France's half-century social-spending spree is coming to an end -- and Nicolas Sarkozy is stuck holding the bag.
Four years ago, French Prime Minister Dominique de Villepin proposed allowing employers to hire workers up to age 26 to their first job on a probationary basis and be able to fire them without the immense rigmarole imposed by France's elaborate labor laws. The French took to the streets in outrage; I was able to take my son to his first manif, or demonstration. The Socialist Party backed the protesters all the way; their candidate for president, Ségolène Royal, told me that it was unjust to provide job security for businessmen but not for first-time employees. President Jacques Chirac -- by then a depleted force -- withdrew the proposal, humiliating Villepin, who resigned in early 2007. Nicolas Sarkozy won the party's nomination for president and then trounced Royal in the election in March of that year.
Sarkozy vowed to haul France into the market-oriented world of the global economy, but most of the reforms he introduced in his first years in office were timid or clumsy. Now, after much hesitation, he has made good on his promise by proposing legislation to raise France's retirement age for minimum pensions from 60 to 62, still low by the standards of the European Union. And he has, inevitably, provoked the whirlwind, just as Villepin did: Unionized truckers have blocked gas stations and refineries; workers have taken to the streets; and high school students have racked up some very satisfying confrontations with the police. But the stakes today are much higher than they were in 2006; both Sarkozy's presidency and France's long-term economic health depend on the triumph of common sense.
The drama of rewriting the postwar social contract is taking place across Europe. Over the past generation, globalization has challenged Western economic dominance and forced wages downward throughout the industrialized world; the economic crisis that began in 2008 delivered the coup de grace. The crop of European leaders unlucky enough to hold office amid all this has been stuck with the unpopular job of offering solutions. British Prime Minister David Cameron has proposed a radical assault on the benefits of social democracy, including not just deep cuts in welfare spending, but the elimination of cherished middle-class subsidies. Cameron has also proposed raising the retirement age -- to 66. Greece, where a wildly intrusive and inefficient government brought the country to within a hairsbreadth of bankruptcy, has been convulsed by popular resistance to Prime Minister George Papandreou's proposed cuts. Germany is widely admired for having made painful changes to labor laws without endangering social peace, but the Social Democrats who drove those reforms were booted out of office in a spasm of public anger.
What Sarkozy is proposing is quite modest by comparison. Raising the minimum age to 62, and the age at which a full pension kicks in from 65 to 67, hardly solves the problem of a smaller and smaller number of workers supporting an ever increasing number of retirees. Even the Socialists have long acknowledged the need to make changes in social security, and both sides have agreed that workers' contributions to the system should not be increased. That leaves only increasing the retirement age and extending the number of years of employment required before workers can receive their pension -- which Sarkozy has also proposed. And as Gilles Andreani, a fellow with the German Marshall Fund, observes, pension reform is the ideal vehicle for sending a signal to financial markets "because it shows a dedication to reform and rigor, but doesn't endanger economic growth," as Britain's budget cuts do. Given this inexorable logic, why the melodrama?
First, Andreani says, Sarkozy dithered. Instead of getting the decision out of the way over the summer, as some of his advisors wanted, he let it drag on until the rentrée, the traditional season for street demonstrations. And melodrama in the face of social change is a French birthright. The French have the habit of deploying the revolutionary gesture in the service of the reactionary cause of stopping change. "There is no political life here," as Alain Touraine, a pillar of French sociology, told me back in 2006. "The French have a revolutionary world; everything is black or white." Modest reforms quickly become intolerable affronts to Justice, Equality, and so forth. Students of the best lycées, members of communist-run unions, bank tellers, and insurance agents alike can all become, for one glorious moment, resistants.
Sarkozy is also incredibly unpopular, with approval ratings of 30 percent. Weakened, he makes a perfect target for protests. And the president is seen as a friend of the rich, both because he swans around on yachts and because some of his earlier reforms involved lowering taxes on the well-to-do. Pension reform hurts the working man but not, of course, the banker. And retirement age is an especially sacred issue in France. "A lot of people in France live in pretty grim suburbs, cannot afford to participate in the luxuries of a city like Paris, and spend as much as four hours a day commuting," says Thomas Klau, head of the Paris office of the European Council on Foreign Relations. "For these people, the social contract is to look forward to an early retirement because you put your life on hold until the moment you stop working." Try driving around a soulless French suburb, and you'll see what he means.
Americans have no reason to feel smug on this issue. Experts in the United States have long agreed, as they have in France, that the social security system is unsustainable and will ultimately bankrupt the country. And yet both parties fall all over themselves to pander to voters on the protection of those benefits. I have recently been pelted with emails from a liberal, union-supported group called the Strengthen Social Security Campaign, which boasts that "over 135 members of Congress" have signed a letter to President Barack Obama opposing any cuts in benefits or any further increase in retirement age. Of course, all attempts to include serious cost-control measures in the health-care reform bill failed. Rewriting the social contract turns out to be very hard, no matter how obvious the need to do so.
Although the demonstrations in France have begun to spin out of control, with radicals and disaffected youth trashing cars and provoking confrontations with police, Sarkozy will not retreat on pension reform and is likely to win a vote on the issue. (Both houses of Parliament have approved the measure and are likely to take a final vote next week.) A victory would cement his claim of being a force for reform and modernization, and might even improve his dismal poll ratings. It would also forestall the (unlikely) prospect of France losing its AAA bond rating and thus falling victim to the frenzy of currency speculation that savaged Greece this year. The French tradition includes accepting the outcome with a shrug once you've done your all in the streets.
Still, something bitter will remain. The 2006 demonstrations were fueled in part by the French fear of and distaste for marketplace liberalism, insecurity, and risk. The economy has since become more open and entrepreneurial, even if the labor market remains fiendishly regulated. But the protests today are also rooted in a deep sense of injustice: Why are the rich getting away scot-free, while ordinary people pay the price? No senior executives of Société Générale, the giant bank brought low by the actions of a rogue trader in 2008, have been punished for blithely encouraging reckless behavior. As Klau notes, "The price for wresting capitalism from collapse is paid by the poorer and weaker sectors of society rather than those most responsible for the collapse, who continue to derive the most benefit from the system." It's actually surprising that the French, with their contempt for bosses and their famously inflamed class consciousness, have been content merely to simmer over Sarkozy without demanding that the rich share the suffering.
You have to wonder how long this forbearance will last as countries throughout the West adjust to their diminished conditions. The one populist movement in the United States, the Tea Party, opposes the inheritance tax, the repeal of the Bush tax cuts for the rich, and most economic regulation. Its agenda can barely be distinguished from that of the American Bankers Association. What happens when finally the time comes to pay the piper -- to reduce entitlement spending and increase taxes? Will the rich still enjoy their immunity? Not likely.
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