Among the largest strikes since 1995, we examine French President Macron’s pension reform inevitably.
Since the French government unveiled its plan to raise the retirement age from 62 to 64 in early January, strikes have erupted. The last demonstration on January 31 was attended by 1.3 million people, making it the largest since 1995.
Strikes can force a government to reverse or even abandon its reforms. According to the government, there is an urgent need to reform the pension system to ensure the long-term sustainability of pension spending, as the share of active workers relative to pensioners is declining.
The reform is, first of all, to close the annual gap between pension contributions and pension expenses. After a surplus in 2021 and 2022, the pension system is expected to face a deficit from 2023. According to COR, the French government body responsible for monitoring the pension system, by 2030 this deficit will reach 13.5 billion euros. Thus, between 2023 and 2030, the total pension deficit will reach 60-80 billion euros. In response, the government reform will offer an annual budget space of 18 billion euros by 2030. 
However, our consensus forecasts cast doubt on the need for reform. In the months before the reform was announced, our team of analysts agreed that the French budget deficit would gradually decline and the debt-to-GDP ratio would fluctuate between 112% and 115% throughout our forecast horizon through 2027.
Opponents argue that the decision to fill the gap is a political one, not a vital one; Macron hopes to be seen as a reformer for a second term. This argument is partially supported by our forecasts, which in recent months have consistently assumed that the budget deficit and debt-to-GDP ratio will not spin out of control in the coming years. In addition, the costs of refinancing the €7 to €8 billion pension deficit by 2030 seem insignificant compared to €165 billion of debt issued in less than two years to respond to Covid-19 and €100 billion to respond to Covid-19. Energy cost reduction measures expended since then. the beginning of the Russian-Ukrainian war.
Information from our network of analysts
Thomas Gillette, Associate Director of Scope Ratings, commented:
“Higher interest rates and the expected tightening of the ECB’s monetary policy are more important drivers of public spending in France (AA/Stable) in the coming years than the pension deficit. […] The public debt to GDP ratio is likely to increase by about 2.5 to 3.0 percentage points by 2030 if the French National Assembly does not approve the reform or the government cancels the reform in the face of union opposition.”
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Date: February 3, 2023