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FRANCE - The French government's decision to move its EUR33bn retirement fund into its social debt sinking fund - adding leverage to the sinking fund for issuing new bonds - has received mixed reactions.
The organisations concerned are the pension fund, the Fonds de Réserve des Retraites (FRR), which was set up in 2000, and the Caisse d'Amortissement de la Dette Sociale (CADES). CADES opened its doors in 1996 to take over social security deficits of EUR134.5bn. By the end of 2008, it had reduced the debt by EUR37.5bn.
Most graphic of the reactions to the government's move, as seen on a French website , show a cartoon of a burglar, rough and unshaven, carrying off a large swag-bag containing financial assets. In his speech bubble, he says: "Don't take any notice of me, I work for the government!"
The website, Ulike, describes itself as a "collaborative culture magazine". Commentary in the Ulike blog talks about the "disappearance" of "long-term funds" from the FRR to "plug holes" in the social security deficit. It compares this with the Irish government's EUR24bn use of its national pension fund reserves to contribute to the recent bailout. It could have gone on to mention Hungary's announcement to pull the plug on the country's mandatory, funded second-pillar pension system, provoking a chorus of protests from the European Commission, the country's pension funds and analysts.
However, various sources defend the French government's move. One is the FRR itself. Others include Jacques Delpla, prominent French academic economist and a member the Conseil d'Analyse Economique. His general objectivity can be judged from a previous warning of his that France lacked "fiscal balance". Another defender, by implication, is Christine Lagarde, minister of finance.
Despite the defence, there appears to be a clandestine aura concerning the government's shift. At the time of writing, no directly relevant press releases could be found on the websites of either the FRR or CADES. In Brussels, the European Commission preferred not to comment. A spokesperson in the office of commissioner Lázsló Andor, for employment and social affairs, described the situation as a matter for the French government and outside the Commission's competence.
According to a spokesman at the FRR, France's situation cannot be compared with Ireland or Hungary's. He says the French government has merely decided to bring forward "mobilisation" of the FRR funds - from 2020-40 to 2011-24. Transfer to CADES would be at EUR1.5bn per year. Thus, he continued, the process was very different from that of Ireland, where the pension funds were going to support its banking sector. In France, the money remains in the pension system.
Supporting this take on the matter, Delpla adds that the FRR had only "small reserves", built up by selling off nationalised industries. It was, therefore, already "state capital", or funds not financed by employees. In any case, Delpla contends that the FRR as an institution was ill conceived originally. It gave people false ideas that money was available in the event of failures of pay-as-you-go (PAYG) schemes. He described FRR as a mere "cherry on the cake", the cake being PAYG. Hence, it was "not a big deal to bite into the cake a bit earlier than originally foreseen".
Delpla noted that, under Maastricht Treaty rules applying to national debt, no account was taken of state assets. For instance, Norway showed up with a debt of -55% of GDP by ignoring reserves amounting to +333 % of GDP. "It is absurd to raise new money if you already have money on your account," Delpla added.
On 5 December, Christine Lagarde was questioned by a journalist about the Irish rescue following the Econfin meeting in the Council. She answered, surprisingly, that the Irish contribution to their bailout from their own pension savings should set no problem. Indeed, she said it as though the French government had already borrowed from - or, for some, burgled - its own funds.
