Global Economics

Sarkozy Faces His First Reform Test


Labor unions will likely strike against proposed pension reforms, but the general public seems to support the new President's push

Until now, Nicolas Sarkozy has seemed practically unstoppable. Since taking office in June, the hyperkinetic French President has pushed through new laws to cut taxes, loosen labor-market restrictions, and toughen criminal sentencing rules. And he has defanged the opposition by adding popular Socialists to his Cabinet.

But the Sarkozy steamroller is about to hit its first speed bump. Within a week, his government will formally propose scaling back the generous pension benefits long enjoyed by retirees of state-owned transportation and utility companies. Labor unions are girding for a bitter fight. "We will not hesitate to strike," says Alain Cambi, an engineer with the national railway company, SNCF, who belongs to the militant SUD Rail union.

It's not an idle threat. In 1995, labor protests over pension reform paralyzed the country and toppled the conservative government led by Sarkozy's predecessor Jacques Chirac. Just last year the government withdrew a controversial youth employment law after weeks of strikes.

Overwhelming Support for Reform

If anything, the potential for crippling nationwide strikes looks greater now than ever. The beneficiaries of the pension plans that Sarkozy is targeting are employees of the national rail system, the Paris transit authority, and utilities Electricité de France (EDF.PA) and Gaz de France (GAZ.PA). The President can't stop them from walking off the job: France's constitution guarantees the right to strike, and while Sarkozy recently secured legislation to reduce strike-related disruptions by requiring advance notice of walkouts, the law won't take effect until next year.

Yet Sarkozy's move may be shrewder than it looks. Opinion polls show overwhelming support for reform of retirement schemes for railway and utility workers that let them retire as early as age 50 with pensions totaling 70% of their top salaries. In a poll by the CSA survey group in June, 56% of respondents said they wanted these so-called "special regimes" reformed quickly.

That's not surprising: The special plans are holdovers from the days when railway and utility jobs were far more dangerous and dirty than they are now. And they're considerably more generous than the pension benefits enjoyed by most French private-sector workers, who generally can't retire before age 60. Moreover, French taxpayers help foot the bill for this largesse, even as worrisome deficits grow in other government-funded retirement funds.

Decisive Victory Gives Legitimacy

But wouldn't Sarkozy be forced to back down, in case of a protracted strike? That is what happened in 1995, when public opinion turned against the government even though polls showed most people favored its pension reform proposals.

One difference this time is that Sarkozy won a decisive electoral victory only a few months ago, after campaigning for vigorous economic reform. "The elections have given him legitimacy, and this gives him greater effectiveness," says Stéphane Rozès, deputy director of the CSA polling group.

What's more, the unions may not want to wage all-out war. Sarkozy is already preparing a raft of other reform proposals that organized labor is sure to oppose—everything from downsizing the government workforce to allowing more shops to open on Sundays. Holding commuters and utility customers hostage during a long battle over pensions could turn public opinion against the unions, reducing their effectiveness in future showdowns.

Chances are good that long-suffering French commuters will soon be in for another round of strikes. But that may not be enough to stop the Sarkozy steamroller.

Matlack is BusinessWeek's Paris bureau chief.

Reviving Keynes
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus