French lawmakers vote to approve suspension of unpopular pension reform

PARIS (Reuters) -French lawmakers voted to suspend a contested pension reform on Wednesday, as next year's budget bills inch through parliament under persistent threats to the government's survival.

A majority of 255 lawmakers voted in favour of the suspension against 146 who voted against.

Budget debates have taken on added weight since President Emmanuel Macron's snap election last year left him with a hung parliament, where fractious lawmakers toppled former Prime Minister Michel Barnier over last year's spending plans.

Investors and France's European partners are watching the turmoil closely as France, which has had five prime ministers in two years, struggles to rein in a budget deficit which has become the largest in the euro zone.

Even now that lawmakers have approved the specific article suspending the pension reform, they will also need to back the whole social security bill in a final vote at a later stage for that to happen.

After a rocky start, Prime Minister Sebastien Lecornu's second attempt at a government has made headway, pushing parts of the budget through parliament thanks to costly concessions.

One of the biggest trade-offs was offering the Socialists – a pivotal swing bloc – a suspension of Macron's plan to raise the pension age to 64.

PENSION FREEZE HANDS LECORNU LIFELINE

The freeze effectively keeps the minimum retirement age at 62 years and nine months until after the 2027 presidential election, a move that has been hard to swallow for Macron loyalists but which has handed Lecornu a lifeline.

"Three and a half million French people will be able to retire earlier. We are demonstrating that betting on consensus-building pays off," Socialist MP Melanie Thomin said.

Concessions on pensions and other spending cuts are likely to sharply undermine the government's target of trimming the deficit by 30 billion euros. No revised estimate has been published yet, with the final shape of the budget still unclear.

French borrowing costs have eased, however, as fears of another government collapse recede.

But locking the pension suspension into law is no guarantee of success.

Left-wing allies, including the Greens and Communists, are split over whether to prop up Lecornu. Hardliners on the far right and far left are still pushing for new elections.

Former Prime Minister Gabriel Attal said Macron's centrist party would abstain rather than vote against the suspension of the pension reform, so the government could stay in place.

"We are clear-eyed about the fact that this suspension will not be good news for France’s economy," he told parliament.

(Reporting by Michel Rose and Elizabeth Pineau, additional reporting by Dominique Vidalon, Blandine Henault and Inti Landauro; writing by Michel Rose; editing by Ingrid Melander, Ed Osmond and Gareth Jones)