COMMISSION STAFF WORKING DOCUMENT Assessment of the 2013 national reform programme and stability programme for FRANCE Accompanying the document Recommendation for a Council Recommendation on France's 2013 national reform programme and delivering a Council Opinion on France's stability programme 2012-2017
Date: 2013-05-29
Institutions: European Commission
Subjects: France, budget deficit, budgetary equilibrium, competitiveness, economic recession, economic statistics, job creation, public expenditure

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
SWD(2013) 360 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2013 national reform programme and stability programme for 
FRANCE 

Accompanying the document 

Recommendation for a Council Recommendation 

on France's 2013 national reform programme and delivering a Council Opinion on 
France's stability programme 2012-2017 

{COM(2013) 360 final} 

EN 

   EN 

 
 
 
 
  
 
TABLE OF CONTENTS 

EXECUTIVE SUMMARY................................................................................................. 3 

1. 

INTRODUCTION....................................................................................................... 5 

2.  ECONOMIC DEVELOPMENTS AND CHALLENGES.......................................... 6 

2.1.  Recent economic developments and outlook .................................................... 6 

2.2.  Challenges ......................................................................................................... 8 

3.  ASSESSMENT OF POLICY AGENDA.................................................................. 10 

3.1.  Fiscal policy and taxation................................................................................ 10 

3.2.  Financial sector ............................................................................................... 18 

3.3.  Labour market, education and social policies ................................................. 19 

3.4.  Structural measures promoting growth and competitiveness.......................... 24 

3.5.  Modernisation of public administration .......................................................... 28 

4.  OVERVIEW TABLE................................................................................................ 30 

5.  ANNEX..................................................................................................................... 35 

2 

 
 
 
EXECUTIVE SUMMARY  

Economic Outlook 

After a year without growth in 2012, economic activity in France has remained weak in 
early 2013 as the country entered its third recession in five years and little improvement 
is expected before the second half of 2013, according to the Commission services' 2013 
internal 
Spring  Forecast.  The  deterioration 
consumption, will result in a slight contraction of GDP in 2013 (-0.1%), with growth picking 
up to 1.1% in 2014. Unemployment is projected to increase from 10.2% in 2012 to 10.6% in 
2013  and  10.9%  in  2014.  Driven  by  rising  energy  prices,  inflation  remained  almost 
unchanged at 2.2% in 2012 and is set to ease to 1.2% in 2013 and 1.7% in 2014. Deteriorating 
competitiveness will continue to hamper export performance over the next few years. 

together  with  sluggish 

in  confidence, 

Although France has made significant efforts to contain its fiscal deficit in the last few 
years,  the  Commission  predicts  that  the  headline  public  deficit  will  remain  at  3.9%  of 
GDP in 2013, significantly above the 3% reference value. Based only on the measures that 
have been adopted or specified in detail up to now, the deficit is expected to increase to 4.2% 
of GDP in 2014. The additional effort needed to bring the deficit below 3 % and the impact 
that further consolidation would have on economic growth has prompted the Commission to 
propose  an  additional  delay  of  two  years  for  France  to  correct  its  excessive  deficit.  For  the 
years after the planned correction of the excessive deficit (from 2016 on), the (recalculated) 
annual progress towards the country's medium-term objective, which is a balanced budget in 
structural  terms,  falls  short  of  the  benchmark  requirement  of  0.5%  of  GDP.  The  structural 
balance recalculated by the Commission is therefore projected to improve from -3.6% of GDP 
in 2012 to -0.3% in 2017. Public debt is expected to continue growing from 90.2% of GDP in 
2012 to 96.2% in 2014. 

Key Issues 

France's  competitiveness  losses  over  the  last  decade  warrants  close  scrutiny,  and 
slackening  economic  growth  has  weighed  on  employment  and  public  finances.  The 
country  has  also  been  identified  as  experiencing  macroeconomic  imbalances.  Overall,  the 
circumstances not only make reforms more difficult, they also call for more decisive action. 

In  the  past  year,  France  made  some  progress  in  addressing  its  structural  weaknesses. 
Measures were taken to combat rising unemployment, particularly among young people and 
older  workers,  and  a  law  on  securing  employment  was  adopted  following  a  national  inter-
professional agreement with social partners. Meanwhile, the government introduced a pact on 
growth,  competitiveness  and  employment  to  support  companies,  for  example,  by  reducing 
labour taxation.  

However,  while  a  number  of  reforms  have  been  initiated,  France  continues  to  face 
challenges related to the budgetary situation, the functioning of the labour market and 
external competitiveness. Measures are needed to avoid large deficits in the pension system 
and that rising unemployment becomes long-term. The competitiveness of French businesses 

3 

 
 
remains a challenge, with both cost and non-cost aspects playing a role in the deterioration of 
export market shares. Furthermore, there is room to increase competition, particularly in the 
regulated professions, the retail sector and network industries.  

•  Public finances: While the general government deficit has decreased from its peak of 
7.5% of GDP in 2009, it remains one of the highest among non-programme euro area 
countries and will stay above 3% of GDP this year. In view of the continued increase 
in the government debt, which exceeded 90% of GDP in 2012, the 2013 budget needs 
to  be  strictly  implemented  and  consolidation  efforts  firmly  pursued  in  the  years  to 
come. 

•  Labour market: Existing labour market inefficiencies and shortcomings in education, 
particularly lifelong learning, are obstacles to job creation. For example, the likelihood 
of  moving  from  a  temporary  to  a  permanent  job  remains  much  lower  than  the  EU 
average. Youth unemployment reached 24.3 % in 2012, while the employment rate for 
55  to  64-year-olds  is  amongst  the  lowest  in  the  EU.  Long-term  unemployment  now 
accounts for 39.5% of total unemployment, while participation in lifelong learning is 
well below the EU average. Moreover, France’s education system has been unable to 
reduce an early school leaving rate of around 12% over the last six years.  

•  Competitiveness:  There  has  been  a  substantial  increase  in  unit  labour  costs  – 
including  a  16%  increase  in  the  minimum  wage  in  real  terms  in  the  last  10  years  – 
which  has  detrimental  effects  on  employment  and  on  the  competitiveness  of 
companies. The tax credit for competitiveness and employment (‘crédit d’impôt pour 
la compétitivité et l’emploi’) will reduce the cost of labour for companies. However, 
as  companies  are  expected  to  restore  their  financial  situation  first,  the  impact  on 
competitiveness  will  be  slow  to  materialize.  In  addition,  the  broad  scope  of  the 
measure  and  the  focus  on  low  salaries  means  that  the  measure  will  not  benefit 
primarily  the  manufacturing  sector.  Limited  progress  has  been  made  on  removing 
unjustified  restrictions  on  professional  services  and  there  is  room  to  further  unleash 
the potential of the services and network industries. 

4 

 
 
1. 

INTRODUCTION 

In  May  2012,  the  Commission  proposed  a  set  of  country-specific  recommendations  (CSRs) 
for  economic  and  structural  reform  policies  for  France.  On 
these 
recommendations,  the  Council  of  the  European  Union  adopted  five  CSRs  in  the  form  of  a 
Council  Recommendation  in  July  2012.  These  CSRs  concerned  public  finances,  the  labour 
market,  tax  policies  and  the  competition  and  regulatory  framework.  This  Staff  Working 
Document (SWD) assesses the state of implementation of these recommendations in France. 

the  basis  of 

The  SWD  assesses  policy  measures  in  light  of  the  findings  of  the  Commission’s  Annual 
Growth Survey 2013 (AGS)1 and the second annual Alert Mechanism Report (AMR)2, which 
were  published  in  November  2012.  The  AGS  sets  out  the  Commission’s  proposals  for 
building the necessary common understanding about the priorities for action at national and 
EU  level  in  2013.  It  identifies  five  priorities  to  guide  Member  States  to  renewed  growth: 
pursuing differentiated, growth-friendly fiscal consolidation; restoring normal lending to the 
economy;  promoting  growth  and  competitiveness  for  today  and  tomorrow;  tackling 
unemployment  and  the  social  consequences  of  the  crisis;  and  modernising  public 
administration.  The  AMR  serves  as  an  initial  screening  device  to  determine  whether 
macroeconomic  imbalances  exist  or  risk  emerging  in  Member  States.  The  AMR  found 
positive signs that macroeconomic imbalances in Europe are being corrected. To ensure that a 
complete  and  durable  rebalancing  is  achieved,  France  and  13  other  Member  States  were 
selected for a review of developments in the accumulation and unwinding of imbalances.3 

Against  the  background  of  the  2012  Council  Recommendation,  the  AGS  and  the  AMR, 
France  presented  an  update  of  her  national  reform  programme  (NRP)  and  of  its  stability 
programme  on  30  April  2013.  These  programmes  provide  detailed  information  on  progress 
made since July 2012 and on the future plans of the government. The information contained 
in these programmes provides the basis for the assessment made in this SWD. 

The  national  reform  programme  was  prepared  in  consultation  with  the  social  partners  and 
local  authorities.  Both  the  national  reform  programme  and  the  stability  programme  were 
adopted  by  the  Council  of  Ministers  on  17  April.  These  documents  were  also  submitted  on 
that date to the French Parliament, which endorsed a declaration on the latter through a vote 
on 24 April. 

Overall assessment 

The  analysis  in  this  SWD  leads  to  the  conclusion  that  France  has  made  some  progress  on 
measures  taken  to  address  the  CSRs  of  the  Council  Recommendation.  Reforms  have  been 
initiated,  in  particular  with  respect  to  the  tax  system  and  on  the  labour  market,  which  will 
need to be further strengthened. On the other hand, efforts have fallen short in a number of 
policy  areas  and  in  particular  on  the  removal  of  excessive  regulations  on  professional 
services. 

1 COM(2012) 750 final. 
2 COM(2012) 751 final. 
3  13  in-depth  reviews  were  published  on  10  April  2013.  While  selected  for  an  in-depth  review  in  the  AMR, 
Cyprus  was  ultimately  not  reviewed  under  the  Macroeconomic  Imbalance  Procedure  (MIP)  in  view  of  the 
advanced preparations for a financial assistance programme. 

5 

 
                                                 
Concerning public finances, France has made some progress to address its excessive deficit. 
The  authorities  have  engaged  in  strong  fiscal  consolidation  since  2011,  which  helped  lower 
the  public  deficit  to  4.8 %  of  GDP  in  2012  from  over  7 %  in  2009-10.  This  is  expected  to 
further decrease in 2013 but to remain above the 3 % of GDP reference value. Reviewing the 
medium-  and  long-term  sustainability  of  the  social  security  system  is  also  a  challenge,  not 
least in the areas of healthcare and pensions. 

Regarding employment, youth employability and adult participation in lifelong learning, some 
progress  was  made  on  the  related  CSRs.  Specific  schemes  have  been  set  in  place  to  help 
alleviate the impact of the crisis on young workers and to limit the rise in unemployment. In 
addition,  reforms  have  been  initiated  to  reduce  the  segmentation  of  the  labour  market  and 
efforts were made to increase skills, including through the announcement of more structural 
reform  of  compulsory  education.  On  the  other  hand,  the  minimum  wage  was  increased 
beyond  the  legal  minimum.  Finally,  the  reform  of  the  public  employment  service  has  been 
initiated. 

In the field of taxation, substantial progress was made with the adoption of the tax credit for 
competitiveness  and  employment,  the  ‘crédit  d’impôt  pour  la  compétitivité  et  l’emploi’ 
(CICE),  in  line  with  the  recommendation  made  by  the  Council.  It  contributes  to  shifting 
taxation  away  from  labour  and  towards  VAT  and  environmental  taxation,  although  the 
underlying  measures  have  been  only  partly  specified.  On  the  other  hand,  beyond  a  limited 
increase  in  the  intermediate  VAT  rate,  no  effort  has  been  made  to  address  the  low  VAT 
efficiency. 

Finally,  limited  progress  has  been  recorded  on  the  removal  of  unjustified  restrictions  on 
regulated  sectors  and  professions.4  Despite  some  improvement  in  specific  sectors,  there 
remains  room  to  further  unleash  the  competitiveness  potential  of  the  services  and  network 
industries in France. 

The  national  reform  programme  submitted  by  France  adequately  reflects  the  challenges 
identified in last year’s Staff Working Document. It outlines the policy initiatives which have 
been taken to address the various aspects of the CSRs. In addition, when relevant, it provides 
an  indication  of  the  policy  plans  of  the  government.  However,  only  in  the  case  of  the  tax 
credit  for  competitiveness  and  employment  does  it  provide  a  detailed  assessment  of  the 
macroeconomic impact of these measures. The stability programme confirms the objective of 
the government to correct its excessive deficit by 2014, one year after the deadline set by the 
Council 2009 recommendation. It also states the medium-term objective of a balanced budget 
in structural terms and provides the budget strategy considered to reach this objective. 

2.  ECONOMIC DEVELOPMENTS AND CHALLENGES 

2.1.  Recent economic developments and outlook 

Recent economic developments 

Economic activity in France stagnated in 2012, following two years of positive growth. 
Reflecting  the  rapidly  deteriorating  economic  sentiment,  firms  cut  back  their  equipment 
investment.  Against  the  background  of  decreasing  domestic  private  demand,  the  positive 

4 Implementation of, or compliance with, EU legislation cannot in itself be considered a reform, as it results from 
a legal obligation under the EU Treaties. 

6 

 
                                                 
contributions  of  public  and  net  external  demand  (+0.4  and  +1.0  percentage  points,  or  pps, 
respectively)  —  thanks  in  particular  strong  aeronautic  sales  —  were  offset  by  a  sharp 
reduction in inventories (-0.8 pps). Overall, the) 

 quarterly  growth  pattern  showed  a  downward  trend,  with  GDP  contracting  by  0.2 %  in  the 
last quarter.  

Employment started decreasing in 2012 as employers tried to restore their productivity, 
which had suffered since 2007. The unemployment rate rose to 10.2 % in 2012, from 9.6 % a 
year  earlier.  Young  workers  were  particularly  affected,  as  their  unemployment  rate  reached 
24.3 % in 2012, as against 22.8 % in 2011. Driven by rising energy prices, inflation remained 
almost  unchanged  at  2.2 %,  despite  sluggish  economic  growth.  All  in  all,  household 
disposable  income  fell  slightly  in  2012  in  real  terms,  and  households  used  their  savings  to 
maintain their consumption level. 

Economic outlook 

The  Commission  services'  2013  Spring  Forecast  (hereafter  the  Commission  spring 
forecast)  expects  that  the  French  economy  will  not  recover  before  2014,  with  GDP 
projected to decrease by 0.1 % in 2013 and growth to accelerate to 1.1 % in 2014. In the 
current context of stagnating economic activity and rigid nominal wages, employers are likely 
to  focus  more  on  restoring  productivity,  to  the  detriment  of  job  creation.  Despite  ongoing 
efforts  to  reform  the  labour  market,  unemployment  is  expected  to  continue  rising  to  10.6 % 
and 10.9 % in 2013 and 2014, respectively, and disposable income to further contract in real 
terms.  However,  households  are  set  to  further  reduce  their  saving  rate  to  maintain 
consumption.  In  2014,  the  relative  stabilisation  in  the  labour  market,  together  with  lower 
fiscal consolidation efforts in line with the usual no-policy-change assumption, will contribute 
to a recovery in real disposable income, thus allowing a rebound in private consumption. 

The  conditions  for  a  rapid  pick-up  in  investment  are  not  likely  to  be  met  in  2013. 
Persistent flat economic growth and the enduring deterioration in the profit margins of non-
financial  companies  are  likely  to  have  dented  the  expectations  of  entrepreneurs,  who  will 
continue  to  invest  less  in  2013.  Only  from  2014  should  the  gradual  increase  in  aggregate 
demand and improved confidence translate into a partial catch-up. 

The deteriorated competitiveness will continue to hamper export performance over the 
forecast  horizon.  In  2013,  the  low  external  demand  and  the  continuing  erosion  in  market 
shares will weigh on export growth. On the other hand, slow growth in imports is expected to 
translate  into  a  positive  contribution  of  net  exports  to  GDP  growth  (0.2  pps).  In  2014,  the 
economic recovery will cause imports to rise, while the still ailing competitiveness is forecast 
to bring the contribution of trade below zero (-0.1 pps). 

The  macroeconomic  scenario  underpinning  the  stability  programme  appears  plausible 
for  2013  but  optimistic  for  2014. The  government  GDP  growth  assumptions  for  2013  and 
2014 are close to the Commission spring forecast, at +0.1 % and +1.2 %, respectively. While 
for  2013,  the  growth  scenarios  are  indeed  comparable,  the  stability  programme  assumes  a 
significant budgetary effort in 2014 to reach a public deficit of 2.9 % of GDP. On the other 
hand, the macroeconomic scenario of the Commission only takes into account measures that 
have been sufficiently specified. In addition, the Commission expects that the impact of the 
CICE tax credit will not be as strong as expected by the authorities. As most of the budgetary 
measures for 2014 will be adopted as part of the budget law discussed during the autumn, its 
usual no-policy-change assumption leads the Commission  to  consider that the public deficit 
will increase to 4.2 % of GDP next year. The High Council for Public Finances is also of the 

7 

 
opinion  that  the  official  growth  forecast  and  macroeconomic  scenario  for  2014  are  clearly 
optimistic. 

2.2. 

 Challenges  

One  year  without  growth  has  exacerbated  some  of  the  vulnerabilities  of  the  French 
economy.  Slackening  economic  growth  has  resulted  in  a  strong  deterioration  of  the  labour 
market and has weighed on public finances. Moreover, despite some sign  of  stabilisation in 
2012,  the  evolution  of  the  external  position  of  France  in  the  last  decade  warrants  close 
scrutiny. Overall, the circumstances not only make structural adjustment more difficult, they 
also call for more decisive actions. 

The situation on the labour market has deteriorated in the last few months, pushing the 
overall  unemployment  rate  to  10.2 %  in  2012.  The  situation  on  the  labour  market  has 
severely deteriorated, with a strong impact on disadvantaged people. The high segmentation 
of  the  labour  market  translated  into  increasing  difficulties  for  young  people.  Indeed,  youth 
unemployment reached 24.3 % in 2012. At the other end of the age spectrum, the employment 
rate  of  senior  workers  remains  among  the  lowest  in  the  EU.  In  parallel,  the  duration  of 
unemployment  spells  has  increased  dramatically.  The long-term unemployed accounting for 
38.5 % of the total unemployed in 2012.  

The  rising  unemployment  warrants  renewed  attention  to  lifelong  learning  and  to 
strengthening  human  capital,  in  particular  for  the  unemployed  and  workers  in  ailing 
sectors of the economy. Participation in lifelong learning remains very low and no progress 
has been recorded in the last ten years. At 5.7 %, the 2012 participation figure for France was 
clearly  below  the  9.0 %  EU  average.  Furthermore,  the  ability  of  the  multiple  schemes  and 
instruments to adequately target those who most need training has been put into question. The 
initial  education  system  also  has  a  critical  role  to  play  in  providing  all  young  people  with 
sufficient skills. Unfortunately, France’s education system has been unable to reduce an early 
school  leaving  rate  that  stagnates  at  close  to  12 %.  Most  worryingly,  the  gap  in  level  of 
education at age 15 between the best students and the worst performers widened more rapidly 
between 2000 and 2009 and appears wider in France than in most other OECD countries. 

France’s export performance remains a challenge as market shares have experienced a 
strong  erosion  in  the  last  decade  due  to  both  cost  and  non-cost  factors  (see  Box  1).  As 
shown  in  the  in-depth  review,  while  exporting  companies  maintained  their  prices  to  remain 
competitive,  the  increase  in  unit  labour  costs  since  2000  has  led  them  to  squeeze  margins, 
weighing  on  investment  capacity  and  accentuating  the  deficit  in  non-price  competitiveness. 
After  labour,  the  cost  of  services  is  the  second  largest  cost  category  in  the  manufacturing 
industry.  The  high  cost  of  labour  in  the  services  sector  together  with  the  low  level  of 
competition in some services contribute to increasing input prices, hence putting pressure on 
the profitability of manufacturing companies and limiting their growth potential. In addition, 
the  weakness  of  high-tech  and  medium-high-tech  manufacturing  industries  represents  a 
vulnerability  for  the  long-term  growth  of  France.  These  sectors  accounted  for  9.2 %  of  the 
total  value  added  by  industry  and  services  in  2009,  a  lower  share  than  the  EU  average 
(11.5 %) and their weight in the economy is on a downward trend.  

Some aspects of the business environment also constrain the development of a dynamic 
private  sector,  and  in  particular  of  small  and  medium-sized  enterprises  (SMEs). 
Restoring  export  performance  will  entail  improving  the  profitability  of  companies  and 
ensuring that the business environment is conducive to a more dynamic private sector. France 
still has significant margins for improving its performance in freight transport and logistics to 
boost  industrial  competitiveness  and  increase  its  export  capacity.  In  addition,  the  general 

8 

 
business environment is marred by an insufficient level of competition in some sectors while, 
in  certain  areas,  the  overall  regulatory  framework  and  the  burden  of  regulation  remain  a 
constraint for the development of firms. 

The high and rising level of public debt, together with still high public deficits, continues 
to represent a challenge. While the general government deficit has decreased from its peak 
of  7.5 %  of  GDP  in  2009,  it  remains  one  of  the  highest  among  non-programme  euro  area 
countries and will stay above the 3 % of GDP reference value this year too (3.9 % according to 
the Commission spring forecast). In view of the continued increase in the government debt, 
which already exceeds 90 % of GDP, the 2013 budget needs to be strictly implemented and 
consolidation  efforts  firmly  pursued  in  the  years  to  come.  It  is  crucial  that  public  spending 
grows  significantly  less  rapidly  than  potential  GDP  as  the  improvement  in  the  structural 
deficit  has  so  far  been  mainly  revenue-based.  Dynamic  trends  in  social  security  and  local 
government  spending  require  close  scrutiny.  This  calls  for  decisive  action  as  part  of  the 
ongoing spending review at all levels of general government. Although deemed at relatively 
low risk with regard to long-term sustainability, age-related expenditure remains a challenge 
to the extent that the pension system will still face large deficits by 2020 assuming no further 
policy changes are made. The projected increase in healthcare expenditure is also a matter of 
concern. 

Despite  sizeable  measures  to  reduce  labour  taxation,  the  tax  system  remains 
insufficiently  conducive  to  sustainable  economic  growth.  The  tax  system  remains  rather 
complex,  reflecting  the  wide  range  of  exemptions  and  special  allowances  bur  also  frequent 
changes  in  tax  legislation.  The  amount  of  foregone  revenue  from  tax  and  social  security 
exemptions is still very high. This contradicts economic literature which indicates that a broad 
tax  base  coupled  with  low  statutory  rates  is  more  conducive  to  growth  and  social  welfare. 
Reduced VAT rates are also widely used while distributional objectives can be achieved more 
cost  efficiently  by  considering  the  tax  system  as  a  whole  rather  VAT  alone.  There  is  also 
significant scope for increasing environmental taxation.  

Box 1. Summary of the 2013 in-depth review (IDR) under the Macroeconomic 
Imbalance Procedure (MIP) 

In last year’s in-depth review (IDR), the Commission concluded that France was experiencing 
serious  macroeconomic  imbalances,  in  particular  as  regards  developments  related  to  export 
performance and competitiveness. In the new Alert Mechanism Report (AMR) published on 
28  November  2012,  the  Commission  found  it  useful,  also  taking  into  account  the 
identification of serious imbalances in May, to examine further the persistence of imbalances 
or their unwinding. To this end this IDR takes  a broad  view of  the French economy  in line 
with the scope of the surveillance under the Macroeconomic Imbalance Procedure (MIP). The 
main observations and findings from this analysis are: 

The  resilience  of  the  country  to  external  shocks  is  diminishing  and  its  medium-term 
• 
growth prospects are increasingly hampered by long-standing imbalances. The trade balance 
has  been  decreasing  since  1997  and  reached  a  deficit  of  2.0 %  of  GDP  in  2012.  As  a 
consequence,  the  current  account  balance,  which  was  still  at  a  surplus  of  2.8 %  of  GDP  in 
1998, recorded growing deficits from 2005 on, reaching 2.3 % in 2012.  

• 
The market share of French exports decreased by 11.2 % between 2006 and 2011, still 
clearly faster than the 6 % threshold defined in the Alert Mechanism Report. The appreciation 
in unit labour costs over the last few years has put the profitability of firms under pressure. To 
limit  price  hikes,  exporters  have  reduced  their  margins,  in  particular  in  the  manufacturing 

9 

 
sector.  This  has 
competitiveness through e.g. innovation. 

the  resources 

limited 

they  can  dedicate 

to 

improving  non-price 

• 
Rigidities  on  the  labour  market  hinder  the  adjustment  capacity  of  the  economy  and 
slow down developments in productivity. The high tax wedge has a negative effect on labour 
demand  and  on  the  number  of  hours  worked.  The  increasing  tax  burden  on  labour  has  also 
contributed to rising labour costs. Furthermore, a highly segmented labour market results in 
uncertainties for a large proportion of employees, reducing incentives to increase their human 
capital and hence productivity. 

• 
The low profitability of companies, in particular in the manufacturing sector, together 
with their high indebtedness, represents a threat to the overall competitiveness of the French 
economy. The profit margin of French companies is the lowest in the euro area. Additionally, 
the increasing indebtedness in the private sector may affect the ability to invest and innovate. 

• 
The high and increasing public debt is reducing the capacity of public finances to face 
potential adverse shocks and could result in negative spillovers to the whole economy. While 
risks  to  medium-term  sustainability  appear  moderate,  sensitivity  tests  show  that  adverse 
economic events may have a significant negative impact on debt dynamics. 

3.  ASSESSMENT OF POLICY AGENDA 

3.1.  Fiscal policy and taxation  

Budgetary developments and debt dynamics  

The main goal of the 2013 stability programme is to achieve the medium-term objective 
(MTO),  i.e.  a  balanced  budget  in  structural  terms,  as  in  last  year’s  programme.  The 
MTO  more  than  adequately  reflects  the  objectives  of  the  Stability  and  Growth  Pact.  The 
target  year  for  reaching  the  MTO  is  2016,  compared  with  2015  in  the  previous  stability 
programme.  However,  based  on  the  (recalculated)  structural  balance,5  the  MTO  will  not  be 
achieved within the timeframe set forth in the stability programme, in contradiction with the 
2012  CSRs.  The  adjustment  path  over  2013-17  aims  first  to  bring  the  deficit  below  the 
reference value of 3 % of GDP by 2014, one year after the revised deadline set by the Council 
under  the  excessive  deficit  procedure  in  2009  (see  Box  2).  The  (recalculated)  structural 
balance is projected to improve from -3.6 % of GDP in 2012 to -0.3 % in 2017. 

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

10 

 
                                                 
Box 2. Excessive deficit procedure for France 

On 27 April 2009, the Council decided that an excessive deficit existed in France. The most 
recent Council Recommendation under Article 126(7) of the Treaty on the Functioning of the 
European  Union  was  adopted  on  2  December  2009.  The  Council  recommended  that  France 
should put an end to the present excessive deficit situation by 2013. Specifically,  in order to 
bring the general government deficit below 3% of GDP in a credible and sustainable manner, 
the  French  authorities  were  recommended  to:  (a)  implement  the  consolidation  measures  in 
2010  as  planned  and  strengthen  the  fiscal  effort  from  2011  onwards;  (b)  ensure  an  average 
annual fiscal effort of above 1% of GDP over the period 2010-13; (c) specify the measures 
that  were  necessary  to  achieve  the  correction  of  the  excessive  deficit  by  2013,  cyclical 
conditions  permitting,  and  accelerate  the  reduction  of  the  deficit  if  economic  or  budgetary 
conditions turned out better than expected at the time of the recommendation. In addition, the 
French  authorities  were  recommended  to  seize  opportunities  beyond  the  fiscal  effort, 
including from better economic conditions, to accelerate the reduction of the gross debt ratio 
back towards the reference value. Furthermore, the Council invited the French authorities to 
continue  implementing  reforms  with  a  view  to  enhancing  the  efficiency  and  governance  of 
public  finances  and  raising  potential  GDP  growth,  aiming  at  increased  enforceability  of 
expenditure control, notably in the areas of healthcare and local authorities, and reforming the 
pension system as planned. 

An  overview  of  the  current  state  of  excessive  deficit  procedures,  including  additional  steps 
adopted  after 
is  available  at: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/index_en.htm  (please 
refer to country sections at the bottom of the page). 

this  Staff  Working  Document, 

the  finalisation  of 

In 2012, the general government deficit reached 4.8 % of GDP, down from 5.3 % in 2011 
(revised  from  5.2 %).  This  is  higher  than  the  official  target  of  4.5 %  of  GDP  announced 
shortly after the new authorities took office and even more so compared with the 4.4 % target 
of the 2012 stability programme. The revised target was accompanied by a significant set of 
additional measures which aimed to compensate for worse than previously expected growth 
prospects. The negative surprise came from the upward revision in the deficit for 2011, GDP 
growth  that  eventually  stalled  (instead  of  the  0.3 %  forecast  number  that  underpinned  the 
4.5%  target),  the  recapitalisation  of  Dexia  but  also  from  some,  albeit  limited,  expenditure 
overruns at local government level. All this was partly offset by lower than anticipated costs 
of tax contingencies. 

Turning  to  2013,  the  stability  programme  projects  that  the  deficit  will  reach  3.7 %  of 
GDP, well above the 3 % of GDP targeted in last year’s programme. France thus does not 
plan to correct its excessive deficit by the deadline set in the 2009 Council Recommendation 
under the excessive deficit procedure and referred to in the 2012 CSRs. The budget for 2013 
aimed at 3 % of GDP and relied on a new package of measures, on top of those adopted in the 
summer,  but  was  based  on  an  overly  optimistic  macroeconomic  scenario  (GDP  growth  for 
2013  projected  at  0.8 %  vs  0.1 %  assumed  in  the  stability  programme).  Higher  revenue  is 
expected  mainly  from  both  direct  taxes  and  social  contributions  (see  Box  3).  Current 
expenditure rules (central government and healthcare) are renewed and this will contribute to 
maintaining spending restraint. The 2010 pension reform, which included a gradual increase 
in retirement ages from 60 to 62 and from 65 to 67, is set to yield additional savings. Lower 
than previously projected inflation and the partial suspension of indexation for pensions paid 
by  supplementary  schemes  (see  below)  will  also  help  avoid  slippages.  On  the  other  hand, 
GDP  growth,  forecast  at  significantly  below  potential,  will  adversely  affect  the  headline 
balance. Overall, the official deficit target of 3.7 % of GDP appears slightly on the optimistic 

11 

 
side when compared with the Commission spring forecast, which expects the deficit to come 
out  at  3.9 %  of  GDP.  The  main  reasons  behind  that  difference  are  that  the  Commission 
forecast  projects  weaker  growth,  a  somewhat  lower  impact  of  discretionary  measures  and 
slightly higher expenditure increase. 

Going  forward,  the  programme  projects  the  headline  deficit  to  reach  2.9 %  of  GDP  in 
2014  and  to  gradually  decrease  thereafter,  although  this  would  not  lead  to  a  balanced 
headline  budget  by  the  end  of  the  programme  horizon.  The  deficit  targets  for  2014-17 
have  been  significantly  revised  upwards  compared  with  the  previous  update  of  the 
programme,  in  line  with  the  assumed  postponed  correction  of  the  excessive  deficit.  The 
underlying  structural  adjustment  appears  front-loaded  (2014-15)  while  cyclical  factors  are 
expected to be the main driver behind the planned deficit reduction in the subsequent years. 
The  composition  of  fiscal  adjustment  is  expected  to  gradually  shift  towards  expenditure 
savings, in contrast with the last few years, over which revenue measures have represented the 
bulk of the effort. The authorities project that general government expenditure will increase 
by  only  0.4 %  on  average  in  2014-17  when  deflated  by  the  national  consumer  price  index, 
against 1 % in 2012-13 and around 2 % in the previous decade. 

According  to  the  programme,  savings  are  expected  at  all  sub-sectors  of  general 
government,  with  strong  curbs  on  expenditure  growth  planned  at  the  level  of  social 
security and local governments. At central government level, according to the programme, 
expenditure will continue to be frozen in real terms and spending, excluding interest payments 
and  civil  servants’  pensions,  is  set  to  decrease  by  0.1 %  of  GDP  in  2014  and  remain  flat 
thereafter. In order  to comply with these spending limits,  the authorities plan to contain the 
wage bill and other operating costs through efficiency gains achieved as part of the spending 
review process (modernisation de l’action publique or MAP). A number of programmes are 
currently under review and a target amount of savings has been announced for some of them. 
In addition to seeking efficiency gains, transfers to local governments will be cut by 0.1 % of 
GDP  next  year  and  by  an  additional  0.1 %  in  2015.  As  regards  social  security  funds,  the 
programme projects a 2.5 % annual rise in healthcare expenditure in 2014-17, broadly in line 
with recent outturns. Regarding pension expenditure, the 2010 reform will continue yielding 
additional  savings  although  these  will  be  partly  offset  by  last  year’s  decision  to  bring  the 
minimum  retirement  age  back  to  60  for  certain  categories  of  workers.6  The  only  partial 
indexation of second-pillar pensions will also add savings over 2014-16. Finally, the targeted 
slowdown in pension expenditure factors in a reform which, based on current plans, is to be 
adopted by the year-end of 2013. Savings are projected to come also from rationalising family 
allowances.  Concerning  local  authorities,  the  strategy  anticipates  a  marked  slowdown  in 
expenditure over the period, to come especially from the above-mentioned decision to reduce 
transfers from central government and the expected drop in gross fixed capital  formation in 
2014-15 in line with the electoral cycle at local level. 

Based on a no-policy-change assumption, the Commission spring forecast projects that 
the  deficit  for  2014  (4.2 %  of  GDP)  will  stay  significantly  above  the  official  target  of 
2.9 % of GDP. A part of the difference stems from expected higher expenditure growth since 
savings  backing  the  various  spending  limits  still  need  to  be  specified  (apart  from  savings 
stemming  from  the  2010  pension  reform  and  the  less  than  full  indexation  of  second-pillar 
pensions).  First,  the  authorities  have  not  explicitly  confirmed  whether  the  freeze  in  base 
wages  — which  applies  to  all  sub-sectors  of  general  government —  will  be  maintained 

6  However,  this  has  been  matched  by  an  increase  in  social  contributions  affecting  both  employers  and 
employees. 

12 

 
                                                 
beyond 2013. Second, while the MAP spending review is ongoing, it remains unclear whether 
it will translate into sizeable (and easy to quantify) savings. Contrary to its predecessor, the 
RGPP,7  the  MAP  has  been  extended  to  all  sub-sectors  of  general  government.  However,  as 
the MAP is still at a very preliminary stage of implementation, little information is available 
on  whether  it  will  indeed  give  a  boost  to  the  reform  of  government  policies,  coverage  of 
activities  by  the  public  sector  and  delivery  modes  of  public  services.  The  RGPP  delivered 
only  partial  results  and  was  confined  to  merging  ministerial  departments,  rationalising  the 
central government’s administration at local level and sharing support services that cut across 
all ministries (HR policy, procurement, etc.). Thirdly, regarding the pension system, the actual 
measures that would underpin the announced reform remain to be unveiled. Lastly, specifics 
are also lacking on the projected slowdown in local government spending. Measures such as 
cuts  in  transfers  from  central  government  offer  an  incentive  for  local  authorities  to  better 
control expenditure developments but recent overruns call for caution. While decentralisation 
has  undoubtedly  led  to  an  increase  in  local  government  spending,  this  is  also  due  to 
discretionary  measures  decided  at  local  level.  In  addition,  inefficiencies  are  likely  to  be 
substantial due to the multiple tiers of local government that create problems of duplication, 
coordination  and  role  ambiguity.  France  has  some  40 %  of  all  the  municipalities  in  the  EU 
(36 700  municipalities  for  65  million  people).  The  median  population  of  a  French 
municipality is 1 800 inhabitants, as against 5 500 in the EU. Successive reforms have added 
inter-communality)  without  streamlining  an  already  complex 
additional 
administrative  division  (26  regions,  101  departments)  and  sharing  of  competences.  The 
planned next decentralisation reform is expected to create an additional layer with the setting 
up  of  ‘métropoles’.  There  are  risks  that  such  a  measure  would  add  further  complexity  and 
possibly new costs. 

layers  (e.g. 

Risks  to  the  macroeconomic  scenario  for  2014  are  also  clearly  tilted  to  the  downside. 
Indeed, while real GDP growth is forecast to be 1.2 % and thus very close to the Commission 
spring  forecast  (1.1 %),  the  underlying  fiscal  scenarios  are  at  odds:  the  authorities’  scenario 
factors in a structural effort of 1 % of GDP in 2014 whereas the Commission forecast is built 
on a slightly deteriorating structural balance. This means that the authorities’ scenario is much 
more optimistic since the 1.2 % figure is assumed to take account of second-round effects of 
fiscal  consolidation  on  growth.  The  newly  created  fiscal  council  (see  below)  has  also 
considered the macroeconomic scenario underpinning the 2014 deficit target presented in the 
stability  programme  as  markedly  optimistic,  questioning  in  particular  the  authorities’ 
assumption that low import growth and the introduction of the CICE tax credit would offset 
the  negative  impact  of  fiscal  consolidation.  Based  on  this  and  in  the  absence  of  sufficient 
information  about  planned  expenditure  but  also  revenue  measures,  the  adjustment  path  to 
achieve the correction of the excessive deficit by 2014 currently appears unrealistic. 

The assessment of the structural balance over 2010-13 shows that the fiscal effort comes 
close  to  the  level  recommended  by  the  Council  on  the  2  December  2009.  The  average 
annual fiscal effort, based on the change in the (recalculated) structural balance deriving from 
the programme, is estimated at 1.1 % of GDP in 2010-13. .The fiscal effort deriving from the 
Commission spring forecast is lower than that projected by the authorities and comes below 
but  close  to  the  recommended  level.  However,  a  detailed  assessment  of  the  discretionary 
measures  implemented  by  the  authorities  over  this  period  provides  a  more  positive  picture 
than does the purely top-down approach based on the structural balance.  

7 Révision générale des politiques publiques. 

13 

 
                                                 
For  the  years  after  the  planned  correction  of  the  excessive  deficit,  the  planned 
(recalculated)  annual  progress  towards  the  MTO  is  lower  than  the  minimum 
requirement of 0.5% of GDP. According to the information provided in the programme, the 
expenditure  benchmark,  which  focuses  on  expenditure  developments  net  of  discretionary 
revenue measures, would be broadly met in 2015-16 although a slight deviation is expected in 
2015.  Following  an  overall  assessment  of  France’s  budgetary  plans,  with  the  structural 
balance as a reference, including an analysis of the expenditure benchmark, a deviation from 
the adjustment path towards the MTO is to be expected in both years. 

Box 3. Main measures 

Main budgetary measures 

  Revenue 

Expenditure

2013 

  •  Increase in indirect taxes (+0.1% of GDP) 

•  Increase in personal income taxation, wealth 
tax,  social  levies  on  capital  income  and 
gains, etc. (+0.5% of GDP) 

•  Increase  in  corporate  income  taxation  (0.4% 

of GDP) 

•  Increase  in  social  contributions  (0.3%  of 

GDP) 

•  Increase in capital taxation (0.1% of GDP) 

•  Savings in compensation of employees 
central 

and 
government (-0.1% of GDP) 

running 

costs 

in 

•  Savings in military expenditure (-0.1% of 

GDP) 

•  Savings  in  social  transfers  to  households 

(-0.1%)  

•  Cuts  in  transfers  to  local  authorities  (-

0.1% of GDP) 

•  Other savings at central government level 

(-0.1% of GDP) 

•  Savings  in  healthcare  expenditure  (-0.1% 

of GDP) 

2014 

  •  New 

corporate 

income 

tax 

credit 

•  Cuts  in  transfers  to  local  authorities  (-

‘compétitivité-emploi’ (-0.5% of GDP) 

0.1% of GDP) 

•  Increase in VAT (+0.3% of GDP) 

•  Savings  in  family  allowances  (-0.1%  of 

GDP) 

•  Other  savings  stemming  from  the  MAP 
spending  review  (-0.2%  of  GDP  over 
2014-15) 

  Note:  The  budgetary  impact  in  this  table  is  the  impact  reported  in  the  programme,  i.e.  by  the  national 
authorities. A plus sign indicates that revenue/expenditure increases as a consequence of the measure. The 
degree  of  detail  reflects  the  information  made  available  in  the  convergence/stability  programme  and, 
where available, in a multiannual budget.  

• 

The  general  government  debt  has  increased  substantially  since  the  beginning  of  the 
crisis.  Starting  from  64.2 %  in  2007,  the  ratio  of  debt  to  GDP  reached  90.2 %  in  2012 
and is projected to increase further. On the other hand, the authorities expect the debt ratio 
to peak at 94.3 % of GDP in 2014 and then to drop to 88.2 % in 2017. In 2015-17 (based on a 
correction  of  the  excessive  deficit  in  2014  according  to  the  stability  programme),  France 
would  be  in  a  transition  period  regarding  the  debt  rule  and  plans  would  ensure  sufficient 
progress towards compliance with the debt criterion. The debt ratio in the Commission spring 
forecast for 2013-14 is above the official figures due to the projected higher deficits and lower 
nominal  GDP  growth.  The  risks  to  the  deficit targets  mentioned  above  translate  into  upside 
risks  to  the  debt  scenario.  In  the  past,  the  debt  targets  included  in  the  successive  stability 
programmes  have  regularly  been  revised  upwards  and  often  missed.  Medium-term  debt 
projections  (see  Graph  and  Table  V  in  annex)  indicate  that  the  full  implementation  of  the 

14 

 
 
 
 
 
 
 
 
 
 
 
programme  would  put  debt  on  a  downward  path  by  2020,  although  it  would  still  be  well 
above the 60 % of GDP reference value. 

Long-term sustainability 

Despite significant budgetary challenges, France faces limited fiscal sustainability risks, 
notably  due  to  favourable  demographic  factors.  Sustainability  risks  are  medium  in  the 
medium term and low in the long term. However, risks would be higher in the event of the 
structural  primary  deficit  reverting  to  the  higher  levels  observed  in  the  past,  such  as  the 
average for the period 1998-2012. The focus should, therefore, be on resolutely continuing to 
implement  sustainability-enhancing  measures 
to  fiscal 
sustainability  from  materialising  in  the  short  term.  In  addition,  the  public  debt,  which 
exceeded 90 % of GDP in 2012, needs to be reduced. 

that  prevent  potential  risks 

On  the  basis  of  the  budgetary  position  in  2014,  using  the  Commission  spring  forecast, 
and the projected increase in age-related expenditure (2012 Ageing Report), France has 
a sustainability gap (S2)8 of 1.9 pps of GDP, which is lower than the EU average of 3.0 
pps. This reflects the long-term cost of ageing. The long-term cost of ageing is projected to 
increase  by  +0.9  pps  of  GDP,  driven  by  an  increase  in  pension  expenditure  (+0.6  pps)  and 
healthcare  expenditure  (+1.0  pps).  In  addition,  the  evolution  of  public  expenditure  on 
healthcare and long-term care could be further impacted by non-demographic factors, such as 
the  development  of  new  pharmaceutical  products  and  treatments  and/or  the  widening 
coverage of healthcare systems. 

The 2012 Sustainability Report projects an effect of the increase in public expenditure 
on healthcare which is higher than the EU average both in the medium and in the long 
run. This means that future public expenditure on healthcare is an issue. In that view, areas 
where  efficiency  could  be  further  improved  include  pharmaceutical  and  administrative 
spending.9 

While  long-term  sustainability  risks  related  to  pension  expenditure  appear  relatively 
low,  recent  developments  affecting  this  area  are  of  more  concern.  In  line  with  the  2012 
CSRs, France undertook an assessment of the sustainability of the pension system, which was 
carried  out  by  the  Pensions  Advisory  Council  (‘Conseil  d’orientation  des  retraites’  —
COR).10  This  review  points  to  persistent  deficits  by  2018,  contrary  to  the  objective  of  the 
2010 pension reform of a balanced system by that time. This is mainly due to a less benign 
macroeconomic scenario. In this respect, the Commission had raised doubts about the growth 
and  unemployment  assumptions  underlying  the  previous  projections  in  the  context  of  the 
2012 European Semester. The increase in the minimum and full-pension retirement ages to 62 

8  The  S2  indicator  shows  the  immediate  and  permanent  adjustment  required  to  satisfy  an  inter-temporal 
budgetary  constraint,  including  the  costs  of  ageing.  The  S2  indicator  has  two  components:  (i)  the  initial 
budgetary  position,  which  gives  the  gap  to  the  debt-stabilising  primary  balance;  and  (ii)  the  additional 
adjustment required due to the costs of ageing. The main assumption used in the derivation of S2 is that in an 
infinite  horizon,  the  growth  in  the  debt  ratio  is  bounded  by  the  interest  rate  differential  (i.e.  the  difference 
between the nominal interest and the real growth rates), thereby not necessarily implying that the debt ratio will 
fall below the EU Treaty 60 % debt threshold. 
9 Regarding public spending on outpatient pharmaceuticals, France is one of the highest spenders in the EU, both 
in terms of GDP (FR: 1.3%; EU: 1.1%) and per capita (measured in Purchasing Power Standards) (FR: 334; EU: 
283).  France  also  has  one  of  the  highest  ratios  of  public  expenditure  on  administration  and  insurance  to  GDP 
(France: 0.4%; EU: 0.3%) and to public current expenditure on health (France: 5.2%; EU: 3.7%). 
10 Pensions Advisory Council, Retraites: perspectives 2020, 2040 et 2060, December 2012. 

15 

 
                                                 
and  67,  respectively,  decided  as  part  of  the  2010  reform,  and  the  full-pension  contribution 
period  evolving  in  line  with  gains  in  life  expectancy  thus  appear  insufficient  to  bring  the 
system into balance by 2020, as now targeted by the authorities. Social partners have recently 
agreed  on  partly  suspending  indexation  to  inflation  of  pensions  paid  by  the  AGIRC  and 
ARRCO supplementary schemes. Extending such a measure to other pension schemes would 
yield substantial savings but could also lead, if applied across the board, to an increase in the 
number of older people at risk of poverty. The projections of the COR also suggest that the 
average amount of pension will continue to vary significantly across schemes, in particular to 
the advantage of dedicated public sector pension schemes and special schemes for employees 
of state-owned enterprises or working in certain branches.11 Finally, the partial rollback12 of 
the  2010  reform  decided  shortly  after  the  new  government  took  office  goes  against  the 
Commission’s position that longer working lives should be promoted.13 

Fiscal framework 

A  number  of  provisions  of  the  Treaty  on  Stability,  Coordination  and  Governance 
(TSCG) have already been transposed into national law. A balanced budget rule expressed 
in  structural  terms  has  been  established  along  with  a  correction  mechanism  that  would  be 
triggered automatically in the event of significant deviations from the country’s MTO. A High 
Council for Public Finances was created in 2012 and is in charge of ex-ante analyses of fiscal 
plans  and  ex-post  assessments  of  compliance  with  rules.  This  should  raise  the  reputational 
costs of undesirable policies but the concrete implementation of monitoring poses significant 
technical and operational challenges. In addition, a new multi-year public finance planning act 
covering the period 2012-17 was adopted in late December. It set a number of objectives both 
in  nominal  and  in  structural  terms,  specified  the  automatic  correction  mechanism  and 
introduced measures to improve the information provided to Parliament. 

Regarding  control  of  public  finances,  several  new  features  have  contributed  to 
improving  the  content  of  the  2012-17  planning  act  compared  with  previous  ones.  The 
planning act now covers a longer time period, without questioning the principle of the three-
year  ministerial  expenditure  ceilings  at  state  level,  which  have  demonstrated  their 
effectiveness;14  nominal  targets  have  been  complemented  by  targets  in  structural  terms. 
However,  several  shortcomings  remain,  not  least  concerning  the  relatively  optimistic 
macroeconomic  assumptions  underlying  the  planning,  including  in  2013-14.15  While  the 
technical  information  provided  is  more  extensive  than  in  previous  years,  a  general  bridge 
table between the two approaches, integrating the three-year ceilings at ministry level into the 
fiscal aggregates fixed over the five-year horizon, would have helped in checking consistency. 
It also remains unclear whether annual monitoring of the implementation of the planning act 
—  very  partial  so  far  —  will  actually  be  strengthened.  The  role  of  the  newly  created  High 
Council will be key in that respect. 

11 Pensions Advisory Council, Compléments aux perspectives du système de retraite en 2020, 2040 et 2060: les 
projections régime par régime, March 2013. 
12  The  gradual  increase  in  the  minimum  retirement  age  from  60  to  62  has  been  partly  reversed,  with  certain 
categories of workers again allowed to retire at 60. 
13 European Commission (2012), White Paper: An agenda for adequate, safe and sustainable pensions -— 
COM(2012) 55 final. 
14  These  clearly  helped  to  remain  within  overall  spending  limits  at  state  level  in  2011-12.  For  the  record, 
expenditure  excluding  interest  payments  and  civil  servants’  pensions  has  been  frozen  in  nominal  terms  since 
2011. This rule comes on top of the zero volume rule introduced in 2004, which applies to all state expenditure. 
15 The official GDP growth forecast has since been revised downwards. 

16 

 
                                                 
Tax system 

In 2011, the tax-to-GDP ratio in France stood at 43.9 %, the fourth highest in the EU-27. 
Implicit tax rates on both capital and labour employed are high in France. The tax wedge on 
low  wage  earners  —  which  encompasses  employers’  social  security  contributions,  personal 
income  tax  and  employees’  social  security  contributions  —  is  the  second  highest  among 
Member  States  after  Belgium,  although  less  so  for  workers  at  or  near  the  minimum  wage 
given  social  security  exemptions.  By  contrast,  France  has  the  third  lowest  share  of 
environmental taxes in GDP (2011: 1.8 %) and is among the EU countries having the lowest 
share of VAT in GDP. France has also the highest adjusted top statutory tax rate on corporate 
income (36.1 % in 2013). Finally, the debt-equity tax bias in corporate financing is the highest 
in  the  EU27.  Last  year,  France  received  a  recommendation  to  reduce  this  tax  bias.  While 
some  measures  to  address  tax  incentives  to  indebtedness  in  corporate  taxation  have  been 
adopted, such as a partial limitation of interest deductibility for interest payments above EUR 
3  million  (in  2013,  15%  will  be  disallowed;  in  2014,  the  percentage  will  be  25%)  and  thin 
capitalisation rules (that exist since 1979), there is still scope for further improvement. 

Welcome  efforts  to  reduce  and  streamline  tax  expenditures  have  been  pursued.  These 
efforts are consistent with a broad base-low rate approach which is more conducive to growth. 
Overall, the amount of forgone revenue from tax and social security exemptions is expected 
to  decrease  by  around  8 %  between  2010  and  2013  based  on  national  source  data.16 
Nevertheless, the total remains still very high at above EUR 100 billion or 5 % of GDP — and 
even  twice  that  amount  according  to  estimates  by  the  Court  of  Auditors  —,  with  personal 
income tax (PIT) benefits set to represent half of total PIT receipts this year. The situation is 
similar for corporate income taxation, although the majority of corporate tax exemptions are 
no longer considered as such by the authorities.17 .Moreover, the actual amount of foregone 
revenue  from  tax  and  social  security  exemptions  has  often  proved  higher  than  initially 
forecast.18  

As regards VAT, new rates will be applicable from January 2014 but there is scope for 
further  changes.  The  intermediate  rate  (renovation  of  private  dwellings,  transport  services, 
hotel  accommodation,  restaurant  services,  etc.)  will  be  increased  from  7 %  to  10 %;  the 
reduced  rate  applied  to  foodstuffs,  cultural  goods,  gas  and  electricity  standing  charges,  etc. 
will at the same time be lowered by 0.5 pps to 5 %; and the standard rate will be increased 
from 19.6 % to 20 %. Therefore taxation of products and services subject to the intermediate 
rate will have almost doubled since January 2012 (i.e. from 5.5 % to 10 %). However, several 
reports19 have attested to the ineffectiveness of some non-standard rates, without this leading 
to any sufficiently differentiated and relevant policy response. This is particularly the case of 
those applied to renovation of private dwellings and to restaurant services, the cost of which is 
set to exceed EUR 8 billion or 0.4 % of GDP in 2013 based on national source estimates. 

The introduction of a tax credit for competitiveness and employment will reduce labour 
costs and foster firms’ competitiveness although the impact expected by the authorities 
appears to be on the optimistic side. The CICE tax credit will equal 6 % (4 % in 2013) of the 

16 See draft state and social security budget laws for 2012 and 2013 (Evaluation des voies et moyens, tome II — 
Dépenses  fiscales;  Annexe  5  —  Présentation  des  mesures  d’exonérations  de  cotisations  et  contributions  et  de 
leurs compensations). 
17 Court of Auditors, Rapport public annuel 2011, February 2011. 
18 Court of Auditors, Rapport public annuel 2012, February 2012. 
19  Comité  d’évaluation  des  dépenses  fiscales  et  des  niches  sociales,  June  2011;  National  Assembly,  Rapport 
relatif aux conséquences de la baisse du taux de TVA dans la restauration, No 337, October 2012. 

17 

 
                                                 
payroll for wages up to 2.5 times the minimum wage. Funds for this measure will be made 
available  mainly  through  the  above-mentioned  reshuffling  of  VAT  rates  and  through 
expenditure  savings.  This  measure,  which  takes  the  form  of  tax  expenditure,  shifts  the  tax 
burden  away  from  labour.  More  precisely,  it  is  equivalent  to  halving  the  gap  between  the 
French tax wedge and the OECD average at the level of the median wage,20 suggesting further 
scope  for  action.  The  tax  credit  is  the  only  measure  for  which  the  NRP  provides  a  detailed 
macroeconomic  impact  assessment.  The  authorities  consider  that  this  measure  will  increase 
GDP by 0.1 pps as soon as 2013 and by 0.5 pps by 2017..In addition, they expect that close to 
300 000  jobs  will  be  created  by  2017.  These  figures  seem  to  represent  upper  boundaries. 
Indeed, given their low profitability, it can be expected that companies will use the tax credit 
to  first  restore  profitability  and  investment,  hence  postponing  the  impact  of  the  measure  In 
addition,  the  overall  tax  burden  on  businesses  has  substantially  increased  since  2010,  a 
development that   the CICE tax credit will only partly offset.  

Regarding  energy  and  environmental  taxation,  areas  for  improvement  include  the 
preferential  treatment  of  diesel  within  excise  duties,  the  absence  of  indexation  of 
environmental  taxes  and  the  relatively  low  degree  of  internalisation  of  external  costs. 
The government aims to bring the level of environmental taxation closer to the EU average. A 
specific standing committee was set up in December 2012 and the Ministry of Economy was 
tasked in January 2013 to work on the development of green taxes to be introduced within the 
budget  for  2014.  However,  progress  has  so  far  been  only  limited,  with  for  example  the 
decision  to  increase  the  tax  penalty  on  high-emission  vehicles.  The  ‘éco-taxe  poids  lourds’, 
which  was  originally  planned  to  enter  into  force  in  summer  2013,  is  expected  to  be 
operational by October 2013. 

Overall,  the  French  tax  system  remains  rather  complex,  reflecting  the  wide  range  of 
exemptions  and  special  allowances.21  It  generates  high  collection  costs22  for  the  tax 
administration  and  unnecessary  compliance  costs  also  due  to  frequent  changes  in  tax 
legislation — around 20 % of the articles of the tax code are amended each year.23 However, 
progress  has  been  made  recently  with  a  view  to  reviewing  and  abolishing  a  number  of  tax 
expenditures. Further simplifying the tax system while ensuring greater continuity of tax rules 
over  time  would  thus  help  reduce  both  collection  and  compliance  costs  and  improve  the 
efficiency of revenue collection. 

3.2.  Financial sector  

French banking institutions, supported in particular by robust retail banking activities, 
have  generally  remained  strong  throughout  the  financial  turmoil  although  some 
vulnerabilities  remain.  The  financial  sector  in  France  is  dominated  by  five  large  banking 
institutions,  including  four  considered  as  systemic  and  therefore  included  in  the  monitoring 
framework  of  the  European  Banking  Authority  (EBA).  The  core  tier  1  ratio  of  the  French 

20 OECD Economic Surveys: France, March 2013. 
21 According to the World Economic Forum’s Global Competitiveness Report 2012-13, France’s tax regime is 
perceived as highly distortive to business decisions and is ranked 128th out of 144 economies; the country is 
ranked 126th for overall burden of government regulation. 
22 The cost of tax collection is relatively high in France. Indeed, the ratio of aggregate tax administrative costs to 
(100 units of) net revenue collection increased from 0.97 in 2007 to 1.31 in 2009, thereby rising above the EU 
average (1.08). 
23 Court of Auditors, Les relations de l’administration fiscale avec les particuliers et les entreprises, February 
2012. 

18 

 
                                                 
banks  monitored  by  the  EBA  was  above  the  target  of  9 %  in  June  2012.  Over  2013-14,  the 
slow  economic  growth  is  expected  to  translate  into  weak  prospects  for  the  French  banking 
sector although the impact on profits would remain  moderate.  The  main  weakness  faced  by 
French banks is linked to an over-reliance on wholesale funding. In particular, some smaller 
institutions relying mostly on wholesale funding have faced difficulties (in particular  Crédit 
Immobilier  de  France  and  Dexia  Crédit  Local).  In  December  2012,  credit  distributed  to 
residents  by  banks  represented  111 %  of  deposits,  compared  with  105 %  in  the  euro  area. 
While this ratio has gone down from its July 2008 level of 122 %, it is still a sign that French 
banks rely significantly on wholesale funding, with potential liquidity risks in the event of a 
shock on funding markets. In addition, the situation in peripheral economies of the euro area 
represents a downside risk for French banks, in particular in the event of renewed tensions on 
the sovereign debt market, since their exposure to debt in these economies is non-negligible. 
In December 2012, French banks’ foreign claims vis-à-vis Italy, Spain, Portugal, Ireland and 
Greece  amounted  to  EUR  380  billion,  representing  32 %  of  the  total  foreign  claims  of 
European banks in these economies.24 

Despite  a  number  of  measures  to  develop  alternative  sources  of  finance,  private 
companies,  and  in  particular  small  and  medium-sized  enterprises,  remain  heavily 
dependent  on  bank  credit.  The  amount  of  outstanding  credit  to  enterprises  increased  by  a 
mere  0.9 %  in  2012,  although  surveys  do  not  point  toward  significant  credit  tightening  by 
banks.  Credit  to  SMEs  proved  slightly  more  dynamic  (+2.7 %  year-on-year)  while  credit  to 
the  manufacturing  sector  decreased  (-3.1 %).  In  comparison,  self-financing  capacity  has 
contracted sharply since 2010. Alternative sources of financing, in particular equity financing 
for  SMEs  and  mid-tier  enterprises,  remain  insufficiently  developed.  The  new  BPI  (‘Banque 
Publique  d’Investissement’)  has  been  granted  funds  to  guarantee  loans  to  companies, 
including  to  innovative  SMEs.  In  addition,  policy  measures  to  facilitate  access  to  equity 
financing, in particular for SMEs and mid-tier enterprises, have been announced as part of the 
‘competitiveness pact’ but these have not been implemented yet. On the other hand, a number 
of measures aiming to increase taxation on capital could eventually result in a lower supply of 
equity  finance.  Moreover,  inefficiencies  remain  in  the  use  of  state  aid  to  support  private 
companies.25 

3.3.  Labour market, education and social policies 

While the labour market resisted the worst effects of the crisis in 2009 and 2010, the last 
four years have seen a surge in unemployment, from 7.8 % in 2008 to 10.2 % in 2012. The 
government considers that the increase in unemployment could be curbed by the end of 2013, 
but the Commission expects in its spring forecast that the unemployment rate will continue to 
rise  to  10.9 %  in  2014  on  persistently  weak  economic  growth.  Existing  labour  market 
inefficiencies,  together  with  shortcomings  in  education,  including  with  regard  to  lifelong 
learning, also continue to represent an obstacle to a dynamic labour market. At the same time, 
the rising unemployment calls for renewed attention to the social consequences of the crisis. 

24 Total foreign claims of French banks represented 16  % of the total for reporting European banks. By 
definition, banks do not hold foreign claims vis-à-vis the domestic economy. 
25 See for example Court of Auditors, Les dispositifs de soutien à la création d’entreprises, December 2012 or 
Ernst & Young (2013), The efficiency of public aids to enterprises — Priorities for French competitiveness. In 
addition, France does not have mechanisms for the control and monitoring of state aid (unlike Member States 
that have introduced mechanisms such as transparency obligations or have set up bodies to verify the eligibility 
of aid granted within the framework of aid schemes). 

19 

 
                                                 
Labour market rigidities 

The segmentation of the French labour market continues to be a source of concern. The 
likelihood of moving from a temporary to a permanent job was only 10.6 % in 2010, against 
25.9 % on average in the EU. As a result, those without permanent jobs tend to bear the brunt 
of the adjustment process. Employees on a temporary contract — who made up 15.1 % of the 
workforce in 2012 — and interim workers have been particularly affected. In particular, while 
the employment ratio stalled in 2012, the number of temporary agency workers (in full-time 
equivalent) contracted by 11.1 %.26 

In  order  to  combat  labour  market  segmentation  and  to  simplify  the  dismissals 
procedure  while  securing  workers’  transitions  on  the  labour  market,  the  French 
authorities have adopted a law on securing career paths. The law, which is based on the 
resulting inter-professional agreement (‘Accord national interprofessionnel’), offers increased 
rights  for  workers,  addresses  the  legal  uncertainty of dismissals and  increases flexibility  for 
employers  (see  Box  3).  In  that  respect,  it  represents  an  important  step  toward  a  more  fluid 
labour  market.  On  the  other  hand,  the  actual  implementation  of  some  measures  relies  on 
subsequent  negotiations  at  branch  and  company  levels.  The  degree  of  acceptance  of  these 
measures  by  social  partners  at  the  local  level  may  be  uneven,  hence  posing  a  risk  to  the 
effectiveness of some aspects of the reform. In any case, despite the aim of making the open-
ended  contract  the  norm,  not  least  by  increasing  the  cost  of  short  fixed-term  contracts,  the 
draft  law  does  not  specifically  address  the  segmentation  issue.  In  particular,  the  case  of 
interim workers has been let to further negotiations. Besides this ongoing reform of the labour 
market,  the  discretionary  hike  in  the  minimum  wage  decided  in  July  2012,  while  limited  in 
magnitude, goes against the 2012 CSRs and the opinion of the expert group on the minimum 
wage.  Although  the  coexistence  of  multiple  schemes  entails  unnecessary  complexity,  work-
related incentives to make work pay — such as the active solidarity income and the earned-
income  tax  credit  (‘Prime  pour  l’emploi’)  which  benefit  low-income  employees  —  have 
proven to be more efficient than increases in the minimum wage when it comes to fighting in-
work poverty as they are more targeted towards individuals’ situations.  

26 Dares Indicateurs, March 2013, No 019. 

20 

 
 
                                                 
Box 3. The law ‘on securing employment’ (‘sécurisation de l'emploi’) 

On 11 January, the social partners reached an agreement on a series of measures with a view 
to  reforming  the  labour  market.  The  agreement  was  then  translated  into  a  draft  law  which 
globally allows the implementation of the measures, some of which will be actually enforced 
through subsequent negotiations between social partners. 

The reform: (i) allows portability of unemployment benefits across different occupations; (ii) 
introduces disincentives for temporary contracts of short duration  and cuts in social  security 
contributions for young adults;27 (iii) introduces measures to promote adult lifelong training; 
(iv) sets a minimum number of hours for part-time contracts; (v) improves exit flexibility by 
significantly  reforming  the  collective  dismissal  procedure;  (vi)  broadens  the  scope  of  firm-
level collective negotiations allowing hours worked and wages to derogate from those agreed 
in  sectoral  agreements;  and  (vii)  seeks  to  further  develop  conciliation  to  increase  the 
likelihood of out-of-court settlements, thereby reducing the current uncertainties in the event 
of dismissals. 

The reform addresses key weaknesses of the French labour market institutions, although there 
are considerable implementation risks. Measures such as the reduction in the time allowed to 
contest  a  dismissal  and  the  promotion  of  mobility  increase  the  flexibility  for  employers.  On 
the other hand, the effectiveness of some of the main measures will very much depend on the 
willingness of social partners to continue the process of modernisation of the labour market. In 
particular,  the  effectiveness  of  the  possibility  to  initiate  an  economic  dismissal  based  on  a 
firm-level  agreement  and  of  the  ‘accords  de  maintien  de  l’emploi’,  which  further  formalise 
negotiations  between  employers  and  trade  unions  in  the  event  of  a  drop  in  activity,  will 
critically depend on the continued quality of the social dialogue at branch and firm levels. 

Beyond  implementation  risks,  a  number  of  measures  introduced  could  have  negative  effects 
which require monitoring. First, while the increase in social security contributions for fixed-
term contracts of short duration may help in reducing labour market duality, they could also 
shift job creation in favour of interim employment, for which the social security contributions 
remain unchanged unless a specific branch agreement dictates otherwise. Also, the increase in 
the minimum hours of part time may potentially reduce the use of overtime (and its cost); but 
this effect is partly offset by an increase in the compensation for the first 10 % of overtime. 
Finally, there is also a risk that the introduction of clearance by the administration  ahead of 
any collective dismissals results in additional red tape for employers with a limited impact on 
legal certainty.  

Support for the employment of disadvantaged people 

Although a number of measures targeted toward young jobseekers were taken in 2012, 
youth  unemployment  increased  rapidly  throughout  the  year,  in  particular  for  people 
with the lowest level of education. Youth unemployment reached 24.3 % in 2012, compared 
with 22.8 % a year earlier. A gap exists between the comparatively large proportion of young 
people  pursuing  their  studies  and  those  with  the  lowest  level  of  education,  whom 

27  For  young  persons  recruited  under  open-ended  contracts,  the  employer  will  benefit  from  a  three-month 
exemption from unemployment insurance contributions (up to four months for companies below 50 employees).  

21 

 
 
 
                                                 
unemployment  has  hit  primarily.  The  government  launched  an  initiative  to  offer  150 000 
subsidised jobs to young people (the ‘emplois d’avenir’), mostly in the public sector and with 
a focus on the most deprived areas and the least qualified. However, the minimum duration of 
these  contracts28  is  considerably  shorter  than  the  otherwise  similar  ‘emplois  jeunes’ 
implemented  in  1997.  This  could  reduce  the  effectiveness  of  the  ‘emplois  d’avenir’  in 
building  the  skills  of  young  people.  In  addition,  a  scheme  offering  subsidies  for  companies 
with less than 300 employees hiring a young person on an open-ended contract while keeping 
a  senior  worker  in  employment  has  been  launched  (the  ‘contrats  de  génération’).  Larger 
companies will be required to sign agreements ‘pertaining to the employment of seniors’ but 
will  not  qualify  for  the  subsidies.  Some  500 000  ‘generation  contracts’  are  expected  by  the 
government  within  the  next  five  years.  Yet  these  contracts  have  been  associated  with  a 
potential  deadweight  effect  and  do  not  appear  to  focus  sufficiently  on  the  priority  groups. 
France  also  intends  to  establish  a  youth  guarantee  scheme  which  will  be  tested  from 
September  2013  on.  It  is  unclear  at  this  stage  whether  this  scheme  is  aligned  with  the 
standards set in the related Council Recommendation.29 

The employment rate for workers aged 55-64 (44.5 % in 2012) remains low, especially in 
the  60-64  sub-group,  despite  longer  life  expectancy  at  age  65  than  in  the  EU,  and 
unemployment  is  rising  in  this  age  group.  Rapid  progress  has  been  made  since  2000 
primarily  as  a  result  of  demographic  factors  and  also  due  to  the  gradual  phasing-out  of 
publicly funded measures facilitating early retirement. Nonetheless, the unemployment rate of 
senior workers is also increasing.30 The latter trend is all the more worrisome as people over 
50  exiting  the  public  employment  service  (PES)  in  2012  —  be  it  because  they  returned  to 
work or for any other reason — had been registered as jobseekers almost twice as long as the 
others. 

Difficulties  faced  by  disadvantaged  people  are  in  particular  exemplified  by  the 
difficulties faced by people with migrant backgrounds. The employment rate for non-EU 
nationals stands at only 47.9 % in 2012. This poor performance for non-EU nationals is partly 
linked to their younger age (on average) and to the lower participation of women in the labour 
market. The unemployment rate of non-EU nationals’ descendants is also three times as high 
as that of people with no migrant background,31 a discrepancy that is only partly explained by 
individual factors such as education level, place of residence or work experience. The French 
authorities have yet to launch a comprehensive policy response to address this specific issue. 

Unemployment support 

Under  pressure  from  limited  resources  in  a  context  of  increasing  unemployment,  the 
French authorities are starting to refocus active labour market policies towards the most 
in  need  of  support.  Accordingly,  the  new  tripartite  agreement  with  the  PES  provides  for 
differentiated  follow-up  of  jobseekers,  depending  on  how  remote  they  are  from  the  labour 

28 One year, renewable up to three years. 
29 Council Recommendation of 22 April 2013 on establishing a Youth Guarantee (2013/C 120/01) to ensure that 
all young people under the age of 25 years receive a good-quality offer of employment, continued education, an 
apprenticeship or a traineeship within four months of becoming unemployed or leaving formal education. 
30 The unemployment rate for people aged 55 to 64 increased from 6.6 % in the last quarter of 2012 to 7.5 % one 
year later. 
31 Insee, Immigrés et descendants d’immigrés en France, édition 2012. 

22 

 
                                                 
market. Despite the PES’s ongoing recruitment and/or redeployment of 6 000 staff, taking into 
account the staff reductions of 2011, the number of job counsellors should increase by 4 200 
people. This increase is insufficient to face the rising number of people unemployed and, as a 
consequence,  the  average  size  of  a  job  counsellor’s  caseload  has  further  increased.  The 
difficulties  in  providing  systematic  follow-up  for  all  registered  jobseekers  have  led  to  a 
reorientation  of  the  PES  strategy  towards  people  furthest  away  from  employment.  Though 
pragmatic, this approach and the measures undertaken so far appear rather limited in view of 
the current situation and the expected further increase in unemployment. 

The  unemployment  benefit  system  is  under  significant  stress  due  to  the  increasing 
number of jobseekers. As part of the ANI, social partners have agreed on a measure to better 
ensure that the unemployment benefit system does not create disincentives to return to work. 
More  specifically,  the  possibility  to  combine  newly  acquired  unemployment  rights  with 
formerly acquired residual rights has been announced. This measure, which has a potentially 
significant financial impact on Unedic, the institution managing the unemployment benefits, 
should  contribute  to  reducing  unemployment.  It  complements  the  existing  possibility  to 
combine reduced activity with unemployment benefits, which has brought positive effects for 
its  beneficiaries,  helping  them  keep  a  link  with  the  labour  market  and  gain  professional 
experience. On the other hand, the cumulated deficit of the unemployment insurance regime 
has  been  rising  and  is  expected  to  represent  close  to  1 %  of  GDP  in  201332  while 
expenditures,  which  increased  by  5.3 %  in  2012,  are  expected  to  rise  by  a  further  6.1 %  in 
2013  according  to  the  stability  programme.  This  deteriorated  financial  situation  calls  for  a 
reform  of  the  unemployment  benefit  system.  Such  a  reform  should  also  be  the  occasion  to 
better target unemployment benefit. In addition, a number of parameters need to be adjusted 
to ensure that incentives to return to work are adequate. In particular, eligibility conditions for 
unemployment benefit appear relatively favourable in France compared to other countries in 
the EU (e.g. longer reference period and short minimum period of contribution). In addition, 
the replacement rate remains constant over the benefit period and varies less across the wage 
scale than in a number of European countries. 

Education 

In order to limit youth unemployment for the least qualified, efforts have been made to 
improve the transition from school to work, with limited results so far. The number and 
share of young, low-qualified individuals entering apprenticeship have decreased. A reform of 
apprenticeship  and  lifelong  learning  has  been  announced  for  the  end  of  2013  which  would 
aim  to  improve  the  vocational  training  system  and  encourage  training  for  jobseekers.  The 
recent  ‘Youth  priority’  action  plan,  which  is  still  to  be  implemented,  includes  concrete 
medium-term  measures  related  to  education,  early  school  leaving  and  employment.  In 
addition, a reform of compulsory education, putting the emphasis on pre-primary and primary 
education,  is  currently  being  discussed  which  seeks,  among  other  objectives,  to  increase 
employability and lower the drop-out rate. 

With  only  5.7 %  of  adults  engaging  in  lifelong  learning  in  2012,  France  lags  clearly 
behind the EU average (9 %) despite ongoing reforms. The French lifelong learning system 
also  fails  to  adequately  target  those  most  in  need  of  training  as  unemployed  proportionally 

32 Cour des comptes (2013), "Le mrché du travail: face à un chômage élevé,  mieux cibler les politiques", rapport 
publique thématique, La documentation Française 

23 

 
                                                 
undergo less training than employed individuals33 while the participation of low-skilled adults 
is particularly low. The multiplicity of institutional arrangements governing the distribution of 
funds contributes to the shortcomings of the system. Besides the reform of vocational training 
planned  for  the  end  of  2013,  the  government  has  announced  that,  as  part  of  the  upcoming 
decentralisation,  the  State's  vocational  training  competences  would  be  further  transferred  to 
the Regional Councils. 

Social policy 

The  mounting  level  of  unemployment,  together  with  the  relative  slowdown  in  wage 
growth since 2009, has weighed on social conditions. Still, France performs better than the 
average for the three Europe 2020 poverty and exclusion indicators. But the crisis and rising 
unemployment  have  led  to  the  deterioration  of  several  indicators,  such  as  the  monetary 
poverty rate (14 %, the highest level since 2000), in-work poverty (7.6 %  in 2011 compared 
with  6.1 %  in  2006)  or  the  poverty  rate  of  the  unemployed  (36.7 %,  +3.6  pps  since  2010), 
whereas  income  inequality  is  at  its  highest  level  in  10  years.  In  this  context,  some  specific 
groups (in particular non-EU nationals and young people) remain particularly disadvantaged. 
Albeit below the EU average, child poverty in France has been on the rise since 200634 and is 
particularly high in deprived urban areas (49 %). 

The  active  solidarity  income  (‘Revenu  de  solidarité  active’  —  RSA)  implemented  from 
2009 onwards proved effective in reducing the intensity of poverty, although its impact 
on the poverty rate itself has been more modest. In particular, 68 % of workers eligible for 
the RSA do not benefit from the scheme, due notably to insufficient awareness of the scheme. 
A multi-year plan to tackle poverty was released in January 2013 to address the low take-up 
of support schemes such as the RSA, the vulnerability of young people not in employment, 
education  or  training,  child  poverty,  health  coverage  and  improving  pathways  to  work, 
training  and  housing.  Specific  measures  and  their  financing  are  not  yet  available  and  many 
will not be known before the end of 2013. On the other hand, the French authorities mention 
in  the  NRP  that  they  have  abandoned  the  national  target  for  poverty  reduction,  as  they 
consider the related indicator questionable. The absence of a quantified target is particularly 
problematic in a period when poverty is actually increasing. 

3.4. 

Structural measures promoting growth and competitiveness  

In order to foster growth in the medium term, France needs to overcome the growing external 
imbalance  that  has  built  up  over  the  last  decade.  As  noted  in  the  2013  in-depth  review,  the 
large  losses  in  export  market  shares,  which  have  led  to  a  mounting  current  account  deficit, 
have their origin in both cost and non-cost developments. On the one hand, production costs 
must be contained in order to allow firms to remain competitive. In addition, further efforts 
are needed to develop non-price competitiveness. 

Cost competitiveness 

Wage development in France has been very dynamic, leading to a substantial increase in 
the unit labour cost. A high cost of labour has detrimental effects both on employment 
and on the competitiveness of companies. While the ‘crédit d’impôt pour la compétitivité et 

33  The  training  situation  of  employed  people  was  stable  in  2011,  whereas  the  situation  for  the  unemployed 
deteriorated  (-3.7 %  in  2011).  Unemployed  people  with  the  lowest  level  of  education  had  the  least  access  to 
training. 
34 The percentage of children at risk of poverty increased from 13.2 % in 2006 to 14.0 % in 2011. 

24 

 
                                                 
l’emploi’ is a positive measure which will reduce the cost of labour for employers, the impact 
on competitiveness will only be felt in the medium-term (see assessment above). Moreover, 
given  the  focus  put  on  low  salaries,  the  tax  credit  will  not  benefit  primarily  manufacturing 
companies  they  tend  to  be  characterised  by  a  lower  labour  intensity  and  higher  salaries 
compared  to  other  sectors.  Nevertheless,  the  expected  reduction  in  the  cost  of  intermediate 
consumptions, notably of services, for exporting firms including in the manufacturing sector 
will  also  contribute  to  their  competitiveness.  Besides,  the  discretionary  increase  in  the 
minimum wage introduced in July 2012, though moderate (+0.6 % in real terms), contributed 
to increasing the cost of labour. The French minimum wage stands out by its relatively high 
level (two thirds of the hourly median wage) and its rapid progression (by 16 % in real terms 
between  2002  and  2012).  Despite  strong  support  for  low-skilled  jobs  through  exemptions 
from  social  contributions,  the  development  of  the  minimum  wage  should  be  carefully 
monitored in order not to hamper the employment prospects of the low-skilled in the present 
downturn.  

Competition in services 

The cost of services is a large contributor to the cost of production in the manufacturing 
sector. In order to support growth and competitiveness, it is important that efforts are 
made to foster competitiveness in the services sector. The poor performance of this market 
in France was in particular identified in the Gallois report on competitiveness as one of the 
structural  causes  holding  back  the  export  performance  of  France.  Notwithstanding  recent 
commitments to address the issue, only limited progress was seen in the course of 2012 and 
early  2013.  As  mentioned  in  the  NRP,  prohibitions  on  commercial  communications  for 
registered  accountants  were  removed,  a  measure  taken  in  particular  to  comply  with  related 
decision of the European Court of Justice. Other measures were taken to lift restrictions that 
are strictly prohibited under the EU Services Directive (the possibility for EU accountants to 
participate in the share capital reserved for registered accountants or the removal of the full 
prohibition of active marketing (démarchage) for lawyers). Beyond these measures, only few 
reforms  were  initiated  to  remove  unjustified  restrictions  on  the  access  to,  and  exercise  of, 
regulated professions.35  

Many  regulated  sectors  and  professions  face  unjustified  restrictions  limiting  their 
growth potential. A number of professional services also face restrictions as regards the legal 
form and shareholding rules of the company through which they want to provide services. For 
example,  lawyers  or  veterinarians  are  compelled  to  own  no  less  than  75%  of  their  share 
capital. In addition to these restrictions, other significant barriers (such as heavy restrictions 
on commercial communications, quotas or territorial restrictions) still remain in a number of 
sectors  covered  by  or  excluded  from  the  scope  of  the  EU  Services  Directive  (taxis,  certain 
health professions, notaries and other legal professions). The retail sector is still subject to a 
number of regulations which limit competition. In particular, the authorisation procedure for 
the establishment of retail outlets continues to be cumbersome, to the detriment of consumers. 
The French competition authority has also pointed out that the existing regulation on the ban 
to sell below costs had adverse impacts, in particular on the transparency of the relationships 
between suppliers and distributors36. 

35 The case of veterinarians, for which a draft law establishing in particular the freedom of choice of legal form 
as well as other elements relating to compliance with EU law will be discussed in 2013, is a notable exception. 
36 See the annual report 2010 of the French competition authority (Autorité de la Concurrence) for a review of 
the barriers to competition in the retail sector. 

25 

 
                                                 
Network industries 

Regarding  the  network  industries,  progress  achieved  since  the  adoption  of  the  2012 
CSRs has been limited. The French electricity market remains one of the most concentrated 
in the EU, as regards both wholesale and retail segments. On the wholesale electricity market, 
the law on the new organisation of the electricity market (‘Loi sur la nouvelle organisation du 
marché de l’électricité’) required the incumbent operator to provide access to the electricity 
produced by nuclear plants. However, the impact on the level of competition is unclear at this 
stage. The tenders for hydro-concessions are still to be launched, limiting the possibility for 
new  entrants 
investments,  new 
interconnections with Spain on the one hand and Italy on the other are ongoing.37 However, 
more 
interconnection  capacity  with  neighbouring  countries  would  further  enhance 
competition  and  improve  management  of  peak  load.  The  electricity  grid  needs  to  be 
developed to integrate increasing energy sources from renewables. Regulated prices continue 
to act as a barrier for new entrants38 and to create a competitive distortion on the market. 

the  electricity  market.  Regarding 

to  compete  on 

As regards transport, significant obstacles remain to develop an efficient system. The rail 
freight market in France has been on decline for several years, although volumes picked up in 
2011.  The  market  share  of  new  entrants  rose  to  29 %  in  2011  but  discriminatory  or  anti-
competitive practices can still persist, as illustrated  by  the  EUR  61  million  fine  imposed  on 
the SNCF by the French competition authority. The limited cross-border connection capacity, 
particularly  with  Spain,  may  also  hamper  the  development  of  international  rail  freight.  Rail 
passenger transport is not open to competition, except for international services, where there 
are  few  new  entrants.  The  conclusions  of  two  reports  on  the  development  of  the  railway 
system,  commissioned  by  the  authorities,  were  released  on  22  April.  These  reports 
recommend  a  closer  relationship  between  the  infrastructure  manager  (RFF)  and  the  railway 
undertaking (SNCF). While such a structure is considered to limit conflicts of interest, there 
are  risks  that  it  would  limit  the  independence  of  the  infrastructure  manager,  hence 
representing a potential obstacle to fair and effective access for alternative operators. Finally, 
it  should  also  be  noted  that  French  ports,  which  perform  unevenly,  remain  exploited  below 
their potential, hence limiting their contribution to growth. 

Research, development and innovation 

Progress in R&D intensity in France is hampered by the modest weight of high-tech and 
medium-high-tech  manufacturing  sectors.  R&D  expenditure  remained  stable  in  2011 
compared  with  2010,  representing  2.25 %  of  GDP,  still  far  from  the  national  target  of  3 %. 
This gap is mainly due to the insufficient intensity of business R&D (1.43 % of GDP) despite 
some progress since 2007. While several high- and medium-high-tech manufacturing sectors 
show  a  high  and  growing  R&D  intensity,  the  modest  and  declining  share  of  these  sectors 
compared  with  other  R&D-intensive  countries  explains  the  average  performance  in  France. 
Structural  change  towards  these  sectors  can  be  driven  in  particular  by  SMEs  and  mid-tier 
enterprises (ETIs), whose growth in these sectors should be enabled by framework conditions 
favourable  to  innovation  and  entrepreneurship  (e.g.  seed  financing,  SME/ETI-large  firm 

37 RTE, the French transmission system operator, is reinforcing its interconnections with neighbouring countries, 
which should contribute to fostering competition. In particular, a new high voltage link with Spain (Baixas-Santa 
Llogaia)  will  double  the  electricity  exchange  capacity  to  2 600  MW  by  2014.  In  addition,  the  French  and  the 
Italian  operators  are  optimising  the  existing  interconnection  and  agreed  to  develop  a  new  one  of  1 000  MW 
between Savoie and Piedmont by 2017. 
38  See  Commission  communication  COM(2012)  663  on  the  internal  energy  market  adopted  on  15  November 
2012 

26 

 
                                                 
relationships,  tax  treatment  of  risks  taken  by  innovators  and  entrepreneurs,  public 
procurement of innovation, innovation and entrepreneurship culture and education). 

While  far-reaching  reforms  of  the  research  and  innovation  system  have  been 
implemented  since  the  mid-2000s,  further  measures  have  been  announced  to  increase 
their  economic  impact.  In  2012,  the  assessment  of  the  second  phase  of  the  ‘Pôles  de 
compétitivité’ showed that they had become a focal point concentrating resources. However, 
the Pôles are still insufficiently oriented towards marketable innovations, to the detriment of 
their economic impact. The focus on creating value decided for the third phase of the Pôles 
(2013-18)  is  therefore  relevant.  In  November  2012,  the  government  announced  additional 
measures to enhance technology transfer and the exploitation of research results. While these 
new  measures  address  some  of  the  important  remaining  bottlenecks  impairing  technology 
transfer  in  France  (e.g.  career  incentives,  technology  transfer-related  training  and  courses, 
management of IPR in the public sector), it is important that they rely on — and be consistent 
with  —  the  structures  and  financing  already  put  in  place  to  foster  technology  transfer. 
Common  laboratories  between  SMEs  and  public  research  are  powerful  means  to  boost  and 
organically structure their collaboration and lead to sustained high economic benefits. 

France  still  has  the  potential  to  do  better  in  terms  of  high-end  research  and  economic 
impact  of  its  scientific  production.  The  assessment  and  public  funding  allocation  systems 
have  evolved  over  the  last  few  years  so  as  to  steer  public  research  activities  towards  the 
highest  standards.  However,  while  it  confirms  the  strong  engagement  of  France  in  the 
European Research Area, the recently presented draft law on tertiary education and research 
puts  these  developments  on  hold.  In  addition,  the  draft  law  currently  proposed  does  not 
provide  for  further  development  of  institutionalised  channels  of  cooperation  between 
universities and enterprises, although these would reinforce the economic and societal role of 
universities. Finally, PhD studies and research experience remain insufficiently attractive and 
recognised career paths in France. Attracting more of the best talents in doctoral studies and 
increasing the number of doctorate holders in enterprises would contribute to improve the link 
between public research and enterprises. 

Energy and resource efficiency 

Further  increasing  energy  and  resource  efficiency  could  contribute  to  reducing 
production costs. A key measure to achieve demand-side reductions is the Energy Efficiency 
Certificates scheme, established in 2006 and recently renewed until 2020 (with the objectives 
for  2014-16  currently  being  discussed).  The  scheme  encourages  companies  to  commit  to 
improving their energy performance. On the other hand, a number of environmentally harmful 
subsidies,  in  particular  partial  reimbursement  of  taxes  on  oil  products  for  specific  users, 
remain  while  France  has  considerable  margin  for  manoeuvre 
to  further  develop 
environmentally-friendly charging and taxation. 

The environmental conference, which took place in September 2012, resulted in a work 
programme to promote sustainable development and resource efficiency. In the field of 
energy,  measures  are  considered  in  particular  to  lower  dependency  on  fossil  fuels  and  to 
further develop renewables and energy savings. This process should result in a draft energy 
bill  by  the  autumn  of  2013  which  will  map  out  the  expected  energy  pathway  until  2050. 
Water  management  in  France  continues  to  be  marked  by  a  loose  implementation  of  the 
polluter-pays  principles.  Further  efforts  could  also  be  made  to  increase  the  share  of  waste 
recycled and to develop fiscal incentives to reduce waste. The landfill tax is currently at a low 
level  compared  with  other  Member  States,  hence  limiting  the  disincentive  toward  this 

27 

 
practice. Although a number of reforms in these fields are considered as part of the roadmap 
defined during the environmental conference, the actual measures remain to be fully defined. 

3.5.  Modernisation of public administration 

Business environment 

As a whole, the overall stability of the tax framework and of the regulatory environment 
for  businesses  should  remain  a  high  priority,  and  political  commitments  need  to  be 
followed  up  by  effective  implementation.  Procedures  for  starting  up  a  business  are  less 
complex in France than in the EU on average and the cost of starting a company is lower, as is 
the  cost  of  enforcing  contracts.  E-government  usage  by  enterprises  improved  and  reached 
94 % in 2012, compared with an EU average of 87 %. However, progress is still necessary in 
relation  to  the  Guichets  Entreprises,  which  remain  unsatisfactory  in  terms  of  their  user-
friendliness and the availability of online procedures. 

The Pact for Competitiveness includes commitments to stabilise five major tax schemes 
which  stimulate  investment  by  enterprises,  to  initiate  a  regular  simplification  of  the 
regulatory framework over time. Other measures announced include a target of eliminating 
ten  declarative  obligations  by  2016.  If  fully  implemented,  such  measures  are  likely  to 
contribute  to  further  improving  the  business  environment.  However,  more  could  be  done  to 
ensure  that  impact  assessments  and  the  underlying  methodology  are  publicly  available,  in 
particular  as  regards  new  rules  applicable  to  enterprises.  Besides,  the  multiplication  of  tax 
exemptions  and  derogations  has  led  to  such  complexity  that  the  overall  tax  system  is  no 
longer transparent for most businesses, in particular SMEs and foreign investors. Too frequent 
changes  in  the  regulatory  framework  reduce  the  predictability  of  the  tax  system,  hence 
representing a risk for businesses. 

SMEs in France face a number of barriers limiting their development. The relationship 
between  SMEs  and  large  enterprises  in  France  are  often  marked  by  an  imbalance  of  power 
which  results  in  difficulties  for  subcontractors.  These  are  related  in  particular  to  excessive 
delays  of  payment.  An  official  subcontracting  mediator  position  has  been  created  by  the 
Ministry of Industry in 2010 to improve the relationship between the various stakeholders in 
the value chain. Furthermore, the competitiveness pact announced by the French authorities 
also includes the objective to further support co-operation between firms in the same sector. A 
number of threshold which also constrain the development of SMEs exist, notably related to 
the organisation of social dialogue39: While some measures have already been taken to reduce 
the negative effect of  these  thresholds (in particular for companies reaching 10 employees), 
these may continue to constrain the growth of SMEs. 

A ‘simplification’ shock has recently been announced by the authorities and a first set of 
measures already decided. These include a global moratorium on standards — no proposal 
for  a  new  regulatory  text  would  be  accepted  unless  accompanied  by  an  equivalent 
simplification — and reviewing legal and regulatory constraints in the construction sector as 
well  as  in  the  area  of  public-private  partnerships.  However,  the  overall  impact  of  such 
measures remains rather uncertain. 

EU funding 

39 "Une stratégie PME pour la France", J.-P. Betbèze, C. Saint Etienne, (complements by C. Picart, F. Rogier, W. 
Roos), CAE report 2006 

28 

 
                                                 
Regarding  EU  structural  funds,  the  management  responsibilities  will  be  partly  transferred 
from  central  to  regional  governments.  Preparation  of  operational  programmes  without 
appropriate coordination may lead to duplications, thus increasing the administrative burden 
and  costs,  as  well  as  the  risks  of  double  funding.  Therefore,  it  is  crucial  that  the  new 
management and control systems ensure the rapid and secure absorption of the funds. 

29 

 
 
4.  OVERVIEW TABLE 

2012 recommendations 

Summary assessment 

Country-specific recommendations (CSRs) 

CSR 1: Reinforce and implement the budgetary strategy, 
supported by sufficiently specified measures, notably on 
the  expenditure  side,  for  the  year  2012  and  beyond  to 
ensure a correction of the excessive deficit by 2013 and 
the  achievement  of  the  structural  adjustment  effort 
specified  in  the  Council  Recommendation  under  the 
excessive  deficit  procedure.  Thereafter,  ensure  an 
adequate  structural  adjustment  effort  to  make  sufficient 
progress  towards  the  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. 

CSR  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 dismissals; continue to ensure that 
any development in the minimum wage is supportive of 
to 
job  creation  and  competitiveness; 
increase adult participation in lifelong learning. 

take  actions 

the 

took 

Some progress 
Although 
additional 
authorities 
consolidation  measures  shortly  after  they  took 
office to secure the 4.5 % target for 2012, the deficit 
eventually  came  out  at  4.8 %  of  GDP.  However, 
part of the deviation was due to exceptional factors, 
such as the cost of bailing out Dexia. As far as 2013 
is  concerned,  the  budget  was  based  on  a  deficit 
target  of  3 %  of  GDP.  However,  the  deficit  will 
likely  stay  well  above  the  reference  threshold  and 
the stability programme now aims at 3.7 % of GDP. 
The  Commission  spring  forecast  projected  the 
deficit to reach 3.9 %. 
Regarding the pension system, the latest projections 
by  the  Pensions  Advisory  Council  point  to  large 
deficits by 2020 assuming no further policy action, 
contrary  to  the  primary  objective  of  the  2010 
pension  reform  (which  included  an  increase  in 
retirement  ages).  The  decision 
reinstate 
retirement  at  60  for  some  categories  of  workers 
goes against the recommendation. Furthermore, this 
measure  is  financed  by  higher  social  security 
contributions,  hence  further  increasing  the  already 
high tax burden on labour. 

to 

implementing  draft 

Some progress 
A  national  agreement  was  reached  by  social 
partners  on  11  January.  This  agreement  has  two 
main strands. It offers new rights to employees and 
increases  the  flexibility  of  the  labour  contract  for 
employers.  The 
law  was 
presented  to  the  Parliament  in  April  and  definitely 
adopted  by  mid-May.  The  agreement  reached  is  a 
step  in  the  right  direction,  although  it  is  still  too 
early  to  fully  assess  its  impact  as  it  needs  further 
implementation by the social partners. At this stage, 
the  measures  included  in  the  agreement  are  in  line 
with  the  CSR  as  they  address  partly  labour  market 
segmentation  and  reduce 
the  uncertainties  of 
dismissals. 
On  the  other  hand,  the  discretionary  hike  in  the 
minimum  wage  decided  in  July  2012,  although 
limited, goes clearly against the recommendation. 
Despite 
the  French 
reforms  undertaken, 
participation  rate  of  adults  in  lifelong  learning 
remains  below  the  EU  average.  The  planned 
transfer of additional lifelong learning competences 
to  the  Regions  provides  an  opportunity  to  address 
the  weaknesses  of  the  current  system.  In  addition, 
the  national  agreement  of  11  January  (see  above) 
included  a  number  of  lifelong  learning-related 
proposals  which  are  still  to  be  implemented.  The 
government  has  announced  further  consultation 
planned  for  this  summer  and  a  draft  bill  on 

the 

30 

 
 
apprenticeship  and  lifelong  learning before  the  end 
of 2013. 

Some progress 
500 000  generation  contracts  are  expected  to  be 
created  within  the  next  five  years  to  promote  the 
creation  of  jobs  for  young  workers  along  with  the 
retention of seniors in employment. 
Specifically  targeted  toward  deprived  areas,  the 
‘emplois  d’avenir’  scheme  plans  to  offer  150 000 
jobs in the public sector to young people by the end 
of 2014. 
The number and proportion of young, low-qualified 
individuals entering apprenticeship have decreased. 
A  reform  of  apprenticeship  and  lifelong  learning 
was  announced  for  the  end  of  2013  which  would 
aim  to  improve  the  vocational  training  system  and 
encourage training for jobseekers. 
Regarding  the  public  employment  service,  the 
announced  plan  to  increase  staffing  is  positive  but 
insufficient  to  address  the  increasing  number  of 
unemployed  people  and 
the  public 
employment service will still be under strain.  

therefore 

Substantial progress 
The  tax  credit  introduced  as  part  of  the  Pact  on 
competitiveness is financed by an increase in VAT 
rates,  by  environmental  taxation  adjustments  (still 
to be defined) and by additional savings (idem). It is 
therefore  consistent  with  the  recommendation  to 
shift taxation from labour to less distortive forms of 
taxation, including consumption and environmental 
taxes,  although  part  of  the  measures  are  still  to  be 
specified  in  sufficient  detail.  Concerns  may  be 
raised  on  the  effect  of  the  tax  credit  on  the 
incentives  to  hire  or  maintain  in  employment  low- 
rather  than  high-skilled  people.  In  addition,  the 
government  has  taken  further  measures  to  reduce 
tax  expenditures  for  both  personal  income  tax  and 
corporate 
In  particular,  specific 
attention  has  been  paid  to  the  need  to  reduce  the 
incentive  to  increase  debt,  as  indicated  in  the 
recommendation, but at the same time, incentives to 
equity  investment  seem  to  have  been  reduced. 
Regarding the reduced VAT rates, the intermediate 
rate will be increased by 3 pps. However, no major 
change  has  been  announced  regarding  their  scope 
despite the low efficiency of some of them pointed 
out in a number of reports. 

income 

tax. 

interconnection 

Limited progress 
No  significant  progress  has  been  recorded  on  this 
recommendation,  with  the  exception  of  a  major 
under 
electricity 
construction  between  France  and  Spain.  However, 
there  is  still  room  for  progress  towards  more  open 
markets 
tendered  yet; 
regulated prices for non-household customers to be 
removed  by  the  deadline  agreed  with  the  French 
authorities), 
and 
development  of  the  electricity  grid  to  integrate 

(hydro-concessions  not 

interconnections, 

project 

more 

CSR  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  for  example  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. 

CSR  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  (in  particular 
those  providing  incentives  to  indebtedness);  review  the 
effectiveness  of  the  current  reduced  VAT  rates  in 
support of growth and job creation. 

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

in  particular 
develop 

industries, 

31 

 
the 

independence  of 

increasing energy from renewable sources. 
In  the  context  of  the  planned  reform  of  the  rail 
system, there is also room for progress to ensure the 
necessary 
infrastructure 
manager  to  guarantee  fair  and  non-discriminatory 
access to the network to all operators in both freight 
and passenger transport. 
On  regulated  sectors  ad  professions,  despite  a  few 
noticeable 
(including  veterinaries, 
lawyers  and  accountants),  no  progress  has  been 
recorded in the removal of restrictions, in particular 
in the retail sector. 

exceptions 

Employment rate target: 75 % 

R&D target: 3 % 

Europe 2020 (national targets and progress) 

Employment rate (%) in 2010: 69.2, 2011: 69.2 and 
2012: 69.3 

Despite  rather  good  resilience  to  the  crisis,  the 
employment  rate  in  France  is  stagnating.  Progress 
on  this  objective  will  be  significantly  hampered  in 
the  short  term  by  the  deterioration  of  the  labour 
market.  Reforms 
jobs  could 
contribute  to  increase  the  employment  rate  in  the 
medium term.  

to  better  secure 

2.25 % in 2011. 

The distance to the target is primarily due to lower 
R&D intensity in the business sector. While efforts 
have been  made  to  support R&D  expenditures,  not 
least through a tax credit for research, the business 
R&D  intensity  gap  is  to  a  large  extent  due  to  the 
economic  structure  of  the  country,  insufficiently 
oriented  towards  R&D-intensive  economic  sectors. 
Shifting the orientation of the private sector toward 
R&D-intensive  sectors  will  be  a  slow  process.  The 
likelihood  to  see  France  reaching  its  3 %  target  in 
2020  is  therefore  not  high,  despite  major  efforts 
towards this goal. 

Change  in  non-ETS  greenhouse  gas  emissions 
between 2005 and 2011: -10 % 

Greenhouse gas (GHG) emissions target: 
-14 % (compared with 2005 emissions, ETS emissions 
not covered by this national target) 

Renewable energy target: 23 % 
Share of renewable energy in all modes of transport: 
10 % 

to 

the 

According 
latest  national  projections 
submitted  to  the  Commission  and  when  existing 
measures  are  taken  into  account,  the  target  is 
expected  to  be  achieved:  -17 %  in  2020  compared 
to 2005 (representing a projected over-achievement 
of 3 percentage points compared to the target).  

The share of renewable energy in gross final energy 
consumption  was  11.5 %  in  2011  and  6.10 %  in 
transport.  (Source:  Eurostat.  April  2013.  For  2011, 
only formally reported biofuels compliant with Art. 
17 and 18 of Directive 2009/28/EC are included). 
France’s  current  policy  measures  do  not  seem 
sufficient  to  reach  its  national  RES  targets.  Also, 
France has not yet put in place transparent and clear 

32 

 
Energy efficiency — reduction of energy consumption 
in Mtoe: 
Indicative national energy efficiency target for 2020: 
17% reduction of final energy consumption in 2020 
compared with a baseline. 
This implies reaching a 2020 level of 236.3 Mtoe 
primary consumption and 131.4 Mtoe final energy 
consumption. 

administrative  procedures  to  guarantee  access  of 
renewable energy to the grid. 

In 2011 primary energy consumption stood at 266.4 
Mtoe  while  final  consumption  represented  155.6 
Mtoe. 
France  has  set  an 
indicative  national  energy 
efficiency  target  in  accordance  with  Articles  3  and 
24 
the  Energy  Efficiency  Directive 
(2012/27/EU).  It  has  also  expressed  it,  as  required, 
in  terms  of  an  absolute  level  of  primary  and  final 
energy  consumption  in  2020  and  has  provided 
information on the basis on which this data has been 
calculated. 

of 

Early school leaving target: 9.5 % 

Tertiary education target: 50 %. 

Risk of poverty or social exclusion target: reduction of 
the anchored at-risk-of-poverty rate by one third for the 
period 2007-12 or by 1 600 000 people (data available in 
2015). 

NB: The poverty target, which was criticised as 
incantatory by the Prime Minister at the social 
conference in July 2012, was abandoned according to 
the 2013 NRP and not replaced by a new target. 

Only  modest  progress  has  been  made  from  12.4 % 
in  2006  to  the  2012  early  school  leaving  rate  of 
11.6 %,  which  suggests  that  stronger  action  is 
needed  to  achieve  the  national  target.  The  French 
ESL  rate  remains  below  the  EU  average  of  13.5 % 
in 2011 (provisional figures for 2012: 12.8%). 
A number of measures have been taken to improve 
skills and better monitor early school leaving, most 
level  and 
of 
compensatory  programmes.  The  planned  transition 
towards  a  comprehensive  early  school  leaving 
strategy  based  on  a  cross-cutting  approach  across 
different policies is positive. 

focusing  on 

secondary 

them 

Progress  has  been  made  from  39.7 %  in  2006  to 
43.6 %  in  2012,  which  surpasses  the  EU  higher 
education attainment average (35.8 %). 

The  French  authorities  mention  in  the  NRP  a 
national objective on tertiary attainment among 17-
33 year-olds by 2012. This indicator, which differs 
from the Europe 2020 benchmark seeks to put more 
emphasis  on  the  recent  increase  in  the  number  of 
HE graduates 

The investment in higher education has significantly 
increased  in  France  and  major  reforms  have  been 
made  since  2007  (greater  autonomy  granted  to  the 
universities, development of guidance and a special 
plan  for  success  in  the  ‘Licence’,  which  should 
contribute  to  lowering  the  high  drop-out  rates).  A 
new  reform  of  higher  education  and  research  is 
expected  to  be  adopted  by  the  end  of  June  2013. 
The bill would aim to improve the employability of 
all students and the efficiency of academic bodies. 

People  at  risk  of  poverty  or  social  exclusion: 
11 693 000 (2010), 11 840 000 (2011). 

The  main  measure  to  limit  the  risk  of  poverty  and 
social  exclusion  was  the  introduction  of  the  active 
solidarity  income  (Revenu  de  solidarité  active  — 
RSA)  in  2009.  Due  in  particular  to  lower-than-
expected take-up rates among the working poor, the 
results  are  below  expectations.  With  the  crisis  and 

33 

 
 
rise  in  unemployment,  poverty  has  increased.  No 
progress  has  been  made  towards  achieving  this 
target. 
A  multi-year  plan  was  adopted  in  January  2013, 
including  a  reform  of  the  RSA,  the  creation  of  a 
the 
the 
Youth  Guarantee, 
complementary 
additional 
appropriations  in  2013  to  improve  the  capacity  to 
accommodate  homeless  people,  measures  targeting 
over-indebtedness,  reinforced  activation  measures, 
through 
and 
reinforced 
economic  activity,  and  childcare.  Most  of  these 
measures still need to be further specified. 

integration 

coverage, 

extension 

training 

health 

of 

34 

 
 
5.  ANNEX 

Table I. Macroeconomic indicators 

Core indicators
GDP growth rate
Output gap 1
HICP (annual % change)
Domestic demand (annual % change) 2
Unemployment rate (% of labour force) 3
Gross fixed capital formation (% of GDP)
Gross national saving (% of GDP)
General Government (%  of GDP)
Net lending (+) or net borrowing (-)
Gross debt
Net financial assets 
Total revenue 
Total expenditure
  of which: Interest
Corporations (%  of GDP)
Net lending (+) or net borrowing (-)

1995-
1999

2000-
2004

2005-
2009

2010

2011

2012

2013

2014

2.4
-0.5
1.3
2.2
10.7
17.4
19.6

-3.4
58.2
-40.5
50.2
53.7
3.3

2.0
2.1
2.0
2.2
8.7
18.6
20.0

-2.8
60.3
-43.1
49.7
52.6
2.9

0.7
1.2
1.7
1.2
8.8
20.2
19.4

-3.8
68.4
-43.7
50.0
53.8
2.6

1.7
-2.0
1.7
1.6
9.7
19.4
17.3

-7.1
82.4
-57.3
49.5
56.5
2.4

1.7
-1.4
2.3
1.7
9.6
20.1
18.1

-5.3
85.8
-62.9
50.6
55.9
2.6

0.0
-2.4
2.2
-0.8
10.2
20.2
17.9

-4.8
90.2
n.a
51.7
56.6
2.5

-0.1
-3.4
1.2
-0.2
10.6
19.9
17.7

-3.9
94.0
n.a
53.3
57.2
2.5

1.1
-3.3
1.7
1.2
10.9
20.1
17.9

-4.2
96.2
n.a
52.9
57.1
2.5

1.0

-0.6

-1.0

0.5

-1.8

-1.2

-1.7

-1.4

n.a
n.a
10.1
15.3

n.a
n.a
9.8
15.3

n.a
n.a
10.2
15.6

-90.2
10.5
10.3
16.8

-75.3
9.1
9.1
16.6

4.3
n.a
39.5
6.8
26.9
10.6

-105.9
17.4
11.3
15.9

-111.7
17.6
10.1
16.7

-107.3
11.2
10.9
16.7

4.5
135.2
39.6
6.4
26.4
10.8

4.6
140.4
39.6
6.4
26.5
10.7

4.2
126.5
39.0
6.5
24.4
10.0

3.6
133.3
39.0
6.6
24.9
10.1

4.3
119.3
38.0
6.8
24.7
10.0

Net financial assets; non-financial corporations
Net financial assets; financial corporations
Gross capital formation
Gross operating surplus
Households and NPISH (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Gross wages and salaries
Net property income
Current transfers received
Gross saving
Rest of the world (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Net exports of goods and services
Net primary income from the rest of the world
Net capital transactions 
Tradable sector
Non tradable sector
  of which: Building and construction sector
Real effective exchange rate (index, 2000=100)
Terms of trade goods and services (index, 2000=100)
Market performance of exports (index, 2000=100)
Notes:
1 The output gap constitutes the gap between the actual and potential gross domestic product at 2005 market prices.
2 The indicator on domestic demand includes stocks.
3  Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within two weeks. 
The labour force is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.

-1.9
15.8
-2.2
1.9
0.0
34.1
55.7
5.5
103.0
100.4
91.9

-2.6
21.5
-2.8
1.9
0.0
33.8
55.8
5.5
103.8
98.4
93.1

-1.7
n.a
-2.1
1.9
0.0
n.a
n.a
n.a
101.3
98.4
95.7

1.9
-10.6
2.1
0.7
0.0
39.5
49.7
4.5
99.9
102.0
112.5

-1.5
n.a
-2.3
2.0
0.2
n.a
n.a
n.a
103.1
97.5
96.4

-1.3
9.2
-1.4
1.7
0.0
35.2
54.4
5.5
102.5
99.8
95.0

0.8
-1.8
1.0
1.2
-0.1
38.4
51.4
4.7
94.6
101.3
109.0

-1.4
n.a
-2.0
2.0
0.2
n.a
n.a
n.a
103.5
98.1
96.1

4.2
n.a
39.0
6.8
27.7
10.5

4.2
n.a
39.4
6.8
27.5
10.5

Source :
Commission services’ 2013 spring forecasts (COM); Stability programme (SP).

35 

 
 
Table II. Comparison of macroeconomic developments and forecasts 

Real GDP (% change)

Private consumption (% change)
Gross fixed capital formation (% change)
Exports of goods and services (% change)
Imports of goods and services (% change)
Contributions to real GDP growth:

- Final domestic demand

- Change in inventories

- Net exports
Output gap1
Employment (% change)

Unemployment rate (%)

Labour productivity (% change)

HICP inflation (%)

GDP deflator (% change)

Comp. of employees (per head, % change)

Net lending/borrowing vis-à-vis the rest of 
the world (% of GDP)

2012

2013

2014

2015

2016

2017

COM SP

COM SP

COM SP

0.0

-0.1
0.0
2.5
-0.3

0.3

-1.1

0.8

-2.4
-0.2

10.2

0.1

2.2

1.6

1.9

0.0

-0.1
0.0
2.5
-0.3

0.3

-1.0

0.7

-2.5
0.0

n.a.

0.0

2.0

1.6

2.1

-0.1

-0.1
-2.1
1.2
0.6

-0.2

-0.1

0.2

-3.4
0.0

10.6

-0.1

1.2

1.4

1.3

0.1

0.2
-0.8
2.0
0.8

0.2

-0.4

0.3

-3.3
-0.2

n.a.

0.4

1.3

1.5

1.9

1.1

0.9
1.7
4.8
4.8

1.2

0.0

-0.1

-3.3
0.4

10.9

0.7

1.7

1.7

1.5

1.2

0.9
1.2
4.5
3.5

0.9

0.1

0.2

-3.2
0.6

n.a.

0.6

1.8

1.8

1.9

-1.7

-2.2

-1.4

-1.8

-1.5

-1.3

SP

2.0

1.8
1.8
6.7
5.3

1.5

0.1

0.3

-2.3
0.9

n.a.

1.1

1.8

1.7

n.a.

-1.0

SP

2.0

1.9
2.5
6.7
5.3

1.6

0.0

0.3

-1.5
0.9

n.a.

1.1

1.8

1.7

n.a.

-0.6

SP

2.0

1.8
2.9
6.7
5.4

1.7

0.0

0.3

-0.7
0.9

n.a.

1.1

1.8

1.7

n.a.

-0.2

Note:
1In percent of potential GDP, with potential GDP growth recalculated by Commission services on the basis of the programme scenario 
using the commonly agreed methodology.

Source :
Commission services’ 2013 spring forecasts (COM); Stability programme (SP).

36 

 
 
Table III. Composition of the budgetary adjustment 

(% of GDP)

Revenue

of which:

- Taxes on production and imports

- Current taxes on income, wealth, etc.

- Social contributions

- Other (residual)

Expenditure

of which:

- Primary expenditure

of which:

Compensation of employees

Intermediate consumption

Social payments

Subsidies

Gross fixed capital formation

Other (residual)

- Interest expenditure

General government balance (GGB)

Primary balance

One-off and other temporary measures

GGB excl. one-offs

Output gap

2

2

Cyclically-adjusted balance
Structural balance (SB)3
Change in SB

Two year average change in SB 

Structural primary balance
Change in structural primary balance

3

Expenditure benchmark

Applicable reference rate

4

5

Deviation
Two-year average deviation (% GDP)

 (% GDP)

2012

2013

2014

2015

2016

2017

COM COM SP

1
COM

SP

SP

SP

SP

Change: 
2012-2017
SP

51.7

53.3

53.1

52.9

53.5

53.4

53.5

53.2

1.5

15.4

12.0

19.0

5.3

15.5

13.0

19.2

5.5

56.6

57.2

15.6

12.8

19.3

5.4

56.8

16.0

12.3

19.1

5.6

57.1

16.3

12.4

19.4

5.4

56.4

16.3

12.2

19.5

5.4

55.4

16.3

12.1

19.6

5.5

54.6

16.2

11.8

19.7

5.5

53.9

0.8

-0.2

0.7

0.2

-2.7

54.0

54.7

54.4

54.7

53.9

52.8

51.9

51.1

-2.9

13.2

5.6

26.0

1.5

3.1

4.6

2.5

-4.8

-2.3

0.0

-4.9

-2.4

-3.5

-3.6

1.1

1.1

-1.0

0.34

-0.6

-0.8

13.2

5.6

26.6

1.5

3.2

4.6

2.5

-3.9

-1.4

0.1

-4.1

-3.4

-2.1

-2.2

1.3

1.2

0.3

1.3

0.34

-1.2

-0.9

13.2

5.6

26.4

1.5

3.2

4.6

2.4

-3.7

-1.3

-0.1

-3.6

-3.3

-1.9

-1.8

1.8

1.4

0.6

1.6

0.34

-1.4

-1.1

13.2

5.5

26.8

1.5

3.1

4.5

2.5

-4.2

-1.8

-0.1

-4.1

-3.3

-2.5

-2.3

-0.1

0.6

0.2

-0.1

0.20

0.9

-0.1

13.1

5.4

26.3

1.5

3.1

4.5

2.5

-2.9

-0.4

-0.1

-2.8

-3.2

-1.2

-1.1

0.7

1.2

1.4

0.8

0.20

-0.3

-0.8

12.8

5.3

25.9

1.5

2.8

4.3

2.6

-2.0

0.7

-0.1

-1.9

-2.3

-0.7

-0.6

0.4

0.6

2.0

0.5

0.20

0.1

-0.1

12.6

5.1

25.7

1.5

2.7

4.2

2.7

-1.2

1.6

0.0

-1.2

-1.5

-0.4

-0.4

0.3

0.4

2.3

0.4

0.20

-0.1

0.0

12.4

5.0

25.4

1.5

2.7

4.1

2.8

-0.7

2.1

0.0

-0.7

-0.7

-0.3

-0.3

0.1

0.2

2.5

0.2

n.a.

n.a.

n.a.

-0.8

-0.5

-0.6

0.0

-0.4

-0.5

0.3

4.1

4.4

0.0

4.2

1.6

3.2

3.3

-

-

3.5

-

-

-

-

Notes:

1On a no-policy-change basis.
2Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by Commission services on 
the basis of the programme scenario using the commonly agreed methodology.
3Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.

4 Reference medium-term rate of potential GDP growth. The (standard) reference rate applies from year t+1, if the country has reached its 
M TO in year t. A lower  rate applies as long as the country is adjusting towards its M TO, including in year t.The reference rates applicable 
to 2014 onwards have been updated in 2013. 
5 Deviation of the growth rate of public expenditure net of discretionary revenue measures and revenue increases mandated by law from the 
applicable reference rate. The expenditure aggregate used for the expenditure benchmark is obtained following the commonly agreed 
methodology. A positive sign implies that expenditure growth exceeds the applicable reference rate. 

Source :

Stability programme (SP); Commission services’ 2013 spring forecasts (COM); Commission services’ calculations.

37 

 
 
Table IV. Debt dynamics  

(% of GDP)

Gross debt ratio1
Change in the ratio
Contributions 2 :

1. Primary balance

2. “Snow-ball” effect

Of which:

Interest expenditure

Growth effect

Inflation effect

3. Stock-flow adjustment

Of which:

Cash/accruals diff.

Acc. financial assets

Privatisation

Val. effect & residual

5,6

Gap to the debt benchmark
Structural adjustment7
To be compared to:
Required adjustment8
Notes:

Average
2007-2011

76.0

4.4

2.6

1.1

2.6

-0.4

-1.1

0.7

2012

90.2

4.4

2.3

1.2

2.5

0.0

-1.4

0.9

2013

2014

COM

94.0

3.9

SP

93.6

3.4

COM

96.2

2.2

1.4

1.3

2.5

0.1

-1.2

1.1

1.3

0.9

2.4

-0.1

-1.4

1.2

1.8

-0.1

2.5

-1.0

-1.5

0.5

SP

94.3

0.7

0.4

-0.2

2.5

-1.1

-1.6

0.5

2015
SP

92.9

-1.4

2016
SP

90.7

-2.2

2017
SP

88.2

-2.5

-0.7

-0.6

2.7

-1.8

-1.5

0.0

-1.6

-0.5

2.8

-1.8

-1.5

-0.1

-2.1

-0.4

2.8

-1.7

-1.5

0.0

2013

2014

2015

2016

2017

2012

COM / 
3

SP

n.r.

n.r.

n.r.

n.r.

n.r.

n.r.

SP4

n.r.

n.r.

COM / 
3

SP
n.r.

n.r.

SP4

n.r.

n.r.

SP

n.r.

n.r.

SP

n.r.

0.2

SP

n.r.

0.1

n.r.

n.r.

n.r.

n.r.

-0.4

-0.7

1End of period.
2The snow-ball effect captures the impact of interest expenditure on accumulated debt, as well as the impact of real GDP growth and 
inflation on the debt ratio (through the denominator). The stock-flow adjustment includes differences in cash and accrual accounting, 
accumulation of financial assets and valuation and other residual effects. 

3 Assessment of the consolidation path set in SP assuming growth follows the COM  forecasts.
4Assessment of the consolidation path set in the SP assuming growth follows the SP projections.
5Not relevant for M ember Sates that were subject to an EDP procedure in November 2011 and for a period of three years following the 
correction of the excessive deficit.
6Shows the difference between the debt-to-GDP ratio and the debt benchmark. If positive, projected gross debt-to-GDP ratio does not 
comply with the debt reduction benchmark.
7Applicable only during the transition period of three years from the correction of the excessive deficit for EDP that were ongoing in 
November 2011.

8Defines the remaining annual structural adjustment over the transition period which ensures that - if followed – M ember State will 
comply with the debt reduction benchmark at the end of the transition period, assuming that COM  (SP) budgetary projections for the 
previous years are achieved.

Source :

Stability programme (SP); Commission services’ spring 2013 forecasts (COM); Commission services’ calculations.

38 

 
 
Table V. Sustainability indicators 

S2

of which:

Initial budgetary position (IBP)

Long-term cost of ageing (CoA)

of which:

Pensions

Health care

Long-term care

Others

S1 (required adjustment)*

of which:

Initial budgetary position (IBP)

Debt requirement (DR)

Long-term cost of ageing (CoA)

S0 (risk for fiscal stress)**

Debt,  % of GDP (2012)

Age-related expenditure, % of GDP (2012)

FR

EU27

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

1.9

0.9

0.9

0.6

1.0

-0.1

-0.5

2.3

-0.1

2.3

0.1

-0.4

-1.4

1.0

0.7

0.9

-0.1

-0.5

-0.4

-2.8

2.3

0.1

3.0

0.8

2.2

1.0

0.9

0.6

-0.4

2.2

0.0

1.9

0.3

0.19

90.4

31.2

:

87.0

25.8

1.3

-0.9

2.2

1.1

0.8

0.6

-0.3

0.5

-1.8

1.9

0.4

Note: 
The 'No-policy change' scenario depicts the sustainability gap under the assumption that the budgetary position evolves 
according to the Commissions' spring 2013 forecast until 2014. The 'Programme (SCP)' scenario depicts the sustainability gap 
under the assumption that the budgetary plans in the programme are fully implemented.
* The required adjustment of the primary balance until 2020 to reach a public debt of 60% of GDP by 2030.              
** The critical threshold for the S0 indicator is 0.44. 

Source : 
Commission services; 2013 stability programme.                                                                                                                               

(% of GDP)

Gross debt as % of GDP - FR - Medium term debt projections

120

100

80

60

40

20

0

0
9
9
1

2
9
9
1

4
9
9
1

6
9
9
1

8
9
9
1

0
0
0
2

2
0
0
2

4
0
0
2

6
0
0
2

8
0
0
2

0
1
0
2

2
1
0
2

4
1
0
2

6
1
0
2

8
1
0
2

0
2
0
2

2
2
0
2

4
2
0
2

6
2
0
2

8
2
0
2

0
3
0
2

COM no-policy change scenario

COM + Shock ( -1p.p. in the short-term/long-term interest rate on maturing and new debt from 2015)

COM + Shock (+1p.p. in the short-term/long-term interest rate on maturing and new debt from 2015)

COM consolidation scenario (0.5% per year on SB) in order to achieve MTO

COM consolidation scenario (1% per year on SB) in order to achieve MTO

SCP scenario

39 

 
 
 
Table VI. Taxation indicators 

Total tax revenues (incl. actual compulsory social contributions, % of GDP)

43.3

44.1

43.2

42.1

42.5

43.9

2002

2006

2008

2009

2010

2011

Breakdown by economic function (% of GDP)1
     Consumption

              of which:

              - VAT

              - excise duties on tobacco and alcohol

             - energy

             - other (residual)

     Labour employed

     Labour non-employed

     Capital and business income

     Stocks of capital/wealth
     p.m.  Environmental taxes 2
3
VAT efficiency
     Actual VAT revenues as % of theoretical revenues at standard rate

11.4

11.2

10.8

10.8

10.9

11.1

7.2

0.8

1.7

1.7

7.3

0.7

1.6

1.6

7.1

0.7

1.4

1.6

6.9

0.7

1.5

1.7

7.0

0.7

1.4

1.7

7.0

0.8

1.5

1.9

20.9

21.0

20.8

21.2

20.8

21.2

1.4

5.5

4.3

2.1

1.4

6.1

4.6

1.9

1.5

5.8

4.5

1.8

1.5

4.3

4.6

1.8

1.6

5.1

4.3

1.8

1.7

5.6

4.6

1.8

50.2

51.3

49.8

46.4

47.1

47.8

Note: 
1 Tax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission 
(2013) Taxation trends in the European Union, for a more detailed explanation.

2 This category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.

3 The VAT efficiency is measured via the VAT revenue ratio. The VAT revenue ratio is defined as the ratio between the actual VAT revenue collected and the 
revenue that would theoretically be raised if VAT was applied at the standard rate to all final consumption. A low ratio can indicate a reduction of the tax base due 
to large exemptions or the application of reduced rates to a wide range of goods and services ('policy gap') or a failure to collect all tax due to e.g. fraud ('collection 
gap'). See European Commission (2012), Tax reforms in EU M ember States, European Economy 6/2012 and Taxation Papers 34/2012 for a more detailed 
explanation.

Source: Commission

40 

 
 
Table VII. Financial market indicators 

2008

2009

2010

2011

2012

Total assets of the banking sector (% of GDP)

398.9

406.0

404.0

420.7

397.9

Share of assets of the five largest banks (% of total assets)

Foreign ownership of banking system (% of total assets)
Financial soundness indicators:
              - non-performing loans (% of total loans)1),2)
              - capital adequacy ratio (%) 1), 2)
              - return on equity (%) 1)
Bank loans to the private sector (year-on-year % change)

Lending for house purchase (year-on-year % change)

Loan to deposit ratio

CB liquidity as % of liabilities
Banks' exposure to countries receiving official financial assistance  (% of GDP)3)
Private debt (% of GDP)
Gross external debt (% of GDP)4)
            - Public
            - Private

Long term interest rates spread versus Bund (basis points)*

Credit default swap spreads for sovereign securities (5-year)*
Notes: 

51.2

12.0

2.9
10.5

3.6

7.0

7.4

47.2

10.8

4.2
12.4

7.2

-0.6

3.7

47.4

…

4.3
12.7

12.0

5.0

8.0

48.3

…

4.3
12.3

8.3

2.4

6.1

…

…

...
...

...

2.0

2.8

128.4

120.2

120.6

113.4

111.2

3.2

14.6

2.3

15.9

1.1

11.2

3.2

9.2

3.5

8.0

115.7

120.5

125.2

126.6

128.6

40.4
37.5

0.2

30.3

49.5
43.1

0.4

41.1

51.1
44.2

0.4

70.3

53.0
44.9

0.7

57.3
43.9

1.0

126.6

150.6

1) Latest data (December 2011).
2) Loans are classified as nonperforming on the basis of impairment, which is not linked to a 90-day criterion.
3) Covered countries are CY, EL, ES, LV, HU, IE, PT and RO.
4) Latest data 2012Q3.

* M easured in basis points.

Source :

Bank for International Settlements and Eurostat (exposure to macro-financially vulnerable countries), IMF (financial soundness indicators), 
Commission (long-term interest rates), World Bank (gross external debt) and ECB (all other indicators).

41 

 
 
Table VIII. Labour market and social indicators 

Labour market indicators
Employment rate
(% of population aged 20-64)
Employment growth 
(% change from previous year)
Employment rate of women
(% of female population aged 20-64)
Employment rate of men 
(% of male population aged 20-64)
Employment rate of older workers 
(% of population aged 55-64)
Part-time employment (% of total employment, 
15 years and more)
Part-time employment of women  (% of women employment, 15 
years and more)
Part-time employment of men  (% of men employment, 15 years 
and more)
Fixed term employment (% of employees with a fixed term 
contract, 15 years and more)
Transitions from temporary 
to permanent employment
Unemployment rate1 (% of labour force, 
age group 15-74)
Long-term unemployment rate2 (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)
Youth NEET rate (% of population aged 15-24)

Early leavers from education and training (% of pop. 18-24 with at 
most lower sec. educ. and not in further education or training)

Tertiary educational attainment (% of population 30-34 having 
successfully completed tertiary education)
Formal childcare (from 1 to 29 hours; % over the population less 
than 3 years)
Formal childcare (30 hours or over; % over the population less 
than 3 year)
Labour productivity per person employed (annual % change)

Hours worked per person employed  (annual % change)
Labour productivity per hour worked (annual % change; constant 
prices)

Compensation per employee (annual % change; constant prices)

Nominal unit labour cost growth (annual % change)

Real unit labour cost growth (annual % change)

2007

2008

2009

2010

2011

2012

69.8

70.4

69.4

69.2

69.2

69.3

1.4

64.8

75.0

38.2

17.3

30.4

5.7

0.5

65.5

75.5

38.2

17.0

29.5

5.7

-1.3

64.9

74.1

39.0

17.4

30.0

6.0

-0.1

64.8

73.8

39.8

17.8

30.1

6.7

0.6

64.7

73.9

41.5

17.9

30.1

6.9

0.1

65.0

73.8

44.5

18.0

30.2

6.9

15.1

14.9

14.3

15.0

15.2

15.2

1.6

7.8

2.9

19.3

10.2

11.5

41.2

17.0

23.0

-0.4

0.5

-1.0

0.2

3.2

0.7

1.3

9.5

3.4

24.0

12.4

12.2

43.2

16.0

25.0

-1.6

-1.3

-0.6

1.3

3.7

3.0

1.2

9.7

3.9

23.6

12.4

12.6

43.5

17.0

26.0

1.9

0.4

1.4

1.5

0.6

-0.4

:

9.6

4.0

22.8

12.0

12.0

43.3

18.0

26.0

1.2

-0.1

1.4

1.5

1.6

0.3

:

10.3

4.1

24.3

12.2

11.6

43.6

:

:

0.1

0.0

0.1

0.3

2.0
0.2  

1.3

8.4

3.4

19.8

10.3

12.6

41.4

13.0

14.0

0.9

0.8

0.1

0.0

1.7

-0.9

42 

 
 
Expenditure on social protection benefits (% of 
GDP)
Sickness/Health care

Invalidity

Old age and survivors

Family/Children

Unemployment

Housing and Social exclusion n.e.c.

Total

of which:  means tested benefits
Social inclusion indicators
At-risk-of-poverty or social exclusion1 
(% of total population)
At-risk-of-poverty or social exclusion of children 
(% of people aged 0-17)
At-risk-of-poverty or social exclusion of elderly 
(% of people aged 65+)
At-Risk-of-Poverty rate2 (% of total population)
Severe Material Deprivation3  (% of total population)
Share of people living in low work intensity households4 (% of 
people aged 0-59)
In-work at-risk-of poverty rate (% of persons employed)
Impact of social transfers (excluding pensions) on reducing 
poverty
Poverty thresholds, expressed in national currency at constant 
prices 5
Gross disposable income (households)
Relative median poverty risk gap (60% of median equivalised 
income, age: total)

2006

2007

2008

2009

2010

8.70

1.87

12.96

2.63

2.06

0.78

29.60

3.38

8.59

1.84

13.05

2.58

1.92

0.76

29.32

3.28

8.65

1.84

13.37

2.58

1.86

0.79

29.68

3.29

9.21

1.94

14.28

2.72

2.15

0.84

31.89

3.60

9.24

1.96

14.39

2.66

2.20

0.82

32.04

0.00

2007

2008

2009

2010

2011

19.0

19.6

15.2

13.1

4.7

9.5

6.5

18.6

21.4

13.9

12.7

5.4

8.8

6.7

18.5

21.2

13.4

12.9

5.6

8.3

6.6

19.2

22.6

12.8

13.3

5.8

9.8

6.2

19.3

23.0

11.5

14.0

5.2

9.3

7.6

50.4

46.0

46.3

47.2

43.3

9865

11215

11244

11470

11238

1255597

1297664

1305151

1331457

1365905

17.9

14.8

18.2

20.2

17.1

Notes:
1 People at-risk-of poverty or social exclusion (AROPE): individuals who are at-risk-of poverty (AROP) and/or suffering from severe 
material deprivation (SM D) and/or living in household with zero or very low work intensity (LWI).

2 At-risk-of poverty rate (AROP): share of people with an equivalised disposable income below 60% of the national equivalised median 
income. 

3 Share of people who experience at least 4 out of 9 deprivations: people cannot afford to i) pay their rent or utility bills, ii) keep their 
home adequately warm, iii) face unexpected expenses, iv) eat meat, fish, or a protein equivalent every second day, v) enjoy a week of 
holiday away from home once a year, vi) have a car, vii) have a washing machine, viii) have a colour tv, or ix) have a telephone.

4 People living in households with very low work intensity: share of people aged 0-59 living in households where the adults (excluding 
dependent children) work less than 20% of their total work-time potential during the previous 12 months.

5 For EE, CY, M T, SI, SK, thresholds in nominal values in Euros; HICP -  index 100 in 2006 (2007 survey refers to 2006 incomes)

Sources: 
For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC.

43 

 
 
Table IX. Product market performance and policy indicators 

Performance indicators

Labour productivity1 total economy (annual 
growth in %)
Labour productivity1 in manufacturing (annual 
growth in %)
Labour productivity1 in electricity, gas, steam and 
air conditioning supply (annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Total number of patent2 applications per million of 
labour force

2003-
2007

1.5

4.2

0.9

2008

2009

2010

2011

2012

-0.6

-1.9

-2.9

-2.7

1.7

7.9

1.2

1.6

0.1

n.a.

-4.0

-18.8

-1.0

-2.9

n.a.

-0.8

-4.4

-6.1

-3.3

0.6

n.a.

301.9

305.6

305.2

306.7

n.a.

n.a.

Policy indicators

Enforcing contracts 3 (days)
Time to start a business 3 (days)
R&D expenditure (% of GDP)
Tertiary educational attainment 
(% of 30-34 years old population)
Total public expenditure on education 
(% of GDP)

Product market regulation4, Overall
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Retail
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Network Industries 5
(Index; 0=not regulated; 6=most regulated)

2003-
2007
390

14

2.1

2008

2009

2010

2011

2012

390

7

2.1

390

7

2.3

390

7

2.2

390

7

2.3

37.9

41.2

43.2

43.5

43.3

390

7

n.a.

n.a.

5.72

5.62

5.89

n.a.

n.a.

n.a.

2007

2008

2009

2010

2011

2012

n.a.

n.a.

1.5

3.1

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

2.2

n.a.

n.a.

n.a.

n.a.

n.a.

Notes:
1 Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Total number of patent applications to the European Patent Office (EPO) per million of labour force
3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 

4 The methodologies of the product market regulation indicators are presented in detail on the website 
http://www.oecd.org/document/1/0,3746,en_2649_34323_2367297_1_1_1_1,00.html. The latest available product market 
regulation indicators refer to 2003 and 2008, except for Network Industries.
5 Aggregate Energy, Transport and Communications Regulation (ETCR).
*figure for 2007.

Source :
Commission, World Bank - Doing Business  (for enforcing contracts and time to start a business) and OECD (for the 
product market regulation indicators). 

44 

 
 
 
Table X. Green Growth 

Green Growth performance

Macroeconomic
Energy intensity 
Carbon intensity 
Resource intensity (reciprocal of resource productivity)
Waste intensity 
Energy balance of trade 
Energy weight in HICP
Difference between change energy price and inflation 
Environmental taxes over labour taxes
Environmental taxes over total taxes

Sectoral 

Industry energy intensity 
Share of energy-intensive industries in the economy
Electricity prices for medium-sized industrial users**
Gas prices for medium-sized industrial users***
Public R&D for energy 
Public R&D for the environment
Recycling rate of municipal waste
Share of GHG emissions covered by ETS*
Transport energy intensity
Transport carbon intensity
Security of energy supply
Energy import dependency
Diversification of oil import sources 
Diversification of energy mix
Share renewable energy in energy mix

kgoe / €
kg / €
kg / €
kg / €
% GDP
%
%
ratio
ratio

kgoe / € 
% GDP
€ / kWh
€ / kWh
% GDP
% GDP
ratio
%
kgoe / €
kg / €

%
HHI
HHI
%

2002-
2006

0.18
0.37
0.56
n.a.
-1.8%
n.a.
n.a.
8.6%
4.6%

0.16
7.1
n.a.
n.a.
n.a.
n.a.
61.2%
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

2007

2008

2009

2010

2011

0.17
0.33
0.56
n.a.
-2.3%
9
0.3
8.0%
4.1%

0.15
6.9
0.06
0.03
0.04%
0.01%
62.7%
23.6%
0.48
1.27

50.5%
0.07
0.32
6.2%

0.17
0.33
0.55
0.21
-2.9%
9
6.4
7.9%
4.2%

0.15
6.6
0.06
0.04
0.04%
0.02%
66.8%
23.4%
0.47
1.21

50.9%
0.07
0.31
6.9%

0.16
0.33
0.50
n.a.
-2.0%
8
-5.9
7.7%
4.3%

0.14
6.1
0.07
0.03
0.05%
0.02%
67.1%
21.9%
0.47
1.23

51.0%
0.07
0.31
7.4%

0.17
0.32
n.a.
0.22
-2.4%
8
4.9
7.8%
4.2%

n.a.
n.a.
0.07
0.03
0.06%
0.02%
67.4%
22.5%
n.a.
n.a.

49.1%
0.08
0.30
7.8%

0.16
n.a.
n.a.
n.a.
-3.1%
9
8
n.a.
n.a.

n.a.
n.a.
0.08
0.04
0.05%
0.01%
n.a.
21.7%
n.a.
n.a.

48.9%
n.a.
0.32
7.0%

Country-specific notes: 
The year 2012 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN elaborations indicated below
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices)
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)
          Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)
          Resource intensity: Domestic M aterial Consumption (in kg) divided by GDP (in EUR)
          Waste intensity: waste (in kg) divided by GDP (in EUR)
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP  
Energy weight in HICP: the share of the "energy" items in the consumption basket used in the construction of the HICP
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %-change)
Environmental taxes over labour or total taxes: from DG TAXUD's database "Taxation trends in the European Union"
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR) 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP
Electricity and gas prices medium industrial users: consumption band 500  - 2000M Wh and 10000 - 100000 GJ;  figures excl. VAT.
Recycling rate of municipal waste: ratio of municipal waste recycled over total municipal waste
Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP
Share of GHG emissions covered by ETS: based on greenhouse gas emissions as reported by M ember States to EEA (excl LULUCF)
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transp industry gross value added (2005 EUR)
Transport carbon intensity:  greenhouse gas emissions in transport activity divided by gross value added of the transport sector
Energy import dependency: net energy imports divided by gross inland energy consumption incl. energy consumption international bunkers

Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin 

Diversification of the energy mix: Herfindahl Index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels

Share renewable energy in energy mix: %-share in  gross inland energy consumption, expressed in tonne oil equivalents

*Provisional data (15 April 213). Commission Services and EEA.

** For 2007 average of S1 & S2 for DE, LU, NL, FI, SE & UK. Other countries only have S2.

*** For 2007 average of S1 & S2 for IT, NL, FI, SE & UK. Other countries only have S2.

45