Sarkozy Announces Proposed Changes to Welfare System

Source: Sarkozy sets out Welfare Reform Plan available at http://www.ft.com/cms/s/0/3e77a1fc-6608-11dc-9fbb-0000779fd2ac.html

On Tuesday, French President Nicolas Sarkozy outlined his ambitious plans to reform a welfare system he describes as “financially unsustainable, unfair, and discouraging to work.” He insists that the current system “produces more unfairness than fairness” and calls for a new “social contract” based on work, merit and equality of opportunity.

Sarkozy introduced a number of novel ideas, the first of which is the elimination of special pension privileges for 1.1 million current and former gas, electricity, rail and transport workers. This change carries significant symbolic importance, as it is the precursor to wider pension reforms next year.

He also suggested a relaxation of the 35-hour maximum working week, where workers would have the option to trade in accumulated time for extra pay or elect not to subscribe to the restrictions at all. Unemployed workers would experience cuts in their benefit after refusing two subsequent training or employment opportunities. Additionally, his plan would merge the benefit and unemployment offices, and allow an independent commission to set the minimum wage, thereby removing political influence from adjusting its level.

Lastly, Sarkozy’s plan hinted at extensive health system reforms as well, calling for a “wide debate” on the funding of the system. The current health system receives partial funding from compulsory social insurance, but the government routinely finds itself funding deficits of several billion euros each year, while retaining little control over cost regulation. Analysts view such reforms as a necessary step if France is going to gain control of its onerous healthcare costs and sort out its public finances.

Negotiations between the government, unions and employers started this week. Sarkozy expects to finalize the details of the reform by the end of the year, and begin implementation by mid 2008. Although he reassured trade unions he would consult with them before finalizing changes, it is unclear whether changes will go forward if there is no agreement from the unions.

Questions for Discussion
1. Do you think that Sarkozy’s plan is too ambitious, especially given the short time frame for planning and implementation?

2. To what degree, if any, are Sarkozy’s state welfare reform policies likely to contribute to the rising tensions in the Franco-German relationship?