France's economic reforms - A rupture with the past?

How Nicolas Sarkozy hopes to avoid a big clash with the trade unions over reform

TWELVE years ago, an attempt by a reformist French prime minister to put an end to public-sector pension privileges brought 2m protesters on to the streets and weeks of paralysis to the railways. The plan was duly abandoned and, within 18 months, the enfeebled government of Alain Juppé had been booted out at the ballot box. Now a reformist French president, Nicolas Sarkozy, is trying again. On September 18th he promised to end the so-called “special regimes” as part of a complete overhaul of the social-security and benefit system. Might France be heading for a repeat of 1995?

A total of 1.6m people, working or retired, benefit from the special regimes. These pre-war schemes, set up in part to compensate for unusually dangerous or demanding work, allow electricity, gas, railway and metro workers, among others, to retire early on full pensions. In some cases, such as train drivers who no longer have to shovel coal into their engines, this can mean as young as 50. Elsewhere in the public sector, the retirement age is 60.

Mr Sarkozy has said that he will end these exorbitant privileges, on grounds of “equity”. He wants to bring the special regimes into line with other public-sector workers, as part of a general review of the pension system in early 2008. In order to revamp what he calls a financially unsustainable system that discourages work, he promises also to reform the country's rigid rules on labour contracts, to tighten the welfare rules and to review the public-health insurance system.

The most controversial plan is the end of special regimes. Despite a financing shortfall of at least €5 billion ($6.9 billion), no government since Mr Juppé's has dared touch them. François Fillon, Mr Sarkozy's prime minister, brought in a mini-reform to pensions as social-affairs minister in 2003, but he left the special regimes alone. Bernard Thibault, head of the communist-backed CGT, France's biggest trade union, has promised that, if the government presents its pension-reform plans as a fait accompli there will be “sport, and not only on the rugby field” (France is hosting the rugby World Cup). After Mr Sarkozy's speech the railway unions called a strike for October 17th.

Yet there are grounds for believing that, this time round, threats of mass strikes and demonstrations may be less menacing than they proved in 1995. For a start Mr Sarkozy, unlike Jacques Chirac in 1995, has entered office with a strong electoral mandate for change. During his presidential campaign he explicitly promised to end the special regimes in the name of “fairness”. Nobody can plausibly claim that they did not know what was coming.

Public opinion seems also to favour change. In 1995 well over half of French people said they supported or were sympathetic to strikes against Mr Juppé's plan, according to CSA, a polling agency. Today fully 75% say they support ending the special regimes. It is far from clear that strikes, if they go ahead, will get popular backing (and other union leaders are more cautious than Mr Thibault or the railway unions). Anyway the disruptive power of French unions is not what it was. Workers are no longer paid for days when they are on strike. And in August Mr Sarkozy pushed through a law obliging public-transport workers to negotiate some form of minimum service during a strike.

Most important of all, Mr Sarkozy is taking a novel tactical approach to the unions. Mr Juppé was floored in part by his contemptuous, technocratic attitude towards union leaders. Dominique de Villepin, another former prime minister, was forced to abandon a labour-market reform in 2006 after huge street demonstrations and sit-ins, provoked in part by his refusal even to discuss the plan beforehand.

Mr Sarkozy, in contrast, has gone out of his way to court union leaders, inviting them to the Elysée Palace, and even for lunch at Paris's finest restaurants. He was reportedly dismayed by a clumsy recent comment of Mr Fillon's to the effect that reform of the special regimes “is ready”. Mr Sarkozy prefers to create an impression of flexibility and openness to ideas. “My door is always open to them,” he said—although he has also made clear that he is not ready to listen indefinitely. He wants a deal on pension reform by the end of the year. In separate negotiations between employers and unions over a loosening of the principal labour contract, he has imposed a deadline of December.

In short, France's new president seems genuinely to be trying a fresh approach to the implementation of economic reforms. Does this mean that he will be able to go ahead smoothly with his plans? Nothing is less certain. For one thing Mr Sarkozy's hands-on approach to the presidency leaves him personally exposed. If he runs into trouble, he will not be able to blame his prime minister, as Mr Chirac did Mr Juppé in 1995.

For another Mr Sarkozy, as a lawyer, is by instinct a deal-maker. But deals always involve concessions. The question is how far he is prepared to push, at the risk of provoking conflict. So far he has often sounded tough, but then made concessions. In July, before even the hint of big protests, he dropped the idea of university selection at masters' level in the face of student resistance. More recently, he has diluted his plan to replace only one departing civil servant in two in 2008, as a streamlining measure, to two in three.

It could be that Mr Sarkozy is merely waiting to pick his battle, and that he will show a tougher hand when talks on the special regimes or the labour contract fail. But an alternative is that he might try to “buy” his reforms as part of a grand bargain, in which he takes on new liabilities for the state. This could, for instance, take the form of higher pensions in return for a longer contribution period, or more generous unemployment benefits in return for less onerous redundancy rules.

If he goes down such a road, it would create fresh problems, notably for the public finances. France has postponed its promise to balance its budget, from 2010 to 2012. The budget deficit may be 2.4% of GDP this year. A harsher world economic climate, from which Europe is by no means immune (see article), is not going to help. Even before the latest financial turmoil, the European Commission had downgraded its growth forecast for France, which has fallen well behind Germany. The next few months will test, maybe to destruction, Mr Sarkozy's promise of a rupture with France's past.

"More recently, he has diluted his plan to replace only one departing civil servant in two in 2008, as a streamlining measure, to two in three. "

Sarko starts out with high demands. He will only replace 1/2 the departing civil servants. As a concession to the commies, he relents and will replace 2 of 3. That was probably his goal in the first place. Meantime, the commies save face by claiming a concession.

yitbos

Millions of privileged on strike paralizing the country and marching down the streets shouting, whilst the much poorer people that is paying for such privileges try to reach their workplace because they cannot afford to lose a single day....

This is Europe, the place where the Ancient Regime evolved into Socialism.

"Millions of privileged on strike "

"Anyway the disruptive power of French unions is not what it was. Workers are no longer paid for days when they are on strike. And in August Mr Sarkozy pushed through a law obliging public-transport workers to negotiate some form of minimum service during a strike. "

Sarko has many well thought out plans. He started with by winning the election. Then he increased his popularity. He then passed enabling legislation to carry out his mandate.

yitbos

For once, it appears France may be on the right path ahead of us. Can’t be much longer before the American people wake up and realize we’ve created a privileged class: public workers. Generous pensions, higher pay, health care for life, etc....all paid for by private sector employees who don’t come close to enjoying the same benefits.

This hasn’t reached a boiling point yet because it’s been reported in isolated local newspapers. States, cities, counties...all over the country they are facing what they call a “pension crisis”. Their answer? Raise taxes to pay for overly generous benefits the pols gave away to gain political favor from public employee unions. The media goes along and treats it as a crisis. But one of these days, someone’s going to point out that this is happening all over the country and the public is being soaked to pay others for benefits they themselves don’t get.

I think it’s only a matter of time before someone “nationalizes” this story and the public says: “Wait a minute. We can’t even dream of a pension anymore. Why should we pay what we pay now, let alone MORE, to give these so-called public servants close-to-full-salary retirements, lifetime health insurance, 3 times as many holidays as we get, generous cumulative sick pay, etc.?!”.

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