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Can the French Cut Welfare?

Sarkozy touches the troisième rail.

Jun 21, 2010, Vol. 15, No. 38 • By CHRISTOPHER CALDWELL
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Recently Le Monde interviewed Raymond Soubie, an adviser to President Nicolas Sarkozy. He told an astonishing story. 

Soubie was working for then-prime minister Alain Juppé in 1995 when the nation underwent weeks of disruptive and violent strikes against reforms of the welfare state. As France veered towards major unrest, Le Monde wrote,

M. Soubie and his colleagues asked the relevant ministers and business leaders which particular reform projects had lit the powder keg. To their great surprise, they discovered that no such projects existed. All it had taken was a phrase, a passing mention in a speech by M. Juppé about reforming the health service, to unleash one of the most spectacular clashes of the last 30 years.

This is why France’s welfare state has always been as unreformable as it is unsustainable. It is not that reform is opposed—the hint of the shadow of a reform is met with civil disturbances. And yet, almost a month after the Sarkozy government issued proposals for modifying France’s implausibly generous retirement benefits, the reforms are still given a good chance of passing. 

The worldwide financial crisis has put France under dire fiscal pressure. The country is going broke in two ways, as Ernest Hemingway once put it: gradually and suddenly. The gradual aspect is that France’s ratio of workers to retirees has been falling for decades. France had more than 4 workers per retiree in 1990, but now has around 3, and the figure will sink to about 1.5 by 2050. That will mean at least a $120 billion annual fiscal shortfall. The sudden aspect is that the ricketiness of the euro has forced countries in the eurozone to begin putting their fiscal houses in order. They have committed to bringing their debt back to 3 percent of GDP by 2013. France is not the least responsible budgeter in the West. Its 2009 deficit was 7.5 percent of GDP, well below the 12.3 percent in the United States. But that is small consolation. Getting back to 3 percent will require a savings of $115 billion over the next three years. 

The problem with France’s social security system is not that it pays employees too much. The average retiree gets paid about 54 percent of the salary he got during his working life, which is better than some European countries, worse than others. (French public employees do much better than private ones.) The problem, rather, is the absurdly early ages at which French people retire. When France first began to suffer permanent double-digit structural unemployment in the 1970s, its leaders had the idea that getting people to retire early would “make room” for younger workers. The unemployment problem would be solved not by increasing the numerator but by shrinking the denominator. In 1983, President François Mitterrand lowered the retirement age to 60. 

The results were dramatic, but they did not include a fall in the unemployment rate. And while the official retirement age is 60, public-sector unions have won special consideration for “active” jobs. Firemen, prison guards, and policemen—but also railroad workers, customs officials, and sewage workers—can retire as early as 50. So retirement can, without exaggeration, take up most of a person’s adult life. The average Frenchman collects retirement benefits for 24.5 years. The average Frenchwoman collects them for 28. Only 13 percent of French people aged 60-64 are in the workplace. Early retirement has various knock-on effects, too: Retraining workers for high-value-added jobs has been the obsession of Western governments of left and right for two decades. But what employer would be so foolish as to pay for a major retraining of a 47-year-old worker who is eligible to retire at 51? 

The trail France must follow has been blazed by her neighbors. Germany, where the retirement age is 65, recently voted to raise it to 67 by 2029. Britain will raise its own retirement age to 68 by 2046.  And yet, when Sarkozy’s government hinted that a retirement age of 62 might be acceptable, trade unions hit the roof. 

Ordinarily, that would be the end of the story. Sarkozy is calamitously unpopular. His party took only 26 percent of the vote in the most recent regional elections. What is more, there is a tradition in France of describing welfare programs as acquis—acquired things, done deals. Once enacted, a welfare benefit becomes a new constitutional right, an essential and nonnegotiable component of what it means to be a human being. The French view of welfare cuts resembles the House of Saud’s position on apostasy. An Ipsos poll published in early June found just 14 percent of French respondents said they would accept a rise in the retirement age.

Such sentiments, however, do not cut as deep as they did even in 1995. In late May, the country’s major trade unions called for a mass mobilization to protest the retirement changes. The Paris march drew only 22,000 people, according to police. The CFDT—descended from what used to be the Christian wing of the labor movement—had its annual meeting last week and voted against accepting a hike in the retirement age. But labor’s ability to resist welfare reform is being eroded by the same demographic changes that make the system itself untenable. 

The second big crisis addressed at the CFDT conference was the aging of its membership: Sixty-three percent of its leadership will be retired ten years from now. One senses that the unions do not believe they can stop the reform. They just want something to show for their capitulation, such as an assurance that the bulk of the new taxes raised to make the system whole will be raised from “the rich”—i.e., their employers—and not themselves. Such compromises are common. In them, one can see the seeds of France’s structural unemployment problem.

It will be hard for Sarkozy to win even modest welfare reforms without trading away a centerpiece of his small-government agenda: the so-called bouclier fiscal, or “fiscal shield.” The bouclier is George W. Bush’s legacy to French politics, whether he knows it or not. Governor Bush told the 2000 Republican convention, “On principle, no one in America should have to pay more than a third of their income to the federal government.” Whether he was following Bush or the zeitgeist, then-prime minister Dominique de Villepin made a similar promise to the French in 2006, with one small difference. He set the line of this-far-and-no-further, the line beyond which the state lost its moral authority to claim its citizens’ pay, not at 33.3 percent but at 60 percent. In his 2007 campaign, Sarkozy campaigned on lowering the bouclier further, to 50 percent. Of course, in a country where government spending approaches 60 percent of GDP, to promise taxpayers that none of them will pay more than half their income in taxes is merely to promise (a) regressive taxation, and (b) deficits.   Clearly the bedrock fiscal principle in France is that the state will never take more than 50 percent of your income unless it really needs it.

Still, Sarkozy has the stronger hand. Much as Ronald Reagan’s mere mention of “welfare queens” led Democrats to rally behind the most indefensible parts of welfare, much as Bill Clinton’s efforts at gun control led Republicans to oppose restrictions on ever more dangerous weapons, Sarkozy’s opening of the retirement question has led Socialist leader Martine Aubry to reassert the doctrines of her party’s purist left wing circa 1980. She has compared Sarkozy—through a logic only she can follow—to Bernard Madoff. She has alienated the members of her own party who passed second-grade math. Her most likely rival for her party’s nomination in the 2012 presidential elections, IMF leader Dominique Strauss-Kahn, has said he doesn’t want to follow any “dogma” on the retirement age. 

What divides the parties is not the question of whether the retirement system is affordable now—the French increasingly understand that it is not. It is whether it is affordable under any economic circumstances, and whether it will become workable again once the financial crisis has passed. The Socialists argue that the crisis is the problem—it accounts for three-quarters of the deficit. Maybe so. But what is it a crisis of? It’s a crisis of our assets’ being worth less in fact than on paper. That is a terrible truth, but the French would be foolish to think they could return to pre-crisis arrangements by unlearning it.

Christopher Caldwell is a senior editor at The Weekly Standard.


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