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
Date: 2012-05-30
Institutions: European Commission
Subjects: France, budgetary equilibrium, dismissal, electricity supply, liberalisation of the market, public debt, retirement conditions, tax reform, transport market

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 313 final 

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 

{SWD(2012) 313 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 
policies1, 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 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission3, 
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) 

(2) 

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 
to  boost  Europe’s  potential  for  sustainable  growth  and 
competitiveness. 

is  needed 

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 

1 
2 
3 
4 

OJ L 209, 02.08.1997, p. 1 
OJ L 306, 23.11.2011, p. 25 
COM(2012)313 final 
P7_TA(2012)0048 and P7_TA(2012)0047 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

Member States5, which together form the ‘integrated guidelines’. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

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. 

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  Report6,  in  which  it  identified  France  as  one  of  the  Member  States  for 
which an in-depth review would be carried out. 

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. 

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. 

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 review7 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.  

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 

5 
6 
7 

Council Decision 2012/238/EU of 26 April 2012 
COM(2012) 68 final 
SWD(2012)155 final 

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of the Stability and Growth Pact. Based on the (recalculated) structural balance8, 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).  

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. 

(9) 

(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. 

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. 

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including 

(11)  Following the pensions reform, measures taken to encourage the employment of older 
implement  active  age 
the  requirement  for  companies 
workers, 
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. 

to 

(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 
their  necessity  and 
conduct  restrictions 

in  regulated  professions 

to  assess 

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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) 

(20) 

(21) 

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.  

In  the  light  of  this  assessment,  the  Council  has  examined  France’s  stability 
programme, and its opinion9 is reflected in particular in recommendation (1) below. 

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 

9 

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

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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. 

2. 

3. 

4. 

5. 

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. 

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 
job  creation  and 
competitiveness; take actions to increase adult participation in lifelong learning. 

the  minimum  wage 

is  supportive  of 

in 

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 
in  delivering 
individualised support. 

that  public  employment  services  are  more  effective 

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. 

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 

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