The announced freeze of the pension reform in France is the latest example of the difficulty of European countries in meeting both the demands of an increasingly elderly electorate and the need to control social spending.
If pay-as-you-go pensions have been a central element of the European social contract for decades, most governments can no longer afford to fund a full pension for workers just turning 60, as was the norm in the past, due to increasing life expectancy and declining birth rates.
But any tougher measures (increasing the retirement age, limiting pensions) presented to remedy this equation face large protests in the streets or in Parliament, as demonstrated by the aborted or canceled reforms in recent years in Germany, Italy or Spain, among other countries close to France.
The reason is simple, says Javier Díaz-Giménez, professor of economics at IESE Business School: with the average European voter around 40, governments have a lot to lose by penalizing the older generation in favor of the young, even if that simply means postponing the problem until later.
The weight of the markets
The major pension reforms implemented in recent years in Greece, Portugal, Italy and Spain, or in Sweden in the 1990s, have often been implemented under very strong pressure from financial markets and international lenders.
The former Italian Minister of Labor Elsa Fornero, who in December 2011 announced through tears the increase to 67 years of the minimum retirement age in the Peninsula, says today that she had no other option given the dizzying fall of Italian state bonds, in the midst of the turbulence of the debt crisis in the euro zone.
An April 2020 study by an Italian university on pension reforms carried out in Europe between 2006 and 2015 highlighted the predominant influence of the financial context and the risk premium in bond markets on decision-making.
In France, the state currently pays a modest premium of around 80 basis points compared to safe haven Germany, while Italy paid around 500 basis points at the height of the euro crisis. “If market pressure is weak in France, we can expect a less incisive reform,” said Mattia Guidi, a professor at the University of Siena and co-author of the study.
Build consensus
During the debt crisis of the 2010s, Greece, Italy, Spain and Portugal implemented major pension reforms, but this does not guarantee that these reforms will survive, or at least not in their entirety.
Thus, Italy and Spain have suspended or softened certain parts of these reforms in successive stages since the end of the crisis.
Portugal and Greece, which had cut pensions in exchange for money from international donors, have started raising them again. Joao Silva, co-author of a report on pensions for the European Youth Parliament, said this development was inevitable because the reforms were adopted despite the opposition of the electorate and not with their support.
Momentum for pension reform has run out in Germany, Ireland and the United Kingdom, where the mechanism for indexing pensions to inflation (“triple lock”) appears untouchable.
In France, according to Judge Elsa Fornero, President Emmanuel Macron could have worked to better convince his own electorate of the need for change. “Macron has disconnected from his fellow citizens,” he said. “An increase of only two years (…) would have been acceptable if it had been explained well. But the reform has become a scapegoat.”
Source: BFM TV
