As the debt-ridden Greek government remains mired in a fight to cut pension benefits and raise the retirement age, Europe's next pension-reform battle is already looming to the west. French President Nicolas Sarkozy is bringing pension reform to the fore of his agenda—but the issue could end up being his Waterloo. It's his most important battle, at the worst time, but it can't wait.
Sarkozy's current approval ratings, about 30 percent, have never been lower, and midterm elections have galvanized his rivals. Meanwhile, France's powerful unions are intent on keeping the country's generous social safety nets in place, pointing to evidence that they helped cushion the French from the worldwide financial crisis. But the truth is that the economic downturn has accelerated France's pension crisis exponentially, and the French way of life is more unsustainable than ever. Scary scenarios outlined only three years ago forecasting a €24.8 billion pension deficit for 2020 have been eclipsed. If nothing is done, even in the new best-case scenario that assumes 4.5 percent unemployment (unseen since the 1970s), the pension system would create an annual €72 billion in new debt by 2050.
In the midst of this storm, Sarkozy needs to send a strong signal to markets and to Brussels that France is serious about debt reduction, with clear, substantial reform. One big cue would be boosting the legal retirement age to above 60. France is the last holdout for 60 in Western Europe, with most other countries at 65. The country's unions, however, say 60 is "nonnegotiable." Thirty-eight percent of French polled are willing to strike or protest against that change. It's up to Sarkozy to now decide whether his legacy is more important than voters' anger.