[Global Focus] Another French Pension Reform Fails... A 3.6 Trillion Won Bill Arrives

70% Public Opposition Forces Macron to Surrender
Withdrawal of Reform Increases Government Burden
S&P Downgrades France's Credit Rating to 'A+'

Sebastien Lecornu, the Prime Minister of France, is staring straight ahead after delivering a policy speech at the National Assembly in Paris on the 14th (local time), announcing a temporary suspension of pension reform. Photo by Reuters Yonhap News

"I will propose to the parliament a plan to postpone pension reform until after the 2027 presidential election. There will be no increase in the retirement age from now until January 2028." (French Prime Minister Sebastien Lecornu)

The pension reform, which 70% of the French public opposes, has been temporarily suspended after about 2 years and 9 months. This was a key pledge of President Emmanuel Macron, who was re-elected in 2022. He insisted that reform was inevitable to ensure the sustainability of the social security system, even resorting to executive orders. However, in the end, he was unable to overcome nationwide opposition and attacks from the opposition parties, and ultimately conceded defeat.

The cost of withdrawing the pension reform is significant. The French government estimates that there will be an additional fiscal burden of about 2.2 billion euros (approximately 3.65 trillion won) over the next two years. International credit rating agency Standard & Poor's (S&P) has expressed deep skepticism about the government's efforts to improve fiscal soundness and downgraded the country's credit rating by one notch to 'A+'.

Another Failure After the 2019 Reform Attempt

Currently, the legal retirement age in France is 62, and the contribution period required for a full pension is 42 years. The reform plan promoted by the Macron administration aimed to raise these to 64 years and 43 years, respectively, by 2030. After the 2019 attempt to introduce a 'universal single pension system' was derailed by massive strikes and the COVID-19 pandemic, Macron joined forces with former Prime Minister Elisabeth Borne and others to present a revised proposal.

Pension reform is generally an unpopular policy anywhere in the world. According to the Financial Times (FT), former UK Prime Minister Theresa May and Andy Burnham, Mayor of Greater Manchester, also faced public opposition when they attempted reforms.

Nevertheless, President Macron's persistent push for reform was driven not simply by political will, but by a sense of crisis over fiscal sustainability. France's pension system is based on a pay-as-you-go structure, in which the contributions of the current working generation support retirees, making it difficult to maintain without government subsidies.

Philippe Crevel of the Paris-based think tank Cercle de l'Epargne pointed out the real risk of fund depletion, stating, "If it were not for government support for public sector pensions, the system would already be in deficit." In fact, the Pensions Advisory Council (COR), which published the report that formed the basis of the government's plan, projected that starting in 2039, the system would run a deficit of at least 10 billion euros (about 16.6 trillion won) annually.

Public debt is also a serious concern. France's national debt stands at 114% of its gross domestic product (GDP), ranking just below Greece and Italy among the 20 eurozone countries. Prime Minister Lecornu is in a position where he must pass an austerity budget to reduce the fiscal deficit of 169.6 billion euros (about 282 trillion won), which amounts to 5.8% of GDP. The burden on the government has been further increased by U.S. President Donald Trump's demands for greater European contributions to defense spending.

According to the European Commission, France's pension spending is 14.2% of GDP, much higher than the European average of 11.75%. Only Italy (16.1%) and Austria (14.5%) spend more.

Amid a global trend of low birth rates and an aging population, the burden on contributors is also increasing. According to an OECD report, in 2022 there were 142 contributors (workers) for every 100 pension recipients in France, but by 2040, only 134 workers will share that responsibility. This means the burden per worker will continue to grow.

"I Love My Pension"

The reason the French public has not accepted the government's explanation is that pensions are directly linked to the identity of French society. In a 2023 survey, about 70% of respondents said they opposed President Macron's pension reform.

Citizens who took to the squares of Paris told German public broadcaster Deutsche Welle (DW) and others, "I love my pension." They emphasized that pensions are not simply a welfare program, but a safety net for life. In the wake of soaring prices and declining real incomes since COVID-19, the reform has only heightened public anxiety.

The high level of satisfaction among the French with the current pension system has become a shackle preventing reform. According to the OECD, the disposable income of those aged 65 and over in France is almost equal to the overall average, and the elderly poverty rate is 3.6%, the lowest in Europe. The OECD report estimates that, if the effects of reform are reflected, the relative income of the elderly will be about 10% lower than the overall average by 2050.

There have also been criticisms that the extension of the contribution period included in the reform plan is disadvantageous to manual laborers and low-skilled workers. The fact that those who entered the labor market early would have to work even longer has sparked a debate over 'fairness,' especially among opposition parties and labor unions.

On top of this, the Macron administration's pro-business policies, such as tax cuts, have come under fire. Michael Zemmour, a professor at Paris 1 University, pointed out, "The pension system is already sound, but the government is largely trying to fill the fiscal gap created by corporate tax cuts."

More fundamentally, the lack of persuasion and integration has been identified as a key reason for the failure of reform. President Macron invoked Article 49.3 of the Constitution (which allows the Prime Minister to pass a bill without a parliamentary vote if a specific majority party opposes it in matters such as social security), but suffered significant political damage amid continued votes of no confidence against the Prime Minister.

The Guardian commented, "The streets of France have once again become the stage for democracy," concluding that the pension system is not simply a fiscal issue, but a matter of the dignity of labor and social justice.

A Matter of Persuasion, a Matter of Choice

The case of France's pension reform, once considered a successful model, offers important lessons for countries around the world.

In South Korea, the National Assembly has resumed discussions on pension reform for the first time in 18 years, but debates continue over the burden on future generations. In a recent survey on improving the retirement pension system published by the Korea Employment and Welfare Association, only 27.4% of respondents said they "trust" the sustainability of the National Pension Service. More people answered that they "do not trust" it, and the main reason for this mistrust was concerns about fund depletion. In particular, trust was lower among those in their 20s to 40s compared to those aged 50 and older.

The failure of reform is expected to come back as a boomerang. Prime Minister Lecornu has announced plans to come up with alternatives to reduce pension spending and cut next year's fiscal deficit, but this is not enough to dispel market skepticism.

On the 17th, S&P downgraded France's sovereign credit rating from AA- to A+. S&P explained, "Although the 2026 budget has been submitted to parliament, uncertainty about the French government's finances remains high," adding, "While this year's target is likely to be met, without significant additional deficit reduction measures, fiscal consolidation will proceed more slowly than previously expected." Earlier, another international credit rating agency, Fitch, also downgraded France's sovereign credit rating from 'AA-' to 'A+' last month, citing the fiscal deficit issue.

Claudia Panseri, an analyst at global investment bank UBS, predicted, "France's debt-to-GDP ratio is likely to worsen by another 2 to 3 percentage points," and "the fiscal deficit will remain above 5% even in 2026."

The Wall Street Journal (WSJ), in an editorial, criticized, "The reality that even moderate reform has become politically impossible reveals the limits of French politics," adding, "With the options of reform and growth off the table, each party is now competing over who can be more creative in damaging the economy through tax hikes, industrial policy, and tighter regulations."