(5)The General Escape Clause has been active since March 2020. In its Communication of 3 March 2021, the Commission set out its view that the decision on the deactivation or continued application of the general escape clause should be taken as an overall assessment of the state of the economy, with the level of economic activity in the EU or euro area compared to pre-crisis levels (end-2019) as a key quantitative criterion. Heightened uncertainty and strong downside risks to the economic outlook in the context of war in Europe, unprecedented energy price hikes and continued supply chain disturbances warrant the extension of the general escape clause of the Stability and Growth Pact through 2023.

(4)Taking account of the rapidly changing economic and geopolitical situation, the European Semester resumes its broad economic and employment policy coordination in 2022, while evolving in line with the implementation requirements of the Recovery and Resilience Facility, as outlined in the 2022 Annual Sustainable Growth Survey. The implementation of the adopted recovery and resilience plans is essential for the delivery of the policy priorities under the European Semester, as the plans address all or a significant subset of the relevant country-specific recommendations issued in the 2019 and 2020 Semester cycles. The 2019 and 2020 country-specific recommendations remain equally relevant also for recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241, in addition to any country-specific recommendations issued up to the date of submission of the modified plan.

(3)Russia’s invasion of Ukraine, in the wake of the global pandemic, has significantly altered the geopolitical and economic context. The impact of the invasion on Member States’ economies has been felt for example through higher energy and food prices and weaker growth prospects. The higher energy prices weigh particularly on the most vulnerable households, notably those experiencing or at risk of energy poverty. The EU is also seeing an unprecedented inflow of people fleeing Ukraine. In this context, on 4 March 2022, the Temporary Protection Directive was triggered for the first time, granting displaced persons from Ukraine the right to legally stay in the EU, as well as access to education and training, labour market, healthcare, housing and social welfare.

(2)On 24 November 2021, the Commission adopted the Annual Sustainable Growth Survey, marking the start of the 2022 European Semester for economic policy coordination. It took due account of the reaffirmed joint commitment of the Porto Social Summit of May 2021 to further implement the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The European Council endorsed the priorities of the 2022 Annual Sustainable Growth Survey on 25 March 2022. On 24 November 2021, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified France as one of the Member States for which an in-depth review would be needed. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was adopted on 5 April 2022 by the Council, as well as the proposal for the 2022 Joint Employment Report analysing the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights, which was adopted by the Council on 14 March 2022.

(1)Regulation (EU) 2021/241 of the European Parliament and of the Council, which established the Recovery and Resilience Facility, entered into force on 19 February 2021. The Recovery and Resilience Facility provides financial support for the implementation of reforms and investment, entailing a fiscal impulse financed by the Union. It contributes to the economic recovery and to the implementation of sustainable and growth-enhancing reforms and investment, in particular to promote the green and digital transition, while strengthening the resilience and potential growth of the Member States’ economies. It also helps strengthen sustainable public finances and boost growth and job creation in the medium and long term. The maximum financial contribution per Member State under the Recovery and Resilience Facility [was] updated on [XX] June 2022, in line with Article 11(2) of Regulation (EU) 2021/241.

(6)Following the approach in the Council opinion of 18 June 2021 on the 2021 Stability Programme, the fiscal stance is currently best measured as the change in primary expenditure (net of discretionary revenue measures), excluding COVID-19 crisis-related temporary emergency measures but including expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other EU funds, relative to medium-term potential growth. Going beyond the overall fiscal stance, in order to assess whether national fiscal policy is prudent and its composition is conducive to a sustainable recovery consistent with the green and digital transitions, attention is also paid to the evolution of nationally-financed primary current expenditure (net of discretionary revenue measures and excluding COVID-19 crisis-related temporary emergency measures) and investment.

(7)On 2 March 2022, the Commission adopted a Communication providing broad guidance for fiscal policy in 2023, aiming at supporting the preparation of Member States’ Stability and Convergence Programmes and thereby strengthening policy coordination. The Commission noted that, based on the macroeconomic outlook of the 2022 winter forecast, transitioning from an aggregate supportive fiscal stance in 2020-2022 to a broadly neutral aggregate fiscal stance would appear appropriate in 2023, while standing ready to react to the evolving economic situation. The Commission announced that the fiscal recommendations for 2023 should continue to differentiate across Member States and take into account possible cross-country spillovers. The Commission invited the Member States to reflect the guidance in their Stability and Convergence Programmes. The Commission committed to closely monitor the economic developments and adjust its policy guidance as needed and at the latest in its Semester spring package of late May 2022.

(8)With respect to the fiscal guidance provided on 2 March 2022, the fiscal recommendations for 2023 take into account the worsened economic outlook, the heightened uncertainty and further downside risks, and the higher inflation compared to the winter forecast. Against these considerations, the fiscal response has to expand public investment for the green and digital transition and energy security, and sustain the purchasing power of the most vulnerable households so as to cushion the impact of the energy price hike and help limit inflationary pressures from second round effects via targeted and temporary measures; fiscal policy has to remain agile so as to adjust to the rapidly evolving circumstances, and be differentiated across countries depending on their fiscal and economic situation, including as regards the exposure to the crisis and the inflow of displaced persons from Ukraine.

(9)On 28 April 2021, France submitted its national recovery and resilience plan to the Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant to Article 19 of Regulation (EU) 2021/241, the Commission assessed the relevance, effectiveness, efficiency and coherence of the recovery and resilience plan, in accordance with the assessment guidelines of Annex V to that Regulation. On 13 July 2021, the Council adopted its Decision on the approval of the assessment of the recovery and resilience plan for France. The release of instalments is conditional on a decision by the Commission, taken in accordance with Article 24(5) of Regulation (EU) 2021/241, that France has satisfactorily fulfilled the relevant milestones and targets set out in the Council Implementing Decision. Satisfactory fulfilment presupposes that the achievement of preceding milestones and targets has not been reversed.

(10)On 4 May 2022, France submitted its 2022 National Reform Programme. It did not submit its Stability Programme. In accordance with Article 27 of Regulation (EU) 2021/241, the 2022 National Reform Programme also reflects France’s bi-annual reporting on the progress made in achieving its recovery and resilience plan.

(11)The Commission published the 2022 country report for France on 23 May 2022. It assessed France’s progress in addressing the relevant country-specific recommendations adopted by the Council in 2019, 2020 and 2021, and took stock of France’s implementation of the recovery and resilience plan, building on the Recovery and Resilience Scoreboard. Based on this analysis, the country report identified gaps with respect to those challenges that are not addressed or only partially addressed by the recovery and resilience plan, as well as new and emerging challenges, including those emerging from Russia’s invasion of Ukraine. It also assessed France's progress on implementing the European Pillar of Social Rights and on achieving the EU headline targets on employment, skills and poverty reduction, as well as progress in achieving the UN’s Sustainable Development Goals.

(12)The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for France and published its results on 23 May 2022. The Commission concluded that France is experiencing macroeconomic imbalances. In particular, vulnerabilities relate to high government debt and weak competitiveness, which have cross-border relevance, in a context of low productivity growth.

(13)On 23 May 2022, the Commission issued a report under Article 126(3) TFEU. This report discussed the budgetary situation of France, as its general government deficit in 2021 exceeded the 3% of GDP Treaty reference value, while its general government debt exceeded the 60% of GDP Treaty reference value and did not respect the debt reduction benchmark. The report concluded that the deficit and debt criteria were not fulfilled. In line with the Communication of 2 March 2022, the Commission considered, within its assessment of all relevant factors, that compliance with the debt reduction benchmark would imply a too demanding frontloaded fiscal effort that risks to jeopardise growth. Therefore, in the view of the Commission, compliance with the debt reduction benchmark is not warranted under the current exceptional economic conditions. As announced, the Commission did not propose to open new excessive deficit procedures in spring 2022 and it will reassess the relevance of proposing to open excessive deficit procedures in autumn 2022.

(14)On 20 July 2020, the Council recommended France to take in 2020 and 2021 all necessary measures, in line with the general escape clause, to effectively address the pandemic, sustain the economy and support the ensuing recovery. It also recommended France to pursue, when economic conditions allow, fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. In 2021, based on data validated by Eurostat, France’s general government deficit fell from 8.9% of GDP in 2020 to 6.5% in 2021. The fiscal policy response by France supported the economic recovery in 2021, while temporary emergency support measures declined from 3.3% of GDP in 2020 to 2.6% in 2021. The measures taken by France in 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 were mostly temporary or matched by offsetting measures. At the same time, some of the discretionary measures adopted by the government over the period 2020 to 2021 were not temporary or matched by offsetting measures, mainly consisting of a permanent reduction in taxes on production as of 2021 and the increase of civil servant wages, mainly in the healthcare system. Based on data validated by Eurostat, general government debt stood at 112.9 % of GDP in 2021.

(15)Based on policy measures known at the cut-off date of the forecast, the Commission 2022 spring forecast projects a government deficit for 2022 and 2023 of 4.6% of GDP and 3.2% respectively. The Commission 2022 spring forecast projects a general government debt-to-GDP ratio of 111.2% in 2022 and 109.1% in 2023. Based on the Commission’s analysis, debt sustainability risks appear high over the medium term.

Based on the Commission spring 2022 forecast, the medium-term (10-year average) potential output growth is estimated at 1.0%. However, this estimate does not include the impact of the reforms that are part of the Recovery and Resilience Plan and can boost France’s potential growth.

(16)In 2022, the government phased out the majority of measures taken in response to the COVID-19 crisis, such that the temporary emergency support measures are projected to decline from 2.6% of GDP in 2021 to 0.4% in 2022. The government deficit is impacted by the measures adopted to counter the economic and social impact of the increase in energy prices, which in the Commission spring 2022 forecast are estimated at 0.7% of GDP in 2022 and are expected to be phased out in 2023. These measures mainly consist of social transfers to poorer households, cuts to indirect taxes on energy consumption, price caps on retail and wholesale prices, subsidies to energy-intensive enterprises. These measures have been announced as temporary. However, in case energy prices remain elevated also in 2023, some of these measures could be continued. Some of these measures are not targeted, notably the general price cap on electricity and gas prices as well as an outright subsidised discount on fuels. The government deficit is also impacted by the costs to offer temporary protection to displaced persons from Ukraine, which in the Commission 2022 spring forecast are projected at 0.1% of GDP in 2022 and 0.1% in 2023.

(17)On 18 June 2021, the Council recommended that in 2022 France should use the Recovery and Resilience Facility to finance additional investment in support of the recovery while pursuing a prudent fiscal policy. Moreover, it should preserve nationally-financed investment. It also recommended France to pursue, when economic conditions allow, a fiscal policy aimed at achieving prudent medium-term fiscal positions and ensuring fiscal sustainability in the medium term, and at the same time, to enhance investment to boost growth potential.

(18)In 2022, based on the Commission’s 2022 spring forecast, the fiscal stance is projected to be supportive at -1.7% of GDP. France plans to provide continued support to the recovery by making use of the Recovery and Resilience Facility to finance additional investment as recommended by the Council. The positive contribution to economic activity of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to decrease by 0.2 percentage points of GDP compared to 2021. This decrease in 2022 is due to the frontloaded financial support from the Recovery and Resilience Facility in 2021. Nationally-financed investment is projected to provide a neutral contribution to the fiscal stance in 2022. Therefore, France plans to preserve nationally financed investment, as recommended by the Council. At the same time, the growth in nationally-financed primary current expenditure (net of new revenue measures) in 2022 is projected to provide an expansionary contribution of 1.6 percentage points to the overall fiscal stance. This significant expansionary contribution includes the additional impact of the measures to address the economic and social impact of the increase in energy prices (0.5% of GDP) as well as the costs to offer temporary protection to displaced persons from Ukraine (0.1% of GDP). Other current expenditure measures include those put forward in the resilience plan to address the economic consequences of the conflict in Ukraine, such as direct subsidies to ad hoc sectors (0.1% of GDP), and the increase of civil servant wages (0.1% of GDP). On the revenue side, the cut in the corporate income tax rate (0.1% of GDP) and of the housing taxes (0.1% of GDP) are also projected to contribute to the expansionary fiscal stance. The higher increase in consumer prices compared to the GDP deflator is projected to affect the expansionary contribution of nationally financed primary current expenditure in 2022 by increasing public consumption and social benefits. Based on the Commission’s forecast, these measures and drivers of higher expenditure are not fully matched by offsetting measures.

(19)In 2023, the fiscal stance is projected in the Commission 2022 spring forecast at +0.9% of GDP on a no-policy change assumption. France is projected to continue using the grants from the Recovery and Resilience Facility in 2023 to finance additional investment in support of the recovery. The positive contribution to economic activity of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to decrease by 0.1 percentage points of GDP compared to 2022, reflecting the frontloaded financial support from the Recovery and Resilience Facility in 2021 and 2022. Nationally-financed investment is projected to provide a neutral contribution to the fiscal stance in 2023. At the same time, the growth in nationally-financed primary current expenditure (net of new revenue measures) in 2023 is projected to provide a contractionary contribution of 0.7 percentage points to the overall fiscal stance. This includes the impact from the phasing out of the measures addressing the increased energy prices (0.7% of GDP). Therefore, the contractionary contribution of nationally-financed current expenditure relies on the phasing out of the measures to address the impact of the increase in energy prices as currently planned.

(20)The current pension system in France is complex, consisting of more than 40 co-existing schemes. These schemes apply to different groups of workers and functions according to different sets of rules. Based on Eurostat data, at 14.6% of GDP in 2019, public pension expenditure in France was the third highest in the EU. The high cost is related to a relatively high replacement ratio (i.e. pension compared to final annual wages), life expectancy, a relatively early effective retirement age (around 62 years) and an elevated number of pension beneficiaries out of the total population. According to both the Commission 2021 Ageing report and the latest annual report by France’s Pensions Advisory Council (Conseil d’orientation des retraites), after some decline projected until 2024, pension expenditures are projected to increase moderately between 2025 and around 2030, by about 0.2 percentage points of GDP. High total public expenditure, with pension expenditure being one of the main items, contributes to the accumulation of public debt despite a heavy tax burden, leading France to face high fiscal sustainability risks over the medium term. Over the longer term, pension expenditure would start declining steadily until 2070, mainly due to the indexation of pension benefits to inflation, which offsets the effect of the increase in the dependency ratio due to ageing. The simplification of the pension system, by unifying the different regimes, would help improve its transparency and fairness, while entailing positive effects on labour mobility and the efficiency of labour allocation, and could underpin fiscal sustainability. In 2018, the French government initiated a reform process with the objective of unifying the rules of the multiple pension regimes. The reform was halted with the outbreak of the COVID-19 pandemic. In presenting the objectives of the French recovery and resilience plan, the government confirmed its commitment to pursue an ambitious reform of the pension system, aiming to improve its fairness and sustainability.

(21)In accordance with Article 19(3), point (b) of Regulation (EU) 2021/241 and Annex V, criterion 2.2, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. These help address all or a significant subset of the economic and social challenges outlined in the country-specific recommendations addressed to France by the Council in the European Semester in 2019 and 2020, in addition to any country-specific recommendations issued up to the date of adoption of a plan. The implementation of the French plan is well underway. France’s first payment request was positively assessed by the Commission, taking into account the opinion of the Economic and Financial Committee, leading to a disbursement of EUR 7.4 billion in financial support (net of pre-financing) on 4 March 2022. The related 38 milestones and targets cover reforms in the areas of public finance, the labour market, health and long-term care. Investment has been made in energy efficiency of buildings (public, private, and social housing), sustainable transport (purchasing clean vehicles), decarbonising industry, youth employment and education. Several research strategies in key green and digital technologies were validated and calls for projects will be launched in 2022 and 2023.

(22)The implementation of the recovery and resilience plan of France is expected to contribute to making further progress on the green and digital transition. Measures supporting the climate objectives in France account for 46.0% of the plan’s total allocation (with major investment in energy renovation of buildings), while measures supporting digital objectives account for 21.3% of the plan’s total allocation. The fully fledged implementation of the recovery and resilience plan, in line with the relevant milestones and targets, will help France swiftly recover from the fallout of the COVID-19 crisis, while strengthening its resilience. The systematic involvement of social partners and other relevant stakeholders remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond the plan, to ensure broad ownership of the overall policy agenda.

(23)France submitted its cohesion policy programming documents on 17 December 2021 for the Partnership Agreement and most of the programmes before 17 March 2022. In line with Regulation (EU) 2021/1060 of the European Parliament and of the Council of 24 June 2021, France shall take into account the relevant country-specific recommendations in the programming of the 2021-2027 cohesion policy funds. This is a prerequisite for improving the effectiveness and maximising the added value of the financial support to be received from cohesion policy funds, while promoting the coordination, complementarity and coherence between these funds and other Union instruments and funds. The successful implementation of the Recovery and Resilience Facility and cohesion policy programmes also depends on the removal of bottlenecks to investment to support the green and digital transition and balanced territorial development.

(24)Beyond the economic and social challenges addressed by the recovery and resilience plan, France faces a number of additional challenges related to the shortage of skills and the deployment of renewable energy. Enhancing the skills of workers would contribute to increasing labour productivity and consequently to improving the overall competitiveness of the French economy.