France's Hollande plays safe on pension reform

Mon Jun 17, 2013 9:56pm IST

* Hollande aims to have pension reform voted by Dec.

* Unions meet this week to hammer out details

* President says pay-in period to rise from 2025

By Nicholas Vinocur

PARIS, June 17 (Reuters) - Negotiations have barely begun on a reform of France's highly indebted pension system and President Francois Hollande is already playing down expectations of a major overhaul.

The Socialist leader has ruled out a rise in the retirement age from 62, indicated that preferential plans enjoyed by some state employees will be left intact, and suggested any move to force workers to contribute for longer will be deferred to 2025.

That risks disappointing the European Commission - which called last month for an "urgent" French pensions overhaul - and raises doubts as to whether a goal of eradicating a deficit due to hit at least 20 billion euros ($26.70 billion) by 2020 will be achieved.

"This is not a real reform," said Nicolas Bouzou at Paris-based economic consultancy Asteres. "It will allow us to bring our finances closer to a balance - to win time."

An advisory report to Hollande's government released on Friday called for measures that ask more of workers and pensioners, and recommended a fractional increase of employers' pension contributions.

Seeking to avoid the street protests which have accompanied past efforts to revamp the pension system, Hollande has asked France's unions and employer groups to begin talks on Thursday aimed at reaching a consensus.

He has promised to take the outcome into account when his government starts drafting a new pensions law from September. The aim is to pass legislation by the end of the year.

"I'm not looking to start from scratch," Hollande, whose failure to tackle rising unemployment has led to a slump in his popularity ratings just over a year after being elected, told France's M6 television in an interview late on Sunday.

Hollande said there would be no accelerated move to get rid of existing special regimes, which allow some workers to retire as early as 52. A 2008 reform under predecessor Nicolas Sarkozy that winds down such privileges was sufficient, he argued.

Moreover, there will be no move to align arrangements for calculating public sector pensions with private sector ones.

That is a hot potato in France because state workers' pensions are based on their final six months' earnings and not those of the last 25 years as for private sector employees - a rule many think favours those in the public sector.

TOO SLOW?

Hollande has said one option was to lengthen the pay-in period beyond 41.5 years for all workers - but suggests this would only kick in gradually from as late as 2025.

"I do no think there are many people on the financial markets who are convinced we can wipe out the shortfall in 2020," Dominique Barbet, analyst at BNP Paribas bank said.

Asteres' Bouzou and Amandine Brun-Schamme, economist with economic policy think tank Coe-Rexecode, agreed.

"It needs to be dealt with immediately, "said Brun-Schamme, dismissing official forecasts of a 20-billion-euro shortfall by 2020 as optimistic and estimating it would be double that.

Hollande has raised the possibility of increasing employee contributions, but economists say that would add to labour costs and eat into households' dwindling purchasing power.

So far, he has not said publicly whether companies will have to pay higher pension contributions - a move the EU Commission has explicitly warned against.

While hardline unions CGT and FO have warned of strikes if changes affect public sector workers, the leader of the reformist CFDT said he favoured a far-reaching overhaul.

"The CFDT is in favour of a systemic reform," Laurent Berger told France Inter radio. "But, apparently, that's not what's being considered -- the country may not be ready for it."

Polls suggest otherwise. A survey in May showed two thirds of the French favoured a major overhaul, and another in June showed 64 percent felt Hollande was reforming France too slowly.

"All of this takes a lot of time for what is not really a reform, but parameter adjustments that are not very complex," said Bouzou. "In another country, it would be done in a month."