then.
“This is the key, because increasing the employment rate gives more growth, more VAT revenue, more income tax revenue and less unemployment expenses. The effect is virtuous,” argues MP Marc Ferracci. Another determining factor: productivity. “The more it increases, the more the deficit is reduced. Our system is also based on the bet that productivity will increase in the future. If for some reason it is less dynamic, it will not find balance again,” warns economist Patrick Aubert, member of the COR. However, since 2019, labor productivity in France has fallen by 8.5% compared to the pre-Covid period.
The ball is now in the new Prime Minister’s court. In our columns, a year ago, Michel Barnier deplored the explosion of French debt to more than 3,000 billion euros: “These are issues that make us lose credibility,” he said. But partially unraveling the latest reform would further erode this famous credibility with our European partners, while France has been placed under increased surveillance by Brussels. As a good Savoyard, the new tenant of Matignon knows it better than anyone: the ridge path is quite narrow.
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