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If Macron can’t raise France’s retirement age, Europe’s fiscal union is doomed – 03.02.23

The French president must either accept defeat on his banner policy or ram it through by executive decree says Ambrose Evans-Pritchard for The Telegraph.


For the first time since the Paris insurrection of 1968, all of France’s trade unions are aligned in visceral protest on the same barricades.


Bitter rivals have joined hands, all bent on making their country ungovernable until they have stopped Emmanuel Macron’s neo-liberal assault on their Gallic right to a very long and very comfortable retirement – or as they proclaim it, to stop his assault on the sacred modèle français.


As matters stand, they are winning the public argument. An Opinionway survey found that 22pc of voters blame trade unions for the wave of strikes against his pension reform, while 63pc blame him.


Macron may soon face the invidious choice of either accepting defeat on his banner policy and limping on as another failed reformer, or ramming it through by executive decree (49:3) without parliamentary consent. To do the latter would risk a political explosion.


The strikes convulsing Britain are also serious but of a different character. The British episode is a primordial scream against falling real wages. It will be resolved by a messy compromise on pay deals when all are exhausted.


The French episode has larger implications. It will determine whether France and Germany can coexist in a European monetary and fiscal union, and whether the European project is viable over the long run.


Macron touted a grand bargain with Berlin when he burst onto the European scene in 2017. He would undertake two central tasks: he would rein in France’s fiscal deficits after 11 years in breach of the EU’s Stability Pact; and he would pull his country out of its complacent reverie with a French version of Germany’s Hartz IV reforms.


In return, Berlin would again accept Paris as an equal partner in economic condominium, or so he hoped. The Germans would finally drop their resistance to a Transferunion. They would allow permanent joint debt issuance and an EU treasury, the necessary foundation for the survival of the euro over the long run.


He has yet to deliver his side of the bargain. It is therefore no surprise that Germany is resisting his debt union. Who wants to be on the hook for another nation’s runaway fiscal deficits?


French men leave the workforce at an average age of 60.4, compared to 63.7 for British men (OECD data). They can take paid retirement at 62 at an average 74pc of their former salary, compared to 29pc in Britain. They want to keep it like that.


Men can expect to enjoy 23.5 years of post-work leisure: women can expect 27.1 years. This compares to 20.1 and 23.1 respectively in Germany, or 20.2 and 23.5 in Holland.

A Byzantine mosaic of 37 “special regimes” guarantees featherbed retirement for wide sectors of society.


Conductors on Parisian suburban railways can retire at 52 to 54. The Opéra National has its own regime. So does the Banque de France. So do mines and ports. Some are relics of Leon Blum’s Front Populaire in the Depression.


Macron swept into power six years ago with much enthusiasm for the Swedish pension model, Danish flexicurity, and le start-up nation. Little came of it, even though he had a crushing majority in parliament. He was hit by the gilets jaunes, then Covid, then Vladimir Putin’s energy war.


The challenge has not changed, he still has to deliver pension reform to retain any plausible claim to pan-European leadership. It is the sine qua non of fiscal viability.


“2023 is the year of all the dangers. Pension reform is critical to head off a cascade of downgrades of French sovereign debt,” said Agnès Verdier-Molinié from the French Research Institute on Public Administration.


“France is still stuck in its infernal equation: it is the country that taxes the most, that spends the most, and that works the least,” said Verdier-Molinié.


Macron has lost his majority in the National Assembly, where the Left is trying to paralyse his reform bill with over 7,000 amendments.


He has been forced to dilute his plan to win over votes, lowering the retirement target by the end of the decade from 65 to 64 – a retreat watched with disbelief by fellow European states already at 66 or 67, and ratcheting higher.


“My sister has just retired at 68. It is wonderful that the French will be able to retire at 64 in 2030, if it happens,” said Dutch premier Mark Rutte with acid irony in Davos.


There is much ruin in a great nation but France is testing the boundaries of tolerance, just as Britain is doing. The country had a lower debt-to-GDP ratio than Germany as recently as 2007. It was then 64pc viz 65pc. When Macron took power the gap had widened to 97pc viz 64pc.


The International Monetary Fund expects it to be 118.5pc viz 59.7pc by the time he leaves office. France is slipping from the euro core to the high-debt periphery, but without the compensation of Italian and Spanish reforms.


The IMF says France will be running the largest structural deficit of any developed country through the 2020s, with much reform rhetoric but little evidence of discipline. This expansionary fiscal policy flatters growth but only by delaying the inevitable.


There has been much anguish this week over the IMF’s dire forecast for the UK in 2023. The press overlooked the fund’s Article IV “health check” on France issued days earlier. It more or less accused Macron of Trussonomics.


It said he has pushed through unfunded tax cuts of 1.5pc of GDP and it called his price controls on energy wasteful and indiscriminate. Gas and electricity went up just 4pc last year. His plan to cut the public payroll by 100,000 never happened.


“Debt will remain on an upward path, widening an already sizable debt-differential with European peers. A credible package of reforms is needed to rationalise spending,” it said.


Private debt has surged too. The combined debt ratio is up 70 percentage points over the last decade to 351pc of GDP (BIS data), compared to 271pc in the UK, and 199pc in Germany. This leaves France particularly exposed to rising eurozone interest rates, up another half point to 2.5pc as of Thursday.


The lesson of the eurozone debt crisis is that monetary union does not protect high-debt states from the bond vigilantes. On the contrary. While it can suppress warning signals for long stretches – lulling everybody into a false sense of security – countries lack the sovereign monetary instruments to defend themselves when the music stops.


The EU has since created a machinery of enforcement and surveillance but this is clearly not working. We do not know what will happen as the European Central Bank carries out the most aggressive tightening since the creation of the euro, and pulls away the debt shield of bond purchases.


Markets are betting that fiscal union is a done deal and therefore that France can get away with anything. Perhaps, but that is to take Germany and the northern creditors for granted.


Will they extend a blank cheque indefinitely to a debtor bloc led by an unreformed France that fails to raise the retirement age above 62, while their own citizens must work until they drop? The answer is no. For Europe’s sake, Mr Macron had better succeed.



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Ambrose Evans-Pritchard is World Economy Editor of The Daily Telegraph. He has covered world politics and economics for 30 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels.

Macron has to deliver pension reform to retain any plausible claim to pan-European leadership. Credit: Ludovic Marin

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