# EUR-Lex - 52012DC0313 - EN

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# 52012DC0313

**Recommendation for a COUNCIL RECOMMENDATION on France’s 2012 national reform programme and delivering a Council opinion on France's stability programme for 2012-2016 /* COM/2012/0313 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on France’s 2012 national reform programme
and delivering a Council opinion on France's stability programme for 2012-2016

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148(4)
thereof,

Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular Article 5(2)
thereof,

Having regard to Regulation (EU) No
1176/2011 of the European Parliament and of the Council of 16 November 2011 on
the prevention and correction of macroeconomic imbalances[2], and in particular Article 6(1)
thereof,

Having regard to the recommendation of the
European Commission[3],

Having regard to the resolutions of the
European Parliament,[4]

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

After consulting the Economic and Financial
Committee,

Whereas:

(1)       On 26 March 2010, the
European Council agreed to the European Commission’s proposal to launch a new
strategy for jobs and growth, Europe 2020, based on enhanced coordination of
economic policies, which will focus on the key areas where action is needed to
boost Europe’s potential for sustainable growth and competitiveness.

(2)       On 13 July 2010, the
Council adopted a recommendation on the broad guidelines for the economic
policies of the Member States and the Union (2010 to 2014) and, on 21 October
2010, adopted a decision on guidelines for the employment policies of the
Member States[5],
which together form the ‘integrated guidelines’. Member States were invited to
take the integrated guidelines into account in their national economic and
employment policies.

(3)       On 12 July 2011, the
Council adopted a recommendation on France’s national reform programme for 2011
and delivered its opinion on France’s updated stability programme for 2011-2014.

(4)       On 23 November 2011, the
Commission adopted the second Annual Growth Survey, marking the start of the second
European Semester of ex-ante and integrated policy coordination, which is
anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on
the basis of Regulation (EU) 1176/2011, adopted the Alert Mechanism Report[6], in which it identified France as
one of the Member States for which an in-depth review would be carried out.

(5)       On 2 March 2012, the
European Council endorsed the priorities for ensuring financial stability,
fiscal consolidation and action to foster growth. It underscored the need to pursue
differentiated, growth-friendly fiscal consolidation, to restore normal lending
conditions to the economy, to promote growth and competitiveness, to tackle
unemployment and the social consequences of the crisis, and to modernise public
administration.

(6)       On
2 March 2012, the European Council also invited the Member States participating
in the Euro Plus Pact to present their commitments in time for inclusion in
their stability or convergence programmes and their national reform programmes.

(7)       On 4 May 2012, France
submitted its updated stability programme covering the period 2012-2016 and, on
13 April 2012, its 2012 national reform programme. In order to take account of
their interlinkages, the two programmes have been assessed at the same time.
The Commission has also assessed, in an in-depth review[7] under Article 5 of Regulation
(EU) No 1176/2011, whether France is affected by macroeconomic imbalances. The
Commission concluded that France is experiencing imbalances, although not
excessive.

(8)       Based on the assessment of
the stability programme pursuant to Council Regulation (EC) No 1466/97, the
Council is of the opinion that the macroeconomic scenario underpinning the
budgetary projections in the programme is optimistic. The Commission's 2012 spring
forecast projected GDP growth to reach 0.5% in 2012 and 1.3% in 2013, against
0.7% and 1.75%, respectively, according to the programme. After the deficit
came out better than expected at 5.2% of GDP in 2011, the programme plans to
bring it down to 3% of GDP in 2013, which is the deadline set by the Council
for correcting the excessive deficit, and to continue consolidation thereafter,
with a balanced budget to be achieved by 2016. The medium-term budgetary objective (MTO) of a balanced budget in
structural terms is expected to be reached within the programme period. The MTO
adequately reflects the requirements of the Stability and Growth Pact. Based on
the (recalculated) structural balance[8],
the planned average annual fiscal effort in 2010-2013 is in line with the
Council recommendation of 2 December 2009. Annual
progress in structural terms equivalent to a further 0.7% of GDP towards
achieving the MTO is projected to be made in 2014–16. According
to the programme, the growth rate of government expenditure, taking into
account discretionary revenue measures, is in line with the expenditure
benchmark of the Stability and Growth Pact. The adjustment path presented in
the programme is subject to risks. The macroeconomic scenario could turn out to
be less favourable as indicated by the Commission's 2012 spring forecast. Measures
are not sufficiently specified to reach the targets from 2013 onwards and to achieve
the recommended average annual fiscal effort. Furthermore, France's track
record when it comes to meeting expenditure targets is mixed. Therefore, it
cannot be ensured that the excessive deficit will be corrected by 2013 unless
the planned measures are sufficiently specified and additional ones implemented
as needed. Starting from 85.8% of GDP in 2011, the debt ratio is expected to
reach 89.2% in 2013 and to drop to 83.2% in 2016. According
to the programme, the debt reduction benchmark will be met at the end of the
transition period (2016).

(9)       Although additional
consolidation measures were adopted in the second half of 2011 and in February
2012, implementation of fiscal consolidation remains a major challenge.
Avoiding expenditure slippages by means of a strengthened fiscal effort based
on fully specified measures is vital to re-establishing a sustainable fiscal
position. In addition, it would be appropriate for France to seize
opportunities to accelerate the deficit reduction, in order to facilitate the
correction of the excessive deficit as planned. Concerning the long-term
sustainability of public finances and adequacy of future pensions, the 2010
pension reform is gradually being applied. However, it is not certain that the
system will be balanced by 2018, if employment and growth turns out lower than projected,
and the system is expected to fall into deficit after 2020. Moreover, the newly
created steering committee, which was established with the task of issuing an
annual opinion on the financial situation of the various pension schemes and
the conditions required to ensure balanced accounts by 2018, did not issue such
an opinion in 2011, making the assessment of the sustainability of the pension
system difficult.

(10)     The functioning of the French
labour market would be improved by further reducing labour market segmentation.
The professional security contract (CSP), which was introduced by the July 2011
law and merged two already existing contracts, shifts the burden of counselling
in the case of economic redundancies from employers to the public employment
services (Pôle emploi). This is a positive but limited step. Several
measures have also been taken or are under discussion to provide flexible work
arrangements for companies facing temporary difficulties. However, they do not
address specifically the segmentation of the labour market. In addition, the
review of employment protection legislation shows that the administrative
procedure for individual dismissals continues to entail uncertainties and
potentially large costs for employers. Finally, it is important to ensure that
any development in the minimum wage is supportive of employment, especially of
younger workers and the low skilled.

(11)     Following the pensions
reform, measures taken to encourage the employment of older workers, including
the requirement for companies to implement active age management, are steps in
the right direction. However, the related action plans generally lack ambition
and do not include measures such as reducing working time or offering positions
that would be specifically adapted to older workers. Moreover, some aspects of
the unemployment benefit system for older workers (duration, lack of
degressivity) may provide limited incentives to work. Finally, a more ambitious
strategy is needed in the field of adult learning so as to raise the
employability of the adult workforce.

(12)     To address youth
unemployment, the French authorities have committed to increasing the number of
apprenticeships from 600 000 to 800 000 by 2015. Several measures
were introduced in 2011 and 2012 in order to increase the quota of apprentices
in companies and to strengthen the penalties for companies which would fail to
comply. Despite these measures, the total number of apprenticeships is still
far from the objective. In addition, a recent report commissioned by the French
authorities showed that 40 % of SMEs consider that the skills of
apprentices do not match their needs. Hence, policies tackling youth
unemployment would benefit from greater consistency between the skills taught
in the education system and the needs of the labour market.

(13)     The merging of the
jobseekers’ placement services (ANPE) and the unemployment benefits agency
(UNEDIC) into a single body (Pôle emploi) has so far not produced the
expected results in terms of effectiveness and quality of services. The new
multi-annual tripartite agreement signed in January 2012 (between government,
social partners and Pôle emploi) on the functioning and services of Pôle
emploi for 2012-2014 is a step in the right direction. However, a number of
targets/objectives still remain to be fixed, making it difficult at this stage
to assess the ambition of the reform. The credibility of the reform is also
hindered by the budgetary and human resources constraints of the public
employment services.

(14)     In February 2012, France
adopted a 1.6 pp increase in VAT to 21.2 % and a 2 pp rise in social
levies on capital income and gains to 15.5 % to compensate for lower
employers’ social contributions. This is an appropriate measure to introduce a
more balanced taxation system that shifts the tax burden away from labour. As
noted in the in-depth review on macroeconomic imbalances conducted by the
Commission services, it could contribute to improving the cost competitiveness
of French exports, with potentially positive impacts on firms' profitability
and, in the longer term, on investment and non price competiveness However, the
focus of the reform is too narrow. In addition, while efforts have been made to
reduce tax expenditures, the latter have also been accompanied by rate hikes
which tend to increase the already high tax burden on labour. France has the
second lowest share of environmental taxation in the EU in tax revenues, which
indicates ample room for increasing such taxes. Lastly, no specific measures
have been taken to assess the efficiency of some reduced rates in achieving
their employment or social objectives (in particular for reduced VAT rates).

(15)     While a number of reforms have
been adopted to simplify the business environment and to remove restrictions on
some regulated trades and professions, they fall short of addressing barriers
to entry and restrictive conduct conditions in many others (e.g. veterinarians,
taxis, health sector, legal professions including notaries). As a result, there
is a need for a more horizontal and systematic review of remaining entry and
conduct restrictions in regulated professions to assess their necessity and
proportionality. As regards the retail sector, distributors should be allowed
to set their prices and other commercial terms freely so that consumers can benefit
from lower prices. Consumers would also benefit from other competition-enhancing
measures in this highly concentrated sector, such as lifting or reviewing
spatial planning restrictions and streamlining procedures for the setting-up of
new distribution outlets.

(16)     The intensity of
competition in a number of network industries (wholesale electricity, rail
sector) should be reinforced as reforms conducted so far in these sectors have
only yielded partial results. The degree of concentration in the electricity
market remains one of the highest in the EU. While the NOME law has had a
positive impact on competition, further steps are necessary to improve the access
of alternative operators to generation capacity in France, such as hydro-based
electricity generation. In rail transport, the entry of new companies remains
limited both in freight and in international passenger transport; in freight,
technical barriers to non-discriminatory access also remain.

(17)     The French export market
share has decreased by 19.4% between 2005 and 2010, one of the strongest
declines among Member States, and much above the threshold included in the
Alert Mechanism Report published by the Commission on 14 February 2012. In
their in-depth review for France, the Commission services concluded that the
losses in export market shares come from a deterioration of both cost and
non-price competitiveness, especially the latter. In particular, increasing
unit labour costs have put the profitability of French companies under pressure
and have constrained their ability to grow, to make the necessary investments
to improve their performance and to innovate. The policies taken to foster
innovation in the private sector should be monitored and complemented by
measures to restore the profitability of French companies.

(18)     France has made a number of
commitments under the Euro Plus Pact. These commitments, and the implementation
of the commitments presented in 2011, relate to fostering employment, improving
competitiveness and enhancing sustainability of public finances. The Commission
has assessed the implementation of the Euro Plus Pact commitments. The results
of this assessment have been taken into account in the recommendations.

(19)     In the context of the
European Semester, the Commission has carried out a comprehensive analysis of France’s
economic policy. It has assessed the stability programme and national reform programme,
and presented an in-depth review. It has taken into account not only their
relevance for sustainable fiscal and socio-economic policy in France but also
their compliance with EU rules and guidance, given the need to reinforce the
overall economic governance of the European Union by providing EU-level input
into future national decisions. Its recommendations under the European Semester
are reflected in recommendations (1) to (5) below.

(20)     In the light of this
assessment, the Council has examined France’s stability programme, and its
opinion[9]
is reflected in particular in recommendation (1) below.

(21)     In the light of the results
of the Commission’s in-depth review and this assessment, the Council has
examined France’s 2012 national reform programme and stability programme. Its
recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected
in particular in recommendations (2), (4) and (5) below,

HEREBY RECOMMENDS that France should
take action within the period 2012-2013 to:

1.           Reinforce and implement
the budgetary strategy, supported by sufficiently specified measures, for the
year 2012 and beyond to ensure a timely correction of the excessive deficit and
the achievement of the structural adjustment effort specified in the Council
recommendations under the Excessive Deficit Procedure. Thereafter, ensure an
adequate structural adjustment effort to make sufficient progress towards the
medium-term budgetary objective (MTO), including meeting the expenditure
benchmark, and ensure sufficient progress towards compliance with the debt
reduction benchmark. Continue to review the sustainability and adequacy of the
pension system and take additional measures if needed.

2.           Introduce further reforms to
combat labour market segmentation by reviewing selected aspects of employment
protection legislation, in consultation with the social partners in accordance
with national practices, in particular related to the administrative procedure
for individual dismissals; continue to ensure that any development in
the minimum wage is supportive of job creation and competitiveness; take actions
to increase adult participation in lifelong learning.

3.           Adopt labour market
measures to ensure that older workers stay in employment longer; improve youth
employability especially for those most at risk of unemployment, by providing
in particular more and better apprenticeship schemes which effectively address
their needs; step up active labour market policies and ensure that public
employment services are more effective in delivering individualised support.

4.           Take further steps to
introduce a more simple and balanced taxation system, shifting the tax burden from
labour to other forms of taxation that weigh less on growth and external
competitiveness, in particular environmental and consumption taxes; continue
efforts to reduce and streamline tax expenditures (notably those providing
incentives to indebtedness); review the effectiveness of the current reduced
VAT rates in support of job creation.

5.           Pursue efforts to remove
unjustified restrictions on regulated trades and professions, in particular in
services and the retail sector; take further steps to liberalise network
industries, in particular in the electricity wholesale market, develop energy
interconnection capacity and facilitate the entry of new operators into the
rail freight and international passenger transport sectors.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 02.08.1997, p. 1

[2]               OJ L 306, 23.11.2011, p. 25

[3]               COM(2012)313 final

[4]               P7_TA(2012)0048 and P7_TA(2012)0047

[5]               Council Decision 2012/238/EU of 26 April 2012

[6]               COM(2012) 68 final

[7]               SWD(2012)155 final

[8]               Cyclically adjusted balance net of one-off and
temporary measures, recalculated by the Commission services on the basis of the information provided in the programme, using
the commonly agreed methodology.

[9]               Under Article 5(2) of Council Regulation (EC) No
1466/97