‘Fantasy economics’: Baby boomer vs. Gen Z tensions hit France as pension costs drive debt crisis and education cuts that fuel student protests

Nobel laureate Paul Krugman has drawn a stark parallel between the generational tensions in France's public spending and the ongoing student protests across the country. Krugman, a professor at the City University of New York’s Graduate Center, argues that France's generous pension plan, which allows workers to collect full benefits at just 62 years old compared to the Western European average of 60.4 years, is a major driver of the country's debt crisis.

The French government's lavish payouts to retirees are cutting into funding for other essential services, particularly education. Protests from students across France have been sparked by poor classroom conditions, outdated buildings, and insufficient staffing. Krugman claims that this fiscal pressure caused by the high pension costs has led to cutbacks in education, resulting in the very student unrest that is currently gripping the nation.

In the United States, similar debt issues are also on an unsustainable trajectory due to the growing number of seniors retiring and increasing entitlement spending. However, even some Republicans have shown openness to raising taxes to prevent Social Security's trust fund from collapsing. President Emmanuel Macron has attempted to raise the retirement age to 64, but strong political opposition has prevented the change from happening.

On the other hand, far-right leader Marine Le Pen has proposed lowering the retirement age to 62 and has even suggested dropping it to 60, which Krugman deems as an unrealistic fantasy. He points out that this type of overspending is a widespread issue in the political sphere, not just limited to France.

Currently, French 10-year bond yields have risen to their highest level since 2002, with a widening gap over German yields. This has put France at risk of a potential debt default. Macquarie global strategists Thierry Wizman and Gareth Berry have warned that if the protests continue, the government might be forced to approve more spending, which would further exacerbate the debt crisis and drive up bond yields.

They suggest that the political polarization in France has directly and self-reinforcingly connected the rise in debt yields to the recent student riots.