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France: Public Backlash Likely to Challenge Future Reforms

As promised by President of the French Republic Emmanuel Macron during last year's re-election campaign, France (AA (high), Stable) has enhanced the financial stability of the pension system by increasing the minimum age and contribution years before a worker can retire. We are of the view that the reform is favourable and an important part of the government's fiscal consolidation strategy, but its medium-term impact on France's economy and its structural fiscal deficit will likely be marginal. Furthermore, the government's decision to pass pension reform by exercising a constitutional provision that allowed adoption without a direct legislative vote has amplified political tensions and social unrest. The scale and durability of the popular backlash appears likely to constrain the government's ability to pass additional ambitious reforms and to rebalance its public finances.

-- Pension reform in France should over time improve the system's financial sustainability.
-- The method used to pass the reform amplified social and political tensions and risks passage of future reforms.
-- The reform's benefits to the economy and public finance, while welcome, are only moderate.

“Pension reform and the manner by which the reform was enacted have led to the nationwide mobilization of French society,” said Jason Graffam, Vice President of the Sovereign Group at DBRS Morningstar. “While the capacity of private citizens to monitor and influence government policy is positive in the context of sovereign ratings, in this case, the method of passage and social fallout from pension reform may complicate what is left of the government's reform agenda.”