France paralysed as two million strike over pension reform

Much of France was paralysed yesterday by public-sector strikes called to protest against plans to tackle the most acute problem that faces France, and much of Western Europe, in the next decade.

Much of France was paralysed yesterday by public-sector strikes called to protest against plans to tackle the most acute problem that faces France, and much of Western Europe, in the next decade.

A one-day strike – the most effective since union protests on the same issue brought France to a standstill in the winter of 1995 – closed most schools, halted almost all trains and local transport and blocked the distribution of newspapers. Four out of five flights to and from France were cancelled.

In Paris, an estimated 250,000 state employees and their supporters (70,000 according to the police) marched through the streets, carrying banners and shouting slogans against the centre-right government's plans to reform a pensions system, which is especially generous to workers in the public sector. More than 2 million people joined similar marches in 100 French cities and towns.

With much of the Metro, local rail and bus system halted, tens of thousands of Parisians awarded themselves a day off work. Others walked, cycled or roller-skated to their shops or offices.

The funding of pensions, when the retired population is exploding and the working population is shrinking, is an economic time bomb for the whole of the EU (although somewhat less so in Britain, which has a younger population). The dangers are especially great in France, which has done the least to prepare itself for a greyer future and funds pensions entirely from the contributions of those in work and, in the case of civil servants, taxes. France also has some of the most generous retirement terms – especially for state employees – of any large developed country. The average "real" retirement age in the European Union is 64. In France it is 57.5.

Within 10 years, France will have more citizens over the age of 60 than under 20 for the first time in its history. From 2006, its "active" population – already one of the smallest in Europe – will start to fall, for the first time in half a century. By 2040, if the present rules remain unchanged, France will have seven pensioners for every 10 people in work. Without reform, including a later retirement age, the government warns that it will become impossible to sustain the present system into the next decade.

The Prime Minister, Jean-Pierre Raffarin, wants to erode the privileges of state employees, who make smaller pensions contributions over fewer years and receive more generous retirement packages – up to 75 per cent of final salary – than workers in the private sector. Beyond that, he wants to increase the number of years which workers must contribute to the system (now 37.5 years for civil servants and 40 years for the rest) and gradually push up the nominal retirement age from 60 to 65.

The last government that tried to tackle the issue – the 1993-97 centre-right government of Alain Juppé – was forced to retreat by massive street protests and prolonged transport strikes. M. Raffarin has made pensions the symbol of wider plans to reform and shrink the French state sector.

His hopes of doing so without provoking a street rebellion have been undermined by the poor performance of the French economy, which has sent unemployment climbing towards 10 per cent again. Pensions reform, plus widespread job losses, plus a threatened budget freeze, plus a determination by some on the left to recapture the initiative after last year's electoral disasters, add up to an explosive political formula.

Beyond that, the country appears to be in one of its periodic, irrational moods. Sixty per cent of French people say they oppose reform of the pensions of civil servants – even though workers in the private sector have less generous pension rights and subsidise civil servants' pensions through their taxes. Employees in state-owned enterprises, such as the railways and the electricity and gas companies, were among the most vociferous demonstrators yesterday, even though the government has promised to leave their still more generous retirement deals untouched.

The Raffarin government had hoped to push through pension reforms by splitting the more moderate unions from more radical ones. It may yet succeed but yesterday's protests were, nominally at least, supported by all unions.

Across Europe, retirees face a frightening future

By Peter Popham

Across the wealthy countries of Europe, state pension systems are in trouble. Populations are shrinking, people are retiring earlier and living longer, and the number of workers is becoming too small to maintain retirees at the level they have been led to expect.

Pensions take 10.4 per cent of the EU's total Gross Domestic Product, and the figure is likely to rise to 13.6 by 2050. With the affluent countries experiencing negative population growth – and the new members lining up shrinking even faster – the problem can only get worse.

The European Commission says that by 2050 Greece, to take a frightening example, would need to commit 25 per cent of GDP to pensions to sustain them at present levels. It also says that even the UK, which has more private sector pension provision, faces problems because the slump in the stockmarket has hit the value of funds. That could force the state to step in to bring pensioners above the poverty line.

The only available solution, the encouragement of large-scale immigration of skilled workers from the Third World, is politically out of the question.

The pension systems have been ailing for years and governments have taken only small sips of the medicine required to cure the problem. Until 1995, workers in Italy could expect post-retirement incomes of up to 80 per cent of their final salaries. Then the centre-left government unhitched pensions from the salaries to which they had been indexed and began linking them to contributions. Pension levels plummeted and will continue to do so. But Italy still spends 14 per cent of GDP on pensions. The centre-right government of Silvio Berlusconi seems to have decided it is too hot a potato to touch.

Germany tried to reform its system last year, limiting the tax levied on employees to support pensioners to 20 per cent and introducing the right of employees partially to fund their own pensions. Critics say the reform is timid and that further cuts in retirement benefits will be needed.

There are obvious dangers, and not merely political ones, in trying to reform pensions systems at one fell swoop. But that is what Austria's conservative-populist coalition government is now attempting, cutting early retirement and slashing pensions levels by over 30 per cent. The Austrian trade unions, which descended on Vienna yesterday in their tens of thousands to protest, call it "cold expropriation".