EN    EN  
 EUROPEAN COMMISSION 
Brussels, 7.6.2011 
SEC(2011) 806 final 
  
Recommendation for a 
COUNCIL RECOMMENDATION 
on the National  Reform Programme 2011 of France 
  
and delivering a Council opinion 
 
on the updated Stability Programme of France, 2011-2014 
{SEC(2011) 719 final} 
 
 
EN 2   EN Recommendation for a 
COUNCIL RECOMMENDATION 
on the National Reform Programme 2011 of France 
  
and delivering a Council opinion 
 
on the updated Stability Programme of France, 2011-2014 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty on the Functioning of the European Union, and in particular 
Article 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 pos itions and the surveillance and coordination of economic 
policies
1, and in particular Article 5(3) thereof, 
Having regard to the recommendation of the European Commission2, 
Having regard to the conclusi ons 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 ag reed 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 reco mmendation on the broad guidelines for 
the economic policies of the Member Stat es and the Union (2010 to 2014) and on 21 
October 2010, adopted a deci sion on guidelines for the em ployment policies of the 
Member States,
3 which together form the “integrate d guidelines”. Member States were 
invited to take the integrat ed guidelines into account in their national economic and 
employment policies. 
                                                 
1 OJ L 209, 2.8.1997, p. 1. 
2 OJ C , , p. . 
3  Maintained for 2011 by Council Decision 2011/308/EU of 19 May 2011. 
 
EN 3   EN (3) On 12 January 2011, the Commission adopted the first Annual Growth Survey, 
marking the start of a new cycle of econom ic governance in the EU and the first 
European semester of ex-ante and integrated  policy coordination, wh ich is anchored in 
the Europe 2020 strategy.  
(4) On 25 March 2011, the European Council endorsed the priorities for fiscal 
consolidation and structural reform (in lin e with the Council’s conclusions of 15 
February and 7 March 2011 and further to the Commission’s Annual Growth Survey). 
It underscored the need to give prior ity to restoring so und budgets and fiscal 
sustainability, reducing unemployment th rough labour market reforms and making 
new efforts to enhance growth. It requested Member States to translate these priorities 
into concrete measures to be included in  their Stability or Convergence Programmes 
and National Reform Programmes. 
(5) On 25 March 2011, the European Council also i nvited the Member States participating 
in the Euro Plus Pact to present their co mmitments in time to be included in their 
Stability or Convergence Programmes a nd their National Reform Programmes. 
(6) On 3 May 2011, France submitted its 2011 St ability Programme update covering the 
period 2011-2014 and its 2011 National Reform Programme. In order to take account 
of the interlinkages, the tw o programmes have been assessed at the same time.  
(7) France was relatively less affected than ot her EU Member States by the economic and 
financial crisis, with a d ecline of 2.7% in GDP in 2009 , partly due to sizeable 
economic stabilisers and a relatively low degree of openness of its economy, which 
reduced the impact to some extent on Fr ance of the collapse in world trade. The 
banking sector also proved to be resi lient. In 2010, the economy recovered and, 
overall, GDP growth came out at 1.5%. Howeve r, the economic crisis has substantially 
impacted France's public finances. Due to th e automatic stabiliser s and discretionary 
fiscal stimulus, the general governement de ficit rose from 3.3% of GDP in 2008 to 
7.5% in 2009. Similarly, the cr isis has exacerbated the insu fficient utilisation of labour 
and the structural weaknesses of the Fr ench labour market, where there was a 
relatively high level of unemp loyment of 9.7% in 2010. In addition, the trade balance 
of goods has gradually deterior ated during the last decade, highlighting the challenges 
of French companies in terms of cost and non-price competitiveness.  
(8) Based on the assessment of the updated St ability Programme pursuant to Council 
Regulation (EC) No 1466/97, the Council is of  the opinion that the macroeconomic 
scenario underpinning the budgetary projectio ns is too favourable . Expected growth 
levels are slightly higher than the most r ecent projections of the Commission services 
for 2011 and 2012 and they remain well above the potential growth  in later years. 
After a better-than-expected deficit of 7% of GDP in 2010, the programme plans to 
bring it down to 3% in 2013, which is the deadline set by the Council for correcting the situation of excessive deficit, and to continue consolidation thereafter. Starting from a debt of 82% of GDP in 2010, the debt  ratio is set to in crease until 2012 (86%), 
after which it will decline slightly. The deficit and debt adjustment paths are subject to downside risks, which include the possibility  of a macroeconomic scenario that could 
turn out to be less favourable, a lack of specification of measures, and the fact that 
targets have often been missed in the past . Therefore, in the absence of further 
measures it cannot be ensured that the exces sive deficit will be corrected by 2013. The 
medium-term objective (MTO) of a balanced bu dget in structural terms is not likely to 
 
EN 4   EN be reached within the program me period. The average annu al fiscal effort over the 
2010-2013 period, based on the tr end of the (recalculated) structural balance, is 
slightly below what was called for in the Council recommendation (above 1% of 
GDP). 
(9) Implementation of fiscal consolidation remains a major challenge. Avoiding 
expenditure slippages by means of a strengthened fiscal e ffort based on fully specified 
measures is vital to re-establishing a sustainable fiscal position, especially since the 2013 target does not provide any safety ma rgin below the 3% of GDP threshold. 
Moreover, it would be appropriate to use all windfall revenues to accelerate the deficit 
and debt reduction. To improve the long-term sustainability of public finances, France 
adopted a new pension reform in 2010. Th e planned measures, including the gradual 
increase in the minimum retirement age fr om 60 to 62 and the phasing out of early 
retirement schemes, should have an impact  on the low employment rate of older 
workers. Moreover, the pension system is e xpected to be in balance by 2020. A deficit 
is likely to appear thereafter unless furt her measures are taken. The latest pension 
reform has also created a new public body, the " Comité de pilotage des régimes de 
retraite ", which is in charge of presenti ng annual assessments of the budgetary 
situation of pension accounts and, if there is any likelihood of a dete rioration, of taking 
corrective measures.
  
(10) The current employment protec tion legislation is still to o strict: the conditions for 
economic dismissals are subject to le gal uncertainty, while there are major 
redeployment obligations that apply to large collective dismissals ( Plans de 
sauvegarde de l'emploi ). This is leading to labour market outcomes where workers on 
indefinite labour contracts (majority of the labour 'stock') benefit from a relative 
degree of security and workers on temporary labour contracts (majority of the inflow 
into the labour market) are exposed to uncertainties. Hence, the share of temporary contracts is significantly higher for young work ers, and there are few transitions from 
temporary contracts to permanent contracts. This segmentation also applies to access 
to vocational training. There is conse quently a high turnover and a limited 
accumulation of human capital in these wo rkers. Young workers and the low-skilled 
are therefore exposed to disproportionate ri sks in the labour market. The aim of the 
2008 Labour Market Modernisation Act was to modernise social dialogue and to 
address the issue of labour market dualism . However, the reform did not tackle 
contractual segmentation and generally fell shor t of the measures n eeded to resolve the 
dualism of the French labour market.  
(11) The French unemployment rate was slightly  above the EU average in 2010 and long-
term unemployment is on the rise (3.9% in  2010 vs. 2.9% in 2008). In this context, 
public employment services should play  an important role in supporting the 
unemployed in their search for a job. In France, the new one-stop shop public 
employment service Pôle Emploi  has so far shown mixed results. In 2009-2010, its 
main objective was mainly focused on the merger of the two pre-existing administrative entities. Outsourcing of pl acement services has so far yielded mixed 
results in achieving the return to work targets set by Pôle Emploi . At the same time, 
Pôle emploi  resources dedicated to individuali sed support of job seekers remain 
underdeveloped (71 full-time equivalents per 10 000 unemployed, which is significantly below the levels record ed in some peer countries).  
 
EN 5   EN (12) The French current account deficit has grad ually deteriorated during the last decade, 
reflecting the decline in the trade balance of  goods, partly due to a decrease in labour 
cost competitiveness after the single minimum wage was reintroduced in the 2003-2005 period (the previous reform of the 35 hours working week had resulted in five 
different minimum levels). Some improvements have been made to the indexation procedure (creation of an advisory commissi on of independent experts, elimination of 
discretionary hikes) leading to a moderati on of the increase in the minimum wage. As 
a result, the proportion of employees that are paid the minimum wage has decreased 
substantially, enabling bette r wage differentiation. Howe ver, the French minimum 
wage is still among the highest in the Eur opean Union when compared to the median 
salary even if the tax-wedge is much lower than for the average salary due to cuts in employers' social secu rity contributions.  
(13) France has one of the highest tax and social  security burdens on labour in the EU, 
while the tax on consumption remains relatively low. Moreover, environmental tax revenues as a share of GDP are also well be low the EU average. Rebalancing the tax 
system by switching taxation from labour to wards consumption and the environment 
is likely to have a beneficial  effect on jobs as well as on environmental objectives.  
(14) Tax and social security exemptions (including ‘ niches fiscales’)  in France are very 
high (around 11% of GDP) a nd pose a threat to the consolidation of its public 
finances. In addition, understa nding and exploiting the benef its of the system requires 
firms and households to invest in extensiv e expertise. While tax expenditures are used 
to implement a given economic policy, there is no systematic assessment whether they 
have managed to fulfil the objectives pursue d. Eventually, their substitutability with 
public expenditures has allowed the French authorities to formally meet existing 
spending rules. A decrease of the budgetary cost of tax expenditures (partly linked to the reduction of their nu mber) by around 0.75% of GDP over the period 2011-2013 is 
foreseen by the French authorities. Howe ver, the precise tax expenditures to be 
abolished have not yet been  identified as from 2012. 
(15) Competition in the retail sector is still hamp ered by administrative restrictions on the 
opening of large retail outlets, and a ban on re sale below cost. In the services sector, 
there are still barriers to competition for several regulated professions, which could be tackled either by reviewing the entry conditions, or by gradually doing away with certain quotas (numerus clausus) and the excl usive rights that th ese professions hold.  
(16) France has made a number of comm itments under the Euro Plus Pact
4. On the fiscal 
side, France has undertaken to swiftly im plement the 2010 pension reform. With a 
view to strengthening fiscal sustainabilit y, France will also change its constitution to 
introduce binding multiannual budget planning. To increase labour participation, various measures are being considered to increase active labour market policies (e.g. 
apprenticeship to ease the school-to-work transition of younger workers, additional 
childcare facilities by 2012 to improve female  employment prospects, strengthening of 
the public employment services for jobseek ers). The competitiveness measures focus 
on improving the higher education syst em and promoting R&D and innovation 
("investissements d'avenir" ), as well as reducing th e administrative burden by 
implementing a comprehensive programme of administrative simplification. These 
                                                
 
4 More details on the commitments made under the Euro Plus Pact can be found in SEC(2011) 719. 
 
EN 6   EN commitments refer to three of  the four areas of the Pact , leaving out the financial 
sector. Although they are taken in those ar eas where the main French challenges lie, 
many of them (particularly those concer ning fiscal governance or support to higher 
education and R&D) are confirmations of ex isting public policies/reforms. The reform 
agenda does not seem fully consistent with the extent of  the macroeconomic 
challenges faced in the labour market or the business environment. In addition, the envisaged constitutional reform is subject to political uncertainty. These Euro Plus Pact commitments have been assessed and taken into account in the recommendations. 
(17) The Commission has assessed the Stabi lity Programme and National Reform 
Programme, including Euro Plus Pact commitments for France
5. It has taken into 
account not only their relevance to sustaina ble fiscal and socio-economic policy in 
France but also their conformity with EU  rules and guidance, given the need to 
reinforce the overall economic governance of  the European Uni on by providing EU 
level input into future national decisions. In this light, the Commission considers that the fiscal consolidation strategy needs to be  made more specific, particularly for 2012 
and beyond, in order to ensure that the ex cessive deficit is co rrected by 2013 and the 
debt is brought onto a downward path. A ny windfall revenues should be used to 
accelerate the deficit and debt reduction. A shift from labour towards environmental 
and consumption taxes, and a streamlining of  tax expenditure, would bolster fiscal and 
environmental objectives and improve the business environment. Further steps in 
2011-12 should focus on adapting the employme nt protection legislation to reducing 
the dualism of the labour ma rket, and on strengthening public  employment services in 
order to provide comprehensive support to jobseekers. Existing policy on minimum 
wage moderation should be pursued. Compe tition should be fost ered in regulated 
professions and retail trade.  
(18) In light of this assessment, also ta king into account the Council Recommendation 
under Article 126(7) Treaty on the Functioning of the European Union of 2 December 2009, the Council has examined the 2011 update of  the Stability Progr amme of France 
and its opinion
6 is reflected in particular in its recommendation under (1) set out 
below. Taking into account the European Council conclusions of 25 March 2011, the Council has examined the National Reform Programme of France, 
HEREBY RECOMMENDS that France should ta ke action within the period 2011-2012 to:  
(1) Ensure the recommended average annual fiscal  effort of more than 1% of GDP over 
the period 2010-2013 and rigorously implemen t the correction of  the excessive 
deficit by 2013; specify the necessary co rresponding measures and use any windfall 
revenues to accelerate the deficit and debt  reduction; continue to review the 
sustainability of the pension system and take additional measures if needed.  
(2) Undertake renewed efforts, in accordance with  national practices of  consultation with 
the social partners, to combat labour ma rket segmentation by reviewing selected 
aspects of employment protec tion legislation; ensure th at any adaptations in the 
minimum wage are supportive of job creat ion, especially for the young and the low-
skilled. 
                                                
 
5 SEC(2011) 719. 
6 Foreseen in Article 5(3) of Council Regulation (EC) No 1466/97. 
 
EN 7   EN (3) Encourage access to training in order to he lp maintain older workers in employment 
and create incentives to support return to employment. Step up active labour market policies and introduce measures to improve  the organisation, decision-making, and 
procedures of the public employment se rvice to strengthen services and 
individualised support provided to those at risk of long-term unemployment. 
(4) Increase the efficiency of the tax syst em, including through a move away from 
labour towards environmental and consump tion taxes, and implementation of the 
planned reduction in the number and cost of tax and social security exemptions 
(including 'niches fiscales ').  
(5) Take further steps to remove unjustified restrictions on regulated trades and 
professions, in particular in se rvices and the retail sector. 
Done at Brussels, 
 For the Council 
 The President