EU Economic Governance and French Pension Reform

I haven’t discussed the French pension reforms, and the strikes opposing them, because it’s taken me a while to dial in the broader context that I felt was lacking in a lot of the debate. French President Nicolas Sarkozy has for the most part used demographic arguments to justify the reforms, which essentially involve moving the age of retirement from the age of 60 to 62. The growing pool of retirees coupled with budget shortfalls makes the need for reform obvious. The problem is one of distributing the increased burden fairly. Here, Sarkozy shot himself in the foot by making a tax cut for the wealthy his first order of business upon taking office in 2007, making appeals to civic duty ring a bit hollow. Beyond that, there are other aspects of the reform that make it unfair, for women especially, but also for older workers, which Art Goldhammer does a good job of explaining here.

But what’s missing in this debate, for reasons that have to do with France’s cultural mistrust of the market and especially the globalized market, is any recognition of the broader shifts currently taking place in the global economic landscape. It’s perfectly reasonable for political actors to fight for their interests. That’s the very definition of politics. And in light of the above injustices, the street protests and strikes are in many ways justified.

But they ignore the ways in which the current status quo is unsustainable, not just demographically, but globally. The West enjoys the kinds of social benefits offered by the welfare state in part because of the extraction of wealth from the East and South during the colonial period. That balance has now shifted, with relative wealth and productivity rapidly migrating back to the East and South, where the battle for social welfare has just begin.

This isn’t necessarily a zero-sum competition between Western workers and their emerging-market counterparts, although if the current opposition to pension reform continues to ignore the link, it could become one. But there is an element of obliviousness on the part of many in the West to the ways in which the debate must appear surreal to a Chinese factory worker, who can only dream of retiring at 62 with a full pension and health benefits, after a lifetime of 40-hour (or in France, 35-hour) work weeks.

In other words, the question reform opponents should be asking themselves isn’t just, At what age will retirement benefits be paid, but also, In what currency will they be paid? Euros? Dollars? Or yuan?

Here, the news is encouraging, because the EU just moved a step closer to putting into place the mechanisms necessary to backstop the common currency. And interestingly enough, it was Sarkozy who outmaneuvered German Chancellor Angela Merkel by getting her to accept making permanent the EU-IMF bailout fund that had initially been approved as a temporary stop-gap measure in response to the Greek debt crisis, in return for a hardening of EU fiscal discipline against member states that he knew would never make it past the EU heads of state summit. In classic Sarkozy style, he grabbed what he could now in return for a future concession he knew he would not be required to keep.

As things stand, a promise by China to buy European sovereign debt still carries more weight in terms of reassuring the market than similar EU commitments. But that could change with the new adjustments to EU economic governance.

Remarkably, however, there has been absolutely no effort on the part of European leaders, both in government and the labor unions, to make clear the direct link between the need for fiscal discipline, the importance of saving the euro, and the future prospects for maintaining European standards of living — including with regard to pension reforms. This is a waste of an enormous opportunity to explain to a Euro-weary public the value of the EU in ensuring that this is not just a Greek problem, or a French problem, or a Portuguese or British problem, but a European problem. And that only a European solution will have the critical mass necessary to defend individual European interests in the global arena.

Nothing new about Europe wasting opportunities to explain its relevance. But despite all the doubters over the past year, the union seems poised to emerge from the crisis stronger than before. And none of the national debates over the second-order effects of the crisis seem to be taking that into account.

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