The French president refused to adopt harsh fiscal measures to reform the pension system and even disregarded the recommendations of the IMF that asked for a deficit of less than 5% per year.
The country’s debt exceeds 112% of GDP and is the fourth highest in Europe.
President Emmanuel Macron has once again brought up his socialist past and refused to review the reform of the French pension system that he announced in 2022 despite solid warnings from economists and the IMF itself about the level of debt it would produce.
Far from fixing one of Europe’s most compromised pension systems in terms of long-term sustainability and solvency, Macron’s plan is based purely on a political strategy, which seeks to “preserve” state pensions in exchange for enlarging the fiscal hole.
Ruling out any possibility of introducing a privately funded system, Macron proposed raising the minimum retirement age from 62 to 64 and tightening the requirements to receive 100% of the corresponding retirement assets, demanding that contributors must have contributed at least 43 years of their life.
The constant recalibration of parameters is something usual to maintain state pay-as-you-go systems under a process of population aging.
Still, without a radical change in these numbers or the introduction of private participation, the French government’s fiscal deficit will only increase yearly.
Macron’s timid reforms, propped up by his prime minister, the socialist Élisabeth Borne, will bring France’s consolidated fiscal deficit to around 5% of GDP annually between 2023 and 2026.
The government’s budget deficit currently stands at 6.5% after two years of expansions in public spending due to the pandemic.
Still, the forecasts of the Ministry of Economy, which idealized a stricter pension reform, pointed to a sharp reduction in the following years.
However, seeing his drop in voting intentions in the last election, Macron ordered his camp to carry out a more tenuous retirement system reform to avoid losing the leftist vote that supports state pensions.
This is a fact: to guarantee the level of the pensions without increasing the taxes, the worker will work progressively over long periods.
The changes proposed by the ruling party leave no one happy: they do not guarantee the sustainability of pensions, and, at the same time, they aroused severe criticism from the population, which has been protesting for years to prevent them from raising the retirement age.
With the proposed pension reform, France’s primary deficit (not counting debt interest) will rise from 3.4% of GDP in 2022 to 4.1% in 2023 and gradually narrow to 3.07% in 2026.
It is an even more gradual path than the one traced by Alberto Fernández in the negotiations with the IMF.
It is estimated that the public spending of the French State will be invested in 57% of the GDP in 2023 and will drop insignificantly to 56% of the product by 2026.
These figures are higher than those registered before the pandemic and respond to the constant increase in the country’s social security spending (the most representative item within the Budget).
Macron’s decision is so wrong that even the International Monetary Fund (IMF) warned of the dramatic consequences of fiscal irresponsibility and predicted a potential debt crisis in France if this plan is followed.
The country’s public debt accounted for 112% of GDP at the end of 2022, making France the fourth-highest debt-ridden European nation, behind only the usual suspects: Italy, Greece, and Portugal.
The lack of solid fiscal measures on the pension front will keep the fiscal deficit dangerously high, and the public debt ratio could double in 20 years.
The IMF warns about the growing difference between the yield of French sovereign bonds and the bonds of German origin (a much less indebted country).
Suppose public debt grows and credit yields increase. In that case, the economy will allocate more and more resources to public funds instead of using them in private investment or real estate loans for families.
With information from La Derecha Diario