How fury over Macron’s pension crackdown powered the French Left to victory

When Jean-Luc Mélenchon responded to France’s controversial pension reforms last year, his message was simple. 

President Emmanuel Macron may have won the battle, but he had yet to win the war.

The hard-Left firebrand’s backlash against the proposal to lift the country’s state pension age from 62 to 64 emerged in a speech released on YouTube last March.

During that, the socialist leader said “every hour that passes” must be spent fighting Macron’s policy, which had sparked fierce protests across the country.

“There is no budgetary reason to take such a decision,” Mr Mélenchon told viewers online. “There is no deficit, and there won’t be one. 

“Millions of people understand this and don’t see why they should make the sacrifice of two extra years of work given to society. And they are right.”

Nearly a year and a half has now passed since Mélenchon’s cry to keep up the fight, although much has changed. France’s public finances are looking even more unsustainable, for one, with rating agencies and the European Commission issuing warnings about the country’s 5.5pc deficit.

But that did not stop voters from endorsing Mélenchon and the Left-wing coalition en-masse during the parliamentary elections on Sunday, which came out on top ahead of Marine Le Pen’s Nationally Rally and Macron’s ruling party. 

The socialist veteran heads the hard-Left party, France Unbowed, which makes up the largest chunk of a coalition of Left-wing parties called the New Popular Front.

The result prompted a warning from Bruno Le Maire, the finance minister, who said France faces a period of “economic decline” that could result in a “financial crisis”. 

However, for France’s riotous pensioners this means there is now a route – albeit narrow given the political gridlock – to revoke Macron’s detested reforms.

“It could happen because this is basically the only thing the far-Left and the far-Right can agree on,” says Maxime Darmet, a Paris-based economist at insurer Allianz Trade.

France’s state pension age is still low compared with other large European countries. This is despite reforms pushed through by Macron last year, which will raise the state pension age from 62 to 64 as of 2027. It had last been raised from 60 to 62 by Nicolas Sarkozy in 2010.   

Many people approaching retirement elsewhere in Europe will look at France’s retirees with envy.

Germany is already in the process of raising it from 65 to 67, while British retirees have to wait until age 66. Danes, meanwhile, already have to work until 67, with gradual increases to 69 pencilled in by 2035. Under the current system, the Danish state pension age is on track to hit 74 by 2070.

The importance of reforming France’s generous pensions is clear when looking at the numbers. 

United Nations projects suggest the number of people over 60 is on course to rise by around 6 million over the coming decades. 

The size of France’s deficit also took the government by surprise earlier this year, meaning painful spending decisions are crucial to repairing public finances. 

If Mélenchon has it his way however, pensions would be made more generous rather than less. 

“In the manifesto, they actually want to bring the state pension age back down to 60,” warns Darmet. “It is also about the number of years you need to work to be entitled to a full pension. 

“Macron’s reform is 43 years but both the hard-Left and hard-Right want to bring it down to 40 years.”

Depending on how far they go, the cost could range from €10bn (£8.4bn) to as much as €60bn, says Darmet.

This would result in a “huge fiscal hole”, he adds, as €70bn of savings already need to be made by 2027. 

“I don’t know how it would be financed, to be honest,” says Darmet. “You find yourself potentially in a very difficult situation. The financial markets will not like this at all. They would react very, very badly.”

For now, markets have taken solace in the fact that none of the main political factions have been able to score a majority. 

Mélenchon has the highest number of seats, while Macron’s faction came second. Le Pen’s hard-Right came a surprising third. 

“We have a hung parliament despite the fact the Left-wing came first,” says Sabrina Khanniche from Pictet Asset Management. “There is no absolute majority, which should impede the implementation of the manifesto, which is fiscally [irresponsible].”

Yet she warns it would be concerning if the hard-Left try to find a way to revoke the reforms. 

“Before the election, the fiscal position of France was already weak,” she says. “France needs favourable borrowing costs to contain the trajectory of the public debt.”

As the second-largest eurozone economy, Khanniche says France needs to commit to “strict fiscal measures” to get its debts under control.

According to her, bond traders have long been too generous in how much they charge France in interest. However, they have now been jolted awake. 

“This election will be a turning point,” she says. 

The premium charged by traders in lending to France over Germany, which has far lower debt levels, has risen slightly since Macron called the snap election.

It comes as rating agency S&P warned on Monday morning that the next government’s approach to public finances and reforms would be “key to determining France’s creditworthiness”. 

The agency, which downgraded France in May, said its rating “would come under pressure” if growth disappoints or the government “cannot reduce its large budget deficit”. 

“We’re going to see a lot of gridlock and instability,” says Paul Danis, the head of asset allocation at RBC Brewin Dolphin. “But being the biggest bloc, [the Left] will likely demand new spending commitments from President Macron as part of a deal to form a new government.”

Any large giveaways would upset the bond market and lead to higher borrowing costs, he says, particularly given that France has already seen its debt pile rise to 111pc of GDP.

This is a concern shared by Darmet, who goes further: “The one thing we know for certain is that the fiscal sustainability is worse than before the election. It has clearly deteriorated. 

“No party is now willing to deliver substantial consolidation in the next few years. The best-case scenario would be a technocratic government that managed to keep the deficit at current levels.”

However, even with a stable leader in charge, economists are not hopeful that the French economy will regain its footing any time soon. 

“The bottom line is the debt ratio is going to continue to increase within the next few years,” says Darmet. “I don’t see any other possibility. 

“So the big question is when do financial markets force the government into consolidation? Or put another way, when do we have a Liz Truss moment in France?”