Pensions versus Research: Is the French state sacrificing its youth to pay for its elders? Xavier Ragots alarm call.

In the offices of the Cercle des Economistes, just steps away from the Arc de Triomphe in Paris, Xavier Ragot, president of the OFCE, sounded the alarm regarding the drift of public accounts. This is new: his observatory, known for its Keynesian leanings, had not been as alarmist until now, instead encouraging the government to cushion the impact of crises.

According to Ragot, who was part of Arnaud Montebourg’s cabinet at the Ministry of the Economy in 2013, there has been excessive distribution of public assistance. He mentioned that he was not opposed to the price shielding established to deal with the surge in prices following Russia’s invasion of Ukraine in 2022, but emphasized the need to recover the money once the crisis ends. This measure, according to the Court of Auditors, cost a staggering €80 billion between 2022 and 2024, further increasing the deficit to 5.8% of GDP in 2024.

Facing this worrisome diagnosis, the key question revolves around how to restore the public accounts with a budgetary effort estimated at around €100 billion to bring the deficit below the 3% GDP threshold and stabilize the debt. It is clear that even with significant fiscal efforts, the goal may not be achieved. Ragot pointed out that going back to the maximum compulsory levies of the past decade would only generate around forty billion euros, not enough to address the situation.

Ultimately, cuts in expenditures will be inevitable, particularly concerning pensions, which represent the largest share of public spending. The challenge lies in making decisions on what should be covered by the state regarding social benefits – health, housing, and pensions. Attempting to impose sacrifices on the 15.4 million retirees, a group that tends to vote more actively than the younger population, presents a significant political obstacle.

Xavier Ragot predicts a bleak scenario if the current trends continue, warning of a possible downturn in the French economy. The potential consequences of scaling back funding for higher education and research are also highlighted, as it could jeopardize future growth. The fear of following an “Italian scenario” – where cuts in education and research stifled growth – is a cause for concern. The economist emphasizes the importance of intelligent sacrifices to tackle these challenges effectively.