FRANCE : WE ARE NOT ALONE

French retirement age to rise

By DAVID GAUTHIER-VILLARS

PARIS—The French government said it plans to increase the retirement
age, setting up a battle with unions who want the French to continue
retiring earlier than most other Europeans. The government said it
plans to introduce a bill to raise the retirement age from the current
minimum of 60—though it didn't say to what age—and create a new tax on
high earners, to try to fix the nation's debt-choked pension system.
Unions have scheduled a nationwide demonstration on May 27 to protest
the proposed overhaul.

The sparring comes as France and other European countries are under
pressure to rein in their budget deficits after the Greek debt crisis
caused financial chaos. France has the same high credit rating as
Germany, but some economists are concerned that Paris could suffer a
downgrade unless it demonstrates budget discipline.

"It's a litmus test," said economist Christian Saint-Etienne, head of
the Générations Citoyennes think tank. "France's creditworthiness is
at stake."

Facing the same trends of slow growth and longer lifespans, several
European Union countries have in recent years increased their
retirement ages and cut pension payments. In 2007, Germany opted to
gradually increase its standard retirement age to 67 from 65. Last
year, Italy pegged future retirement ages to rising life expectancy.

France has reduced some pension benefits in the past, but in its
effort to avoid cutting monthly pension payments it has also piled up
debt. If no changes are made, the annual deficit of state-run pension
funds could shoot up to €103 billion ($127 billion) by 2050, from an
estimated €10 billion this year, according to a council advising the
government.

Concerned that the system isn't sustainable, the government of
President Nicolas Sarkozy sent a memo to unions, which it released on
Monday. The government said the main response to "demographic
imbalances" should be demographic. That implies raising the retirement
age and the number of years of contributions to the state-run system
needed to receive a full pension. "We can't accept that," said Eric
Aubin, a national delegate with the CGT union. "People can't find jobs
when they are 55. Increasing the retirement age will push them into
poverty."  Details, notably the proposed new retirement age, would be
outlined in June, the government said. A pension bill could be
presented to parliament, where Mr. Sarkozy's ruling UMP party has a
majority, in September.

The government ruled out some possible solutions, such as an increase
in payroll taxes or the creation of a special sales tax, on the basis
that they would hurt French corporate competitiveness. However, the
government said it was considering slapping a new tax on wealthy
households—something that might go against an election pledge by Mr.
Sarkozy not to increase taxes and to provide some tax relief for the
rich. Government officials said the new tax would be "symbolic" and
yield between €2 billion and €3 billion a year. Union leaders said
they feared that without significant new tax contributions, the
overhaul would result in lower pensions for workers who don't pay into
the system long enough.

White-collar union CFE-CGC is one of the few unions to support the
idea of raising the retirement age. But the union's national delegate
in charge of pension issues, Danièle Karniewicz, said she will be able
to convince members to back a pension overhaul only if the government
finances it through other methods, such as a new sales tax. "The
French are ready to make efforts," Ms. Karniewicz said. "But they need
to know what they will get in return."