François Hollande prepares to tackle pension reform Francois Hollande speaks during a meeting at The National School of Milk Industry. The French president is struggling to regain popularity as the country's economy remains in the doldrums and unemployment rises Unions have already spoken darkly of "war" and ministers have been warned there will be little time for summer holidays. As President François Hollande and his socialist government prepare to tackle pension reform, they are braced for what is set to be the biggest test yet of their willingness to make structural changes to revitalise France's stalled economy. The pensions dossier will be one of the most contentious of the coming six months and will provoke a lot of tensions with the government. It is inevitable," Jean-Claude Mailly, head of the Force Ouvrière trade union, said in a recent interview with Le Figaro. The stakes were raised at the end of last month when the European Commission, the EU's executive arm, picked out France's pension system as requiring an "urgently needed" overhaul to help bring the country's wayward public accounts under control. Mr Hollande responded testily, saying he would not be dictated to by Brussels. But he has for months been saying essentially the same thing. On Friday, the government will take a first step in a process of consultation set to end in proposals for reform in September. The reason for action is a growing deficit, set to top €20bn in 2020, in France's pension regime, which is a "pay-as-you-go" system where pensions are paid for out of annual contributions. The complex set of 35 pension regimes cost €270bn in 2011, or 13.6 per cent of gross national product, according to figures from the conseil d'orientation des retraites (Cor), the state body that audits the system. That is well above the average for members of the OECD, the Paris-based club of industrialised nations. In a country where public spending has reached 57 per cent of gross domestic product, pensions account for a quarter of all public outlays, two-thirds of social charges and half of welfare spending. A sharp increase in unemployment, rising longevity and a low average retirement age have combined to pile pressure on the system. Although the official minimum retirement age is 62, Cor figures show the average to be 57 in the public sector and 61.5 in the private sector. The OECD average is 63.9 for men and 62.8 for women. "Pension spending is high in France compared with other countries because people have been retiring relatively early," says Monika Queisser, head of social policy at the OECD. Despite previous reforms that adjusted the length of contributions and benefit levels, assumptions about growth and employment have proved over-optimistic, she says. France has done more on pensions than it is often given credit for. But the eurozone crisis has added a lot of pressure now. You can't say it will sort itself out. A government-appointed commission will on Friday lay out potential courses of action for reform. Talks with employers and unions will be launched next week, with a deadline of the end of July for an agreement. Mr Hollande is treading carefully, mindful of the political minefield he is now entering. When Nicolas Sarkozy, his centre-right predecessor, pushed up the minimum retirement age in 2010 from 60 to 62, and increased the contribution period for qualifying for a full pension to 41.5 years, he provoked weeks of strikes and street protests. The Socialist party opposed the Sarkozy reforms. We have one of the most generous systems in the world so there is margin for adjustment Henri Sterdyniak, French Economic Observatory Mr Hollande, who restored the right to retire at 60 for those who had started work in their teens, has ruled out raising the official retirement age. But he has said people "will have to work a little longer." A further increase in the period of contributions, a limit on the indexation of pensions, tax rises for pensioners and an increase in the level of contributions are all options. Moves to smooth discrepancies between public and private sector pensions - the former are more generous - have been mooted, prompting the communist CGT union to warn of a casus belli. Calls for a "big bang" reform to switch to a single regime, based on a points system, seem unlikely to figure. Ifrap, a liberal think-tank which advocates this, warns against a minimalist approach that could "provoke a loss of confidence among our partners, a rise in the cost of borrowing and a situation like Italy in 2009, if not like Greece." But Henri Sterdyniak, from the French Economic Observatory, says: "A grand reform that quickly puts in place a single pension system is illusory. The situation is not so dramatic. We have one of the most generous systems in the world so there is margin for adjustment. This is not Greece.