Pension protests in France just the beginning
The French word of the month is chienlit, a centuries-old term literally meaning “to soil the bed”. It is used today to describe the havoc in the streets. Famously deployed in the days of Charles de Gaulle during the 1968 student riots, it is back in fashion after 10 days of strikes triggered by Emmanuel Macron’s hike in the minimum retirement age to 64 from 62.
The expression is French, as are the recent images of uncollected rubbish being set on fire and clashes with riot police, but the root problem goes beyond France. We are in the grip of what Charles Goodhart and Manoj Pradhan in 2020 dubbed “The Great Demographic Reversal ”— an end to several decades of benign economic trends in inflation, interest rates and inequality. Worryingly, while climate denialism is being rolled back, demographic denialism is on the rise.
The numbers bear repeating: the European continent is growing greyer as the post-war baby boom begins to disappear. The share of over-65s reached 21.1% in the EU in 2022, up from 18% a decade ago. In a region where the median age is 44 and fertility rates have been declining, legal retirement ages are being eclipsed by reality. In a recent Bloomberg survey of life expectancy vs effective retirement age, European countries dominated the top 20, led by France and Luxembourg, where the average man has 18 healthy years in retirement.
SOCIAL CONFLICT
This sounds like the happy outcome of living longer, but it brings inevitable social conflict. The burden of financing pension systems is being shifted onto future generations, rather like the cost of climate change. A 2020 study found that the average pension system deficit in Europe stood at about 2.5% of GDP and will rise to 4% of GDP in the next three decades. France’s pay-as-you-go system will have only 1.2 workers for every retiree by 2070.
Today’s anti-Macron high school pupils setting fire to rubbish are effectively defending a status quo that is unfair to them in particular. Governments are rarely willing to penalise pensioners as they are the ones most likely to vote.
Inequality and inflation are also set to worsen as a result, according to Goodhart and Pradhan. Growth in the ranks of old-age dependants means more consumers adding to inflationary pressures, and an improvement in the bargaining power of a shrinking work force asking for better pay. Income inequality and wealth inequality have got worse in many economies. German inequality has risen, and while going into the pandemic, French retirees had a higher standard of living than workers. Central banks hiking interest rates are stoking a backlash from states.
The reaction to all this has been something approaching denial, or at least myopia.
Striking unions and Macron’s political opponents suggest more redistribution is enough, even in one of the highest-taxed countries in the rich world.
Pension reforms are always unpopular, but even the French centre-right, which should have been a natural ally of Macron’s reform, could not agree on whether to support it. The CEO class has been “useless” on this issue, one top Paris bank executive says, rarely sticking its head above the parapet.
Geoffroy Roux de Bezieux, chair of the Medef business lobby, on Monday called pension reform necessary, but criticised state measures to encourage the hiring of older workers.
AS THE POPULATION AGES, PENSION DEFICITS GROW AND SOCIAL CONFLICT LOOMS, CAN MACRON FIND A SOLUTION?
Macron has other planned demographic policies up his sleeve, such as immigration reform, designed to increase the labour force. But the outlook for his ability to pass future reforms looks bleak.
Blocking the Louvre and burning the Bordeaux town hall do not point to an understanding of the need to save more for retirement. Unlike the “great stink” in 1850s London that came with the smell of opportunity of improving sewerage systems after a doubling of the city’s population, this all seems symptomatic of demographic and urban decline.
This is all music to the ears of populists such as Marine Le Pen, who once campaigned for a retirement age of 60. This should be the catalyst for Macron to try to detoxify the pensions issue — something none of his predecessors could ever do — by offering more authority to new organisations including employers and staff unions. If even that is not possible, he should consider doing what de Gaulle did in 1968: Call early parliamentary elections and potentially put his own retirement on the line.
Stopping the chienlit and getting back onto a reforming track is worth the risk.