French PM proposes suspending Macron's flagship pension reform to win budget support

French Prime Minister Sebastien Lecornu on Tuesday offered to suspend a landmark 2023 pension reform until after the 2027 presidential election, bowing to pressure from leftist lawmakers who demanded the move as a condition for his political survival.

Lecornu, who faces at least two no-confidence votes later this week, made the announcement in parliament as part of a last-ditch attempt to forge the conditions for passing a slimmed-down 2026 budget.

Lecornu's decision threatens to kill off one of President Emmanuel Macron's main economic legacies at a time that France's public finances are in a perilous state, leaving him with little in the way of domestic achievements after eight years in office.

It reflects an acknowledgement by Macron that ceding ground on the landmark measure was the only way to ensure the survival of Lecornu, his sixth prime minister in under two years.

PROPOSAL NEEDS FINANCIAL OFFSET

"I will propose to parliament, starting this autumn, that we suspend the 2023 pension reform until the presidential election," Lecornu told lawmakers. "No increase in the retirement age will take place from now until January 2028.

Lecornu said the suspension would cost 400 million euros ($463 million) in 2026, and 1.8 billion euros ($2.09 billion) in 2027.

"It must therefore be financially offset, including through savings measures," he said. "It cannot come at the price of a larger deficit."

Macron's 2023 pension reform was rammed through without a vote in parliament after weeks of street protests. It gradually raises the age at which a worker can retire on a full pension from 62 years to 64.

French stocks, particularly bank shares, rose on the news. French government borrowing costs extended the day's decline, leaving the yield on the benchmark 10-year OAT down 6 basis points at 3.406%, from around 3.42% earlier, its lowest since early September.

WAY OUT OF THE CRISIS?

France is in the midst of its worst political crisis in decades as a succession of minority governments seek to push deficit-reducing budgets through a truculent legislature split into three distinct ideological blocs.

Lecornu's decision to suspend the pension reform did not just risk the wrath of international investors, who have become increasingly concerned by France's inability to tame its deficit, already the euro zone's highest at an expected 5.4% this year. It also risked upsetting the conservative Republicans, who balk at tax hikes and want greater austerity.

However, Lecornu appeared to win a reprieve from them after his speech, when Laurent Wauquiez, the Republicans chief in the lower house, adopted a conciliatory tone, saying it was better to negotiate a budget than bet on another election.

"It is necessary to give France a budget," he said, adding that delaying the approval of the law would further worsen the country's deficit.

LECORNU PRESENTS BUDGET

Lecornu is proposing 30 billion euros ($35 billion) in cuts, and targeting a deficit of 4.7%. France's independent fiscal watchdog said those plans were wishful thinking, and his belt-tightening measures may fall short - or never materialise if he falls.

Lecornu, 39, was France's shortest-serving prime minister in modern times before he retook the job late last week after resigning. Macron, who has burned through five prime ministers in less than two years, has so far refused to call another election or resign.

French economist Philippe Aghion, named one of the three winners of the 2025 Nobel Prize in Economics on Monday, said he hoped a path out of the budget mess could be found.

"I hope there will be a compromise because the tragedy for France is to experience political instability," he told reporters in Paris, prior to Lecornu's pension reform suspension.

"If there is another censure, it would be dramatic for France. Our interest rates would continue to rise, our spread would continue to rise, it would be dramatic. We must absolutely avoid censure and still arrive at a budget."

($1 = 0.8632 euros)