JEFFREY BROWN: And finally tonight, to Europe, where the name of the game is austerity.
In the face of fears over growing debt, governments throughout much of
the continent have recently announced major spending cuts. And those plans, in
turn, have aroused public protests and opposition. Yesterday, France took new
steps, including plans to raise the minimum retirement age from 60 to 62 by
Here to update the situation, Simon Johnson, economist at the MIT Sloan
School of Management. He's a senior fellow at Peterson Institute for
International Economics and co-author of the book "13 Bankers." And Sophie
Pierson is a freelance reporter for French public television and other media
What are all these governments announcing these steps for now? What is
SIMON JOHNSON, senior fellow, Peter G. Peterson Institute for
International Economics: Well, this is a continuation, Jeff, of the problems
that first manifested themselves in Greece.
Greece obviously overspent massively. People focused on that. Then
they started to worry about Portugal, which had similar problems. Then the
fears spread to Spain, which is somewhat in a different category. But now, of
course, they're looking even at countries like France that previously were
thought of as safe havens within Europe that are under a great deal of pressure
from the bond markets.
JEFFREY BROWN: From the bond markets. So, this is the market, this is
investors demanding that governments make these -- take these steps?
SIMON JOHNSON: Well, it's investors demanding that they be reassured
that their governments can get their debt onto a sustainable path.
This is a question all around the world. This is a question even in the
United States. And it's not an unreasonable question. The problem is, the
Europeans have been in denial for too long. And it's a big shock, both to
policy-makers and to the electorate in a lot of countries, including I think in
France, that they really have to deal with this, and they have to deal with it
JEFFREY BROWN: Before I get to France, you mentioned Spain. Spain just
had -- is having stress tests for its banks, something that we experienced last
SIMON JOHNSON: Well, all of Europe supposedly is now going to redo and
publish the results of stress tests that they did last year, but they sort of
buried the results. And it's going to be very interesting to see what comes out
of it. It's not clear what they have thought through in Germany, for example,
exactly what they're going to reveal about their banks that do not have a lot of
capital. They are in pretty weak shape.
And we will see about Spain. Some people are claiming the results are
already in and that they're good, but I think that we're just at the stage of
getting leaks that are trying to push the market one way or the other right now.
JEFFREY BROWN: Well, Sophie Pierson, let me bring you in.
Simon just talked about this spreading to some of the bigger economies,
like Germany and France. What's going on in France to have made the French government
announce measures very recently, even yesterday?
SOPHIE PIERSON, freelance journalist: Well, like any other European
countries, they are being asked for fiscal responsibility and fiscal discipline.
This is reassuring for the financial markets. There is no obvious link
between increasing the years for retirement and the financial market, but it
brings trust on the market. Secondly, there is a huge deficit. Now the pension
is going to reach $39 billion this year. It was $32 billion, and it's going to
reach $39 billion.
What the French government is hoping to do is, by 2018, they will make a
significant saving, and it's going to be about $19 billion.
JEFFREY BROWN: Sophie, I want to pick up on the question of the
retirement age, because that doesn't sound like a big change to those -- to us
in the United States, but the French economics minister said today, "We have
broken the myth of retirement at 60."
So, this is clearly more than an economics question, right? This is a
societal norm about how people think about work and life.
SOPHIE PIERSON: Well, if you go back in history, it was going down from
65 to 60 with the previous administration. And now that they are raising it up,
it feels like the victory from the past is lost.
So, that's why French people are very dissatisfied. Fifty-two percent
feel that it's completely unfair, and 60 percent strongly disagree.
JEFFREY BROWN: Simon, how do you see this, these kind of societal
changes about things like retirement age?
SIMON JOHNSON: Well, it's very interesting. Sophie, of course, is
right. It was only in 1983, I believe, they reduced the age of retirement from
65 to 60.
SOPHIE PIERSON: That's right.
SIMON JOHNSON: Now France has one of the lowest retirement ages within
Europe across any industrialized country, but they don't want to give it up.
For them, it's become a right.
And this, I think, is exactly what the bond markets are pressing on.
They want to know, can the governments make any changes, any significant changes
in the right direction with regard to stabilizing the fiscal picture? And we
will see this summer in France what kind of protests you get, what kind of
backlash against the proposed legislation.
When President Jacques Chirac tried to do something similar, a little
more dramatic, but something similar, he was -- he's the previous president of
France -- he had to give it up because the protests were so strong.
JEFFREY BROWN: Yes, Sophie Pierson, so what's happening now, or what do
you expect? Where will the opposition come from?
SOPHIE PIERSON: OK.
So, basically, the opposition is saying that -- first of all, it's a
bill right now. So, it's a reform that is being proposed through the
legislative body, so it's not enacted.
On June 24, if the -- there's no solution that is found between the left
and the right, then, on June 24, the union are going to go on strike. But, of
course, this is an announcement. We don't know what's going to happen between
now and June 24, so let's wait and see.
JEFFREY BROWN: Now, Simon, this is a fine balance, right? I mean,
because when governments take these kind of steps, their economies get smaller,
can shrink. There's an argument that you don't want to do that at the time when
we're still not even sure about the state of the recession and getting out of
SIMON JOHNSON: Absolutely.
France doesn't want and we don't want France to contract their economy.
That's not helpful to global growth. That's not helpful to trade. But the bond
market is pressing to see some sort of result. So, what you want to see are
some significant steps. You want to see a government that can stick to its
Already, by the way, there was a back-down, because the government was
talking about potentially raising the age from 60 to 63, and now it's only 62.
So, you wonder, in this environment, can they do anything? Can they control the
budget deficit? You want them to show control, but not to engage in precipitant
and extreme austerity. That would be most unfortunate.
JEFFREY BROWN: And you just mentioned the potential impact on the U.S.
SIMON JOHNSON: Well, global growth is very important to us at this
stage. We want trade to come back. We want our exports to rebound.
We also worry about the dollar. The dollar has weakened considerably
against the euro as a result of these events. None of this is helpful to us
coming out of a recession to unemployment coming down. And...
JEFFREY BROWN: Even as the euro dropped so much recently?
SIMON JOHNSON: Absolutely. The fall in the euro is helping their
economies. It's helping them export. It's not helping us.
Now, I don't think we should begrudge them too much. They're in pretty
bad shape. And the fall of the euro is helping stabilize the European situation
to some extent. But it's not helpful to us. What we need is Europe to get back
on to a sustainable, reasonably rapid growth path. And right now they're some
years from -- from getting there.
JEFFREY BROWN: So, Sophie, to -- to what degree is this a political
issue going forward?
SOPHIE PIERSON: It's a huge political issue, because, basically, the
opposition and the left is saying that the government is unfair, that it is
touching the people, the working-class and the people that are working because
they have to pay. It's a mandatory system.
In France, it's not like in the U.S., where you can basically choose
whether or not you're going to privately fund your retirement. So, for French
people and the ones that are not making a lot of money, it's going to touch
them, because they're going to have to work longer and contribute more for a
system that doesn't give them back what they were hoping for.
JEFFREY BROWN: And is there any sense of -- in terms of public
attitudes, is -- are there generational differences here in terms of how people
look at what they have to give or what the governments have to do now?
SOPHIE PIERSON: Yes, absolutely.
I think that the young people may understand better that the economy has
changed, that the life expectancy has increased, and that the government cannot
fund a retirement plan in a sustainable manner this way for so long.
If people live longer and longer, you're going to have to pay more and
more, and the people that are contributing are going to be less and less. So,
it creates a huge gap. So, I think the young people are basically
understanding, because they are more attuned with what's going on.
The, you know, senior generation may find it very unfair, because, as
they were all hoping to retire at age 60, now they're going to have to wait
longer, with an exception. The government is making two exceptions. For
example, if you started working early in your life, you're going to be able to
retire early with the new system.
JEFFREY BROWN: All right, we will...
SOPHIE PIERSON: And, also, there is another difference. If you had a
very hard job, you're going to be able, effectively, to retire earlier than 62.
So, the government is making some exception as well.
JEFFREY BROWN: All right. We will watch it unfold.
Sophie Pierson and Simon Johnson, thank you both very much.
SIMON JOHNSON: Thank you.
SOPHIE PIERSON: Thank you for having us.