PLMR MD Kevin Craig quoted in Reuters austerity analysis

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Kevin Craig, Managing Director of PLMR, has been quoted in an analysis piece on reactions to austerity and reform in France and the UK

(Reuters) – Challenged even by their own supporters over pension or benefits cuts to middle income families, political leaders in both Britain and France are finding austerity and reform perhaps harder than expected.

That doesn’t mean they will be forced to roll back on their wider strategy of spending cuts and pension changes, but it is a sign that they may be at their most vulnerable over reforms that upset their political base.

French President Nicolas Sarkozy, facing a wave of strikes but also the risk of a revolt by centrist supporters in the upper house, announced plans on Thursday to tweak a pension reform to ease the impact on women who stopped work to raise children.

British Prime Minister David Cameron faced outrage even from some of his own MPs over plans to cut child benefit for higher earning parents. He was forced to apologize for not putting it in his election manifesto and the row apparently prompted him to resurrect a suggested tax break for married couples.

The bottom line, analysts say, is that reducing spending in Western democracies was always going to be difficult politically and produce a much more complex reaction than a simple left-wing backlash.

Nowhere will this be harder than in cutting back services—from higher education to health, defense to pensions—that touch on the preoccupations of middle-income voters and center-right newspapers.

“There is nothing that is easy to cut,” said David Lea, western Europe analyst at Control Risks. “What has surprised Cameron and Sarkozy is the way even their own base has reacted. They expected trouble from the unions, the left-wing newspapers. They’re getting it from the right as well.”

Proposed British defense cuts have also proved contentious on both the right and left, with ministers reported to be clashing over how military downsizing will hit industrial jobs as well as Britain’s power in the world.

MORE TO COME

Europe’s era of austerity is producing a cacophony of campaigning and lobbying from assorted interest groups desperate to avoid the axe.

This is particularly evident in Britain, where some of the most radical reforms are planned. The government will announce a spending review on October 20 with more details.
“There are going to be so many issues people will fight back about,” said Kevin Craig, managing director of British lobbying firm PLMR. “What we’ve seen so far is nothing compared to what is to come.”

Few analysts have been surprised that trade unions have howled against spending cuts, taking to the streets—albeit in very varied numbers—across the continent.
Huge displays of public discontent seem unlikely to bring down European governments or block reforms, but they could make it harder for leaders from Spain and Portugal to Ireland and France to win re-election.

Both Cameron and Sarkozy expect left-wing opposition, and will largely shrug it off.

But both are more sensitive to pressure from the center.

Few middle income parents—aside from a handful of loyal Conservative MPs—are enthusiastic about losing 2,000 pounds a year in child benefit if they are in the top two tax brackets. The issue dominated coverage this week at the Conservative party conference.

The policy will survive, but the lessons will have been noted. Neither key Conservative decision-makers nor generally supportive media had been briefed before the announcement, a fact that appeared to intensify criticism.

France’s situation is different, but some of the same drivers are in play. Sarkozy chose to make his pension concession to working mothers, a key voter group whose support may be crucial in the 2012 presidential election.

NO WAY BACK

For a five-year transition period, they will be able to retire at 65 on a full pension even if they do not have enough contribution years but have taken career breaks to raise three children or more. Some suspect they may eventually be granted an open-ended full pension right at 65.

The concession was intended to counter a growing strike and protest movement. But it also aims to head off a mini-revolt in the Senate, where Sarkozy’s UMP party lacks an overall majority leaving him dependent on centrist allies.

The strikes and demonstrations may grab headlines, but analysts say it is more targeted protests over individual issues that are more likely to force policy shifts.

In one early example, in October last year, supporters of Britain’s reservist Territorial Army waged a swift, high-profile media campaign against a mere 20 million pound ($32 million) cut to its training budget.

Within days, then Labour Prime Minister Gordon Brown agreed to ringfence the spending, to jeers from the then opposition Conservatives, who welcomed the climbdown.

Now that Cameron is in power, he faces many similar battles but has little choice but to push through deep cuts.
“This government’s fate is so tied to deficit reduction, they have little choice but to continue,” said PLMR’s Craig. “They will want to frontload as much pain as possible in years one and two in the hope that by 2015 they are popular again.”

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