France in 'urgent need' of new pension reform, Brussels says
EUROPE – The European Commission has urged France to tackle pension reform before the end of this year, as the public deficit is expected to swell to nearly €19bn by 2017.
The Commission, as part of its plan to grant France a further delay to correct its “excessive deficit”, made a number of recommendations on fiscal measures the country should pursue to revive its economy.
The Commission insisted on the need to implement a new pension reform before the end of 2013 and stressed that the reform introduced by the previous government in 2010 failed to pay down the deficit of the pay-as-you-go pension system.
It based its recommendations on the recent projections made by the Conseil d’orientation des retraites (COR) in December last year, which warned of persistent deficits system by 2018.
In its report, the COR said the public pension deficit would rise to €18.8bn in 2017 from €14bn in 2011 despite the measures taken in 2010.
The report also stressed that, in the most optimistic scenario, the first-pillar deficit could not be addressed before 2040.
However, the data provided by the COR in 2008-09 and served as the foundation of the 2010 reform is not without its critics.
At a conference in Bordeaux in November last year, Raymond Soubie, adviser to former French president Nicolas Sarkozy, blasted the “unrealistic” forecasts given on economic growth and unemployment rate, which he argued had “misled” the government.
The European Commission believes the French pensions system is now facing large deficits.
“New policy measures are urgently needed to remedy this situation while preserving the adequacy of the system,” it said.
According to Brussels, such measures could include a further increase in the minimum and the full-pension retirement ages, as well as the contribution period, to obtain a full pension.
Additionally, France could adapt indexation rules and review the currently “numerous exemptions” to the general scheme for specific categories of workers.
However, the Commission warned against increasing the level of social security contributions, given its negative impact on the cost of labour.
“In light of the public finance challenge faced by France, it is of critical importance that fiscal measures be complemented by increased efforts to pursue structural reforms to support and increase the long-term growth potential of the French economy,” the Commission said.
François Hollande’s government, elected in May last year, is reported to be working on a series of measures to reform the pension system.
Although no details have emerged, Hollande is engaging with social partners to negotiate the introduction of the new reform as early as next month.