French pension reform raises concerns in Brussels

Barroso Ayrault.JPG

As France fails to make in-depth changes to its pension system, the European Commission expressed concerns over the additional burden it could place on the private sector’s competitiveness. 

French Prime Minister Jean Marc Ayrault did not take much political risk when he presented his new proposal for pension reform on Monday (26 August).

The aim of the reform is to halt the systematic loss of pensions whose burden falls on the state every year, and restore the balance by 2020.

But the proposal puts most of the burden on employees and private businesses to contribute to the pension system. The duration of employees’ contributions will be increased but not immediately, being raised every year by one trimester from 2020 to 2035 to reach 43 years in total at the end.

Under pressure from trade unions, a first proposal to raise a general income tax (Contribution Sociale Généralisée – CSG) was dropped, even though it had received broad support from the private sector.

Instead, the reform will raise the contributions for employees and enterprises by 0.3% by 2017. In absolute value, minimum wage beneficiaries will contribute close to €5 per month while private firms will pay a little less.

European Commission reaction

Simon O’Connor, a European Commission spokesperson, said Brussels would make a detailed assessment. He added that the Commission had addressed economic recommendations to France, which were adopted in July.

These recommendations underline the need for stable public finances and lower labour costs, highlighting the hiatus between unemployment and growth on the one hand and budget austerity on the other. The Commission also warned France to avoid an additional deterioration of the private sector’s competitiveness.

Jean Claude Gaudin, president of the centre-right opposition (UMP) in the French Senate called the Government’s reform a “triple treason: treason for the electorate who believed the Socialists when they said that Sarkozy’s proposal to lengthen the contributions duration was not the right path to follow; treason for the salaried employees who will suffer a cascade of taxes and have their purchasing power reduced; treason for the retired whose pensions will be frozen and who will suffer fiscal pressure”.

Jean-Louis Borloo, president of the centre opposition (UDI): “The Prime Minister’s announcements on the pensions should have responded to the need for an increase of labour duration in order to finance pensions, like all Western countries do. France is the only country in Europe that denies the reality and nothing is foreseen before 2020.”

The European Commission urged France in May to cut labour costs, reform its pension system and open up its protected markets in exchange for a two-year respite to bring its budget deficit under 3% of GDP.

The reforms were suggested as part of the Commission's economic policy recommendations, which are sent to member states each year.

The European Commission said possible measures for the pension reform included adapting indexation rules and increasing the statutory retirement age and full-pension contribution period, "while avoiding an increase in employers' social contributions."

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