COMMISSION STAFF WORKING DOCUMENT Assessment of the 2014 national reform programme and stability programme for FRANCE Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on France’s 2014 national reform programme and delivering a Council opinion on France’s 2014 stability programme
Date: 2014-06-02
Institutions: European Commission
Subjects: France, budget deficit, economic convergence, economic forecasting, economic reform, economic stabilisation, financial control, job creation, multilateral surveillance, public debt, social situation, stability programme, structural adjustment













EUR-Lex - 52014SC0411 - EN











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52014SC0411

COMMISSION STAFF WORKING DOCUMENT Assessment of the 2014 national reform programme and stability programme for FRANCE Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on France’s 2014 national reform programme and delivering a Council opinion on France’s 2014 stability programme /* SWD/2014/0411 final */









CONTENTS
Executive summary.............................................................................................................. 3
1..... Introduction................................................................................................................. 5
2..... Economic
situation and outlook.................................................................................. 6
3..... Challenges
and assessment of policy agenda.............................................................. 9
3.1.     Fiscal
policy and taxation.................................................................................. 9
3.2.     Financial
sector................................................................................................ 17
3.3.     Labour
market, education and social policies.................................................. 18
3.4.     Structural
measures promoting sustainable growth and competitiveness........ 24
3.5.     Modernisation
of public administration........................................................... 30
4..... Conclusions................................................................................................................ 31
Overview table................................................................................................................... 33
Annex................................................................................................................................ 40

Executive summary

France initially weathered the crisis
relatively well, but its medium-term growth prospects now look bleak. The sharp slowdown in international trade in 2009 had only a
limited impact on the French economy because of its sizeable automatic
stabilisers, its relatively small export sector, and because unlike some other
countries, France had not
been experiencing a credit boom before the crisis. However, sluggish economic
growth since 2010 has led to a rapid increase in the unemployment rate which
reached 10.3 % in 2013. The large general government deficit in 2009 and
2010 pushed the public debt ratio above 90 % of GDP in 2012. GDP growth is
expected to remain below potential in 2014 and to accelerate only moderately in
2015. The increase in production, together with measures taken to foster
employment, would allow for a moderate decrease in the unemployment rate. Meanwhile,
although a number of fiscal consolidation measures were announced, notably as
part of a 'responsibility and
solidarity pact', the general
government deficit is expected to remain significantly above the 3 %
benchmark by 2015. 
Overall, France has made some progress in
addressing the 2013 country-specific recommendations. France has made some progress in reducing the general government
deficit further and improving the sustainability of public finances, in
particular through a pension reform. The government has also carried out a
review of the taxation system and the national reform programme provides
indications on the measures identified to streamline it, notably as part of the
responsibility and solidarity pact. Some progress has
been made in implementing the recommendations related to the labour market and
school to work transition but efforts to address rising unemployment of older
workers have been limited. Some progress has been achieved towards reducing the
cost of labour and improving framework conditions for innovation but only limited
progress has been made as regards the business environment, despite the few simplification
measures implemented as part of a 'simplification plan' initiated in 2013. The national
reform programme spells out the government's economic strategy and provides
some indications on policy actions going forward, although with a generally
limited level of detail. The stability programme provides only partial
information on the savings measures which have been announced as part of the responsibility
and solidarity pact, as reflected in the Commission 2014 spring forecast and
with risks tilted to the downside. 
To stimulate economic growth and restore
competitiveness, particular attention should be paid to a number of policy
areas: 
·        
Public
finances:
Based on the information available at the cut-off date, the Commission 2014 spring
forecast projects that, in spite of the measures announced as part of the responsibility
and solidarity pact, the government deficit will not be corrected on time. The
deficit is expected to be 3.4 % of GDP in 2015, significantly above the 3 %
government's target. The consolidation strategy outlined in the stability
programme must be specified further and additional measures on top of those
planned may be needed to comply with the requirements of the Stability and
Growth Pact. The focus should be resolutely on improving the cost-effectiveness
of public expenditure at all levels of general government and redefining, where
relevant, the scope of government action. In addition, further improving the
sustainability of public finances in the medium and long term remains a
challenge. 
·        
Labour
market and education: Challenges in
the labour market remain acute. The level of segmentation remains high and the
unemployment rate continued to increase in 2013, coming close to its 1997 high.
Some progress has been made in implementing the country-specific
recommendation on the functioning of the labour market. In particular, the law
on securing employment adopted in June 2013 seeks to improve 'flexicurity'
although its actual impact has been limited to date. The new law on lifelong
learning and vocational education, which will come into force at the start of
2015 and seeks to enhance training among unemployed, should also help reduce skill
losses associated with long-term unemployment. However, its direct impact on
employment will remain marginal in the short term. The 2013 reform of
compulsory education and the law on higher education and research are first
steps to ease transition from education to work in particular for the low
qualified and will need to be fully implemented.
·        
Competitiveness: As
highlighted in the 2014 in-depth review, France is facing a strong
deterioration of its export peformance compared to the early 2000's
which originates in both cost and non-cost factors. In particular, the low
profitability of non-financial companies limits their potential to grow,
innovate and export. In order to support cost competitiveness, the government
has launched a number of initiatives to shift the tax burden from labour to
environmental taxation and consumption, including the tax credit for
competitiveness and employment and a further cut in employer social security
contributions announced as part of the responsibility and solidarity pact. While
these measures will reduce the cost of labour and are thus expected to support
employment, their impact on competitiveness is more uncertain and may only
materialise in the medium term. In order to support non-price competitiveness,
further efforts are still needed to improve the business environment, beyond
the measures already enacted. In addition, the efficiency of the innovation
policy can be further enhanced. 
·        
Reform
of the services market: Limited progress
has been made in improving competition in regulated professions and services, a
key issue highlighted in the 2013 country-specific recommendations. Such
reforms would help improve the overall competitiveness of the economy by
increasing employment in services and decreasing input costs for export
industries. They could also contribute to simplifying the business environment.
In addition, the level of competition could also be strengthened in the energy and
transport sectors. 

1.         
Introduction 

In May 2013, the Commission proposed a set
of country-specific recommendations (CSRs) for economic and structural reform
policies for France. On
the basis of these recommendations, the Council of the European Union adopted
six CSRs in the form of a Council Recommendation in July 2013. These CSRs
concerned public finances, cost and non-cost competitiveness, competition in
services, tax policy and the labour market. This staff working
document assesses the state of implementation of these recommendations in France.
The staff working document assesses policy
measures in light of the findings of the Commission's Annual Growth Survey 2014
(AGS),[1] the Joint Employment Report 2014 (JER)[2] and the third annual
Alert Mechanism Report (AMR),[3] which were published in November 2013. The AGS sets out the
Commission's proposals for building the necessary shared understanding of the
priorities for action at national and EU level in 2014. 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 may emerge 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 15 other Member States were selected for a review of developments in the accumulation and
unwinding of imbalances. These in-depth reviews were published on 5 March
2014 along with a Commission communication.[4]
In light of the 2013 Council
Recommendation, the AGS, the AMR and the in-depth review, France presented an update of its national reform programme and of its stability programme
on 7 May 2014. These programmes provide information on progress made since July
2013 and on the economic strategy of the government going forward. The information contained in these programmes provides the basis for
the assessment made in this staff working document.
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 23 April. These documents were also submitted on that
date to the French Parliament, which endorsed a declaration on the latter
through a vote on 29 April.

2.         
Economic situation
and outlook

Economic Situation
In 2013, economic growth in France remained marginally positive (0.3 %, unchanged from 2012),[5] on the back of a timid recovery in domestic demand. Private
consumption rose slightly as the sharp decline in inflation increased
households' purchasing power in spite of still increasing unemployment. Investment
contracted (-1.0 %) for the first time in annual terms since 2009. While
external demand accelerated in 2013, exports did not significantly pick up,
pointing to further losses in export market shares which resulted in an only
slightly positive contribution of net trade to growth (0.1 pp). The fall in inflation
(1.0 % on average in 2013 after 2.2 % in 2012) stemmed from
decreasing energy prices, the large gap between actual and potential output and
from the continuing effects on prices of the introduction of a fourth mobile operator
in 2012. 
Employment decreased by 0.2 % in 2013,
the first yearly decrease since 2009, in a context of sluggish demand and low
profitability of companies. Consequently, the unemployment rate continued to
rise to 10.3 % in 2013, from 9.8 % a year earlier, despite a modest
decrease in the last quarter notably driven by the take-up of subsidized job
schemes (the emplois d'avenir). The most vulnerable groups have been particularly
affected by the difficult conditions in the labour market. The youth unemployment
rate reached 24.8 % in 2013, compared to 24.4 % in 2012, while the
number of unemployed workers above 50 increased by 15 %. 
Economic Outlook 
The Commission 2014 spring forecast (the
Commission forecast thereafter) expects that the French economy will gradually
recover, with GDP projected to grow by 1.0 % in 2014 and by 1.5 % in
2015. Private consumption, the traditional growth driver of the French economy,
is expected to keep on accelerating, driven notably by a gradual turnaround in unemployment.
Persistently low inflation is also set to contribute to the improvement in households'
purchasing power, thus supporting consumption. From 2015 on, the measures for low-income
households announced as part of the responsibility and solidarity pact (see Section
3.1) are set to further support employment and consumption. Investment is also
expected to recover due to higher demand and improved confidence as companies'
profit margins are forecast to recover in 2014 and 2015. Falling energy prices
and still modest activity growth are expected to mitigate the impact of recent
VAT increases and inflation is set to reach 1.0 % and 1.1 % in 2014
and 2015, respectively.
The recovery in aggregate demand is set to
remain too limited to translate into significant job creation in the private
sector in 2014. However, subsidised job schemes, which mainly impact on the
public sector, are expected to continue supporting total employment. For 2015,
the planned reduction in employer social security contributions for low wages
announced as part of the responsibility and solidarity pact is set to translate
into an acceleration of job creation (+0.8 %). However, the impact on
unemployment will be mitigated by the continuing expansion of the labour force.
Altogether, the unemployment rate is forecast to stabilise at 10.4 % in
2014 before receding to 10.2 % in 2015. 
The macroeconomic scenario which
underpins the stability programme and the national reform programme is based on
a growth forecast of 1.0 % in 2014 and 1.7 % in 2015. For 2014, the
GDP growth rate is identical to the one in the Commission forecast. For 2015,
the official forecast comes close to that of the Commission, although the
latter is slightly less optimistic on the contribution of trade to growth. This
notably reflects a relatively optimistic assessment by the government of the
impact of the tax credit for competitiveness and employment (the crédit d'impôt
compétitivité-emploi or CICE) on the French export competitiveness. In the
national reform programme, indications are given on the macroeconomic impacts
associated with major reforms, including the responsibility and solidarity
pact, the 2013 pension reform, the administrative simplification process and specific
measures included in the law on consumption. In its opinion on the
macroeconomic scenario included in the stability programme, the High Council for
Public Finances considered that the government's macroeconomic forecast for
2014 was plausible and, for 2015, achievable but based on a number of
optimistic assumptions. By contrast, the macroeconomic scenario for the outer
years covered by the programme was considered optimistic. 
Box 1. Conclusions
from the March 2014 in-depth review on France
The
third in-depth review on France under the Macroeconomic Imbalance Procedure was
published on 5 March 2014.[6] On the basis of
this review, the Commission concluded that France continues to experience
macroeconomic imbalances, which require specific monitoring and decisive policy
action. The main observations and findings from the
analysis are:
•         
France
has experienced significant losses in export market shares in recent years
(-14.0 % between 2007 and 2012). While the current level of the
current account deficit and net international investment position deficit
remains benign,
the eroding export performance has resulted in a continuous deterioration of
these deficits. 
•         
While
wage developments have generally followed the trend in productivity, France is one of the euro area economies where the cost of labour is the highest. In
particular, the high tax burden on labour reduces companies'
profitability. Rigidities in the wage setting framework may
distort the wage structure and limit wage adjustments.
•         
Non-cost
factors have been key to the deterioration in export performance. The low
profit margins of French companies, which continued to deteriorate in 2012
notably due to a still increasing tax burden, may reduce companies' ability to
invest and to effectively engage in export activities. The business environment
in France also constitutes a barrier to companies'
export potential. 
•         
The
high general government deficit, together with a still rising public debt, represents
a major vulnerability that calls for further adjustment measures. France's
deficit increased sharply in 2009 as a result of the economic crisis. While
risks to medium-term sustainability are moderate, the increase in public debt
following the financial crisis means that the economy has become more sensitive
to potential adverse economic events.
•         
As
the French economy is tightly interconnected with the other Member States,
through both trade and financial channels, negative developments in France would potentially have a significant impact on the other euro area economies.
The in-depth review also discusses policy elements stemming from
these areas and possible avenues for remedying the macroeconomic imbalances
identified:
•        
Efforts
to reduce the government deficit need to be strengthened, in line with the
trajectory recommended under the Excessive Deficit Procedure, and focus should
be put on reducing public expenditure.
•        
There
is still room to improve competition in services, with a positive impact on
intermediary costs. Meanwhile, important resources have been
dedicated to innovation policy but outcomes appear modest so far. 
•        
The
importance of the minimum wage in the overall wage-setting framework and the
limited existing exemptions contribute to wage rigidities, and have an impact
on the employment prospects of workers with low skills. In addition, social
security contribution exemptions, which mitigate the impact of the minimum wage
on employment for low-skilled workers, may distort the wage distribution and
reduce incentives to increase skills.

3.         
Challenges and assessment of policy agenda
3.1.           
Fiscal policy and taxation

Budgetary
developments and debt dynamics 
The main purpose of the 2014 stability
programme is to achieve the medium-term objective, which is a balanced budget
in structural terms, as in last year's programme. The
medium-term objective (MTO) is more stringent than what the Stability and
Growth Pact requires. The target year for reaching the MTO is 2017, compared
with 2016 in the previous stability programme. However, based on the evolution
of the (recalculated) structural balance,[7]
the MTO will not be achieved within the timeframe set forth in the stability
programme, in contrast to what the 2013 CSR called for. The adjustment path
over 2014-17 aims first to bring the general government deficit to the
reference value of 3 % of GDP by 2015. While a correction of the excessive
deficit by next year is in line with the revised deadline set by the Council
under the Excessive Deficit Procedure in 2013, the target in the programme is
above the recommended target of 2.8 % of GDP (see Box 2). The
(recalculated) structural balance is projected to improve from -3.1 % of
GDP in 2013 to -0.8 % in 2017.
In 2013, the general government deficit
reached 4.3 % of GDP, down from 4.9 % in 2012 (revised from 4.8 %).[8] This is higher than the target of 4.1 % of GDP contained in
the Draft Budgetary Plan submitted by France in October 2013 and much above the
3.7 % target of the 2013 stability programme. The gap compared to the target
set by the Draft Budgetary Plan stemmed from a lower yield from revenue
measures and weaker growth of tax bases, which taken together translated into a
larger loss of tax receipts than expected. Revisions to 2012 data also
contributed negatively to the outcome (base effect). This was partly offset by
public spending growing at a slower pace than projected at the time of the
Draft Budgetary Plan (+2.0 % versus +2.5 %).
The stability programme projects that
the deficit will improve further and reach 3.8 % of GDP in 2014. This is 0.2 pp higher than the target of 3.6 % of GDP enshrined
in the Draft Budgetary Plan. Based on the Commission forecast, the
revised target seems plausible provided that the budget and the additional
measures outlined in the stability programme, some of which remain to be
adopted, are strictly implemented. The latter consist of savings to offset the
loss of tax receipts due to the suspension of a green tax on heavy goods
vehicles (the éco-taxe poids lourds), the cancellation of ministerial
appropriations to be adopted as part of a supplementary budget, savings linked
to the reform of the unemployment benefit system and the first effects of the
EUR 50 billion savings plan announced by the government (see next
paragraph). Finally, with local elections held in March and based on previous
election cycles, the stability programme projects a drop in public investment.
Overall, the revised deficit target of 3.8 % of GDP appears within reach,
with the Commission forecast at 3.9 %. The difference stems solely from
slightly divergent expenditure projections, notably in intermediate consumption
and social benefits. 
Looking forward, the stability programme
aims at a deficit of 3.0 % in 2015, with the general government balance
planned to improve further in 2016-17. The deficit
targets for 2015-16 have been revised upwards compared to the trajectory
underpinning the Draft Budgetary Plan but the target for 2017 is broadly
unchanged at 1.3 % of GDP. This implies that the planned adjustment has
been somewhat backloaded compared to the autumn scenario, notably due to the
responsibility and solidarity pact announced by the government. The reduction in
the deficit is planned to be achieved through expenditure cuts, with an overall
savings target of EUR 50 billion or around 2.5 % of GDP over
2015-17. General government expenditure is projected to grow by only 0.1 %
annually when deflated by the national consumer price index, against 0.8 %
in 2010-13 and more than 2 % in the previous decade.
The key assumption underpinning the EUR 50 billion
savings target over 2015-17 is that social benefits and local government
spending will, as a consequence of measures, grow at a much slower pace than in
previous years. The stability programme provides a
breakdown of the savings target by sub-sector of general government. EUR 18 billion
are expected to come from central government spending norms being renewed.[9] The government plans to contain the wage bill and other operating
costs by maintaining the freeze in base wages (in place since 2010), achieving
efficiency gains and rationalising public sector real estate. State-controlled
agencies (the organismes divers d'administration centrale) will be
financially incentivised to reduce their own spending as well. Local
governments will see an unprecedented EUR 11 billion cut in grants
from the state over the next three years. In order for this to translate into a
similar reduction in local spending and thus contribute to lowering the general
government deficit, the stability programme outlines a number of reforms which
are assumed to bring substantial savings. In particular, a bonus and penalty
system will be introduced in state grants to local authorities as from 2015.
The clause de compétence générale, which allows the régions and the
départements to undertake initiatives that go beyond their immediate
scope of action, will be revoked since it is often considered to generate
overlaps and a waste of resources. In addition, the government aims to halve
the number of régions and increase the size of intermunicipal
authorities (the intercommunalités) but also initiate a debate on the
future of the départements. Finally, an ambitious EUR 21 billion
is to come from savings in social benefits. Setting a more ambitious healthcare
spending norm (the objectif national de dépenses d'assurance maladie or
ONDAM) is planned to bring EUR 10 billion over 2015-17. The remaining
amount comprises the multi-year effects of already legislated measures, a
one-year nominal freeze in social benefits and a number of reforms which remain
to be specified.
In light of the Commission forecast,
which projects that the deficit will reach 3.4 % of GDP in 2015, the
trajectory outlined in the stability programme appears insufficiently
specified. Based on the information available at
the cut-off date, the Commission forecast incorporates a large part of the
savings targeted for 2015. In particular, it assumes that central government
and healthcare expenditure norms will be strictly met, the savings target on
social benefits broadly achieved and that the announced cut in grants to local
governments will to a large extent translate into lower local spending. Despite
that, the Commission forecast expects that the deficit will remain above the 3 %
of GDP target in 2015. Some of the reforms in the stability programme have not
been considered in the forecast as the information provided is not specific
enough. These include further streamlining family allowances and reducing operating
costs of social security funds. Similarly, a number of revenue measures
underpinning the planned deficit reduction path are still to be specified.
Risks to the Commission forecast and
thus to the 3 % of GDP target are clearly tilted to the downside and
primarily relate to the government's ability to effectively reduce spending by
social security funds and local governments. While
keeping central government expenditure under control appears achievable to the
extent that this has already been done in previous years, reducing the rate at
which social benefits and local government spending grow, as planned in the
stability programme, may not be achieved. Beyond the fact that the overall
savings target for 2015-17 is partly unspecified, it appears premature to say
whether a number of measures which depend on decisions by local governments and
the social partners will be implemented within the time and budget constraints
specified in the programme. In addition, regarding local governments, not only
the structural reforms outlined in the programme (reducing the number of régions,
enhancing intermunicipal cooperation, restricting the powers of or abolishing the
départements), which are expected to deliver substantial savings, will
take effect only in the medium term but they are also subject to significant
implementation risks. In the field of social security, setting unprecedentedly
ambitious annual healthcare expenditure targets from 2015 is a step in the
right direction, but achieving them will be challenging. Containing the
increase in pension costs and other social benefits already in the short term
is also a key area of uncertainty, as illustrated by the fact that the
government after submitting the stability programme partly backtracked on plans
to freeze pensions. More generally, judging from the evaluations conducted and
the measures taken so far, it remains unclear whether the on-going spending
review (the modernisation de l'action publique or MAP) will indeed lead
to a major review of the scope of government action and not only to short-term,
across-the-board cuts. In this respect, the savings to come from already
specified measures remains modest,[10] and while the newly created Strategic Council for Public Spending
is expected to provide a boost to the MAP process, few concrete measures have
resulted from it so far. Finally, the macroeconomic scenario for the outer
years underpinning the stability programme is also subject to downside risks,
as highlighted by the High Council for Public Finances, which would in turn
negatively affect the general government balance. 
The structural adjustment underpinning
the deficit targets for 2013-14 appears plausible, in contrast to the shortfall
expected for 2015. Considerable downside risks remain. The Commission forecast projects that the general government
deficit will reach 3.9 % of GDP in 2014 and 3.4 % in 2015, against
3.8 % and 3.0 %, respectively, in the stability programme. The annual
changes in the (recalculated) structural balance deriving from the programme
are estimated to fall short of the levels recommended by the Council in June
2013, except for 2014. The corrected changes in the structural balance deriving
from the Commission forecast are estimated to fall short of these levels over
the entire horizon (2013-15), albeit by a small margin as regards 2013 and 2014
(0.1 % of GDP in each year). The fiscal effort calculated on the basis of
a bottom-up assessment of discretionary measures paints a very similar picture,
with a shortfall of 0.1 % of GDP in 2013 and no shortfall in 2014 against
the levels deemed consistent with the annual changes in the structural balance
recommended by the Council. Overall, the expected deviation from the structural
effort targets for 2013-14 set in the Council recommendation and the underlying
amounts of discretionary measures appears smaller than estimated at the time of
the Commission 2014 winter forecast, on the basis of which the Commission on 5
March addressed a recommendation to France (see Box 2). The difference between
the winter forecast and the spring forecast is notably explained by the outturn
data for 2013 and the additional measures for 2014 outlined in the stability
programme. The fiscal effort is expected to fall significantly short of the
required level in 2015, reflecting the projected deviation from the headline
deficit target of 3.0 % of GDP. Risks to the corrected improvements in the
structural balance and the bottom-up fiscal efforts as derived from the Commission
forecast are tilted to the downside and reflect most of the risks to the
headline deficit numbers.
Box 2. Excessive deficit procedure for France
France is currently
subject to the corrective arm of the Stability and Growth Pact. The Council
opened the Excessive Deficit Procedure for France on 27 April 2009 and
recommended it to correct the excessive deficit by 2012, a deadline which was
extended to 2013 on 2 December 2009. 
On 21 June 2013, the Council concluded that France had taken effective action but that adverse economic events with major implications on public
finances had occurred and hence issued the following recommendation: "(1) France should put an end to the present excessive deficit situation by 2015. (2) France should reach a headline deficit of 3,9 % of GDP in 2013, 3,6 % in 2014 and
2,8 % in 2015, which is consistent with delivering an improvement in the
structural balance of 1,3 % of GDP in 2013, 0,8 % in 2014 and 0,8 %
in 2015, based on the extended Commission 2013 spring forecast. (3) France
should fully implement the already adopted measures for 2013 (1½ % of GDP)
and specify, adopt and implement rapidly the necessary consolidation measures
for 2014 and 2015 in order to achieve the recommended improvement in the
structural balance, while proceeding as currently planned with a thorough
review of spending categories across all sub-sectors of general government,
including at social security and local government levels. (4) France should use all windfall gains for deficit reduction. Budgetary consolidation
measures should secure a lasting improvement in the general government
structural balance in a growth-friendly manner. (5) The Council establishes the
deadline of 1 October 2013 for France to take effective action and, in
accordance with Article 3(4a) of Regulation (EC) No 1467/97, to report in
detail the consolidation strategy that is envisaged to achieve the targets.
Furthermore, the French authorities should strengthen the long-term
sustainability of the pension system by further adjusting all relevant
parameters. In particular, the planned reform, as currently envisaged, should
be adopted by the end of this year, and bring the system into balance in a
sustainable manner no later than 2020 while avoiding any further increase in
the cost of labour. In addition, to ensure the success of the fiscal
consolidation strategy, it will be important to back the fiscal consolidation
by comprehensive structural reforms, in line with the Council recommendations
addressed to France in the context of the European Semester and, in particular,
those related to the Macroeconomic Imbalance Procedure."
On 5 March 2014, the Commission, having regard to Regulation (EU) No
473/2013 of the European Parliament and of the Council of 21 May on common
provisions for monitoring and assessing draft budgetary plans and ensuring the
correction of excessive deficits of the Member States in the euro area, and in
particular Article 11(2), recommended that France makes efforts to ensure full
compliance with the Council recommendation of 21 June 2013. To this end, France was recommended to take the necessary steps to ensure that the structural effort
recommended by the Council is met and to report on measures responding to this
recommendation in a dedicated section of the 2014 stability programme. 
The year following the correction of the
excessive deficit, France will be subject to the preventive arm of the Pact and
should ensure sufficient progress towards its MTO. As the debt ratio in 2015 is
projected at 96.6 % of GDP, exceeding the 60 % of GDP reference
value, during the three years following the correction of the excessive deficit
  France will also be subject to the transitional arrangements as regards
compliance with the debt criterion, during which it should ensure sufficient
progress towards compliance.
An overview of the current state of excessive deficit procedures is
available at: http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/index_en.htm.
In the years following the planned
correction of the excessive deficit, the planned (recalculated) annual progress
towards the MTO is lower than the minimum requirement of at least 0.5 % of
GDP. According to the information provided in the
stability programme, the annual change in the (recalculated) structural balance
is 0.4 % of GDP in 2016-17. Moreover, most if not all of the downside
risks to the government's strategy identified for 2015 are also valid for the
subsequent years covered by the programme. As a consequence, a deviation from
the adjustment path towards the MTO is to be expected in both 2016 and 2017. 
The general government debt kept
increasing in 2013 and the trend is not expected to be reversed over the
horizon of the Commission forecast. Starting from
64.2 % in 2007, the ratio of debt to GDP reached 93.5 % in 2013 and
the Commission forecast projects it to increase further in 2014-15. The
stability programme expects that the debt ratio will peak at 95.6 % of GDP
in 2014 and 2015 and then drop to 91.9 % in 2017. In 2016-17, assuming
that the excessive deficit will be corrected in 2015, as planned in the
stability programme, France would be in a transition period regarding the debt
rule. The debt ratio in the Commission forecast for 2015 is above the
government's figure due to the projected higher deficit 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.
Fiscal framework
The impact on budgetary forecasting of
the newly created High Council for Public Finances has been positive but the
overall added value of reforms introduced under the Treaty on Stability,
Coordination and Governance will depend on the functioning of the national
correction mechanism. The High Council for Public
Finances was created in 2012 as part of the transposition of the Treaty on
Stability, Coordination and Governance (TSCG) into national law. Its task is to
assess ex ante consistency of draft annual (or supplementary) budgets with a
pre-defined multiannual structural deficit reduction path and to report ex post
on possible significant deviations from that path, which would then automatically
trigger a correction mechanism. The opinions the High Council has issued so far
have shed light on the plausibility of government forecasts and probably played
a role in the draft budget for 2014 being based on realistic macroeconomic
assumptions, which was not always the case in previous years. By contrast,
uncertainty remains regarding the functioning of the correction mechanism which
is to be triggered in the event of significant deviation.
Existing coordination mechanisms across
general government sub-sectors are insufficient to effectively involve
non-state-controlled sub-sectors in the overall deficit reduction strategy. Regarding local governments, efforts to curb grants from the central
government have been made, with notably a nominal freeze in 2011-13 followed by
a EUR 1.5 billion cut in 2014. However, this will not necessarily
translate into a similar reduction in local spending insofar as local
authorities have also been entitled to temporarily raise stamp duties on the
sale of immovable property in 2014-15. More generally, a 'confidence and
responsibility pact' between
the central government and local authorities has been agreed on, but a genuine
governance framework for local authorities remains to be built, as acknowledged
in a recent report from the Court of Auditors.[11] Regarding supplementary pension schemes for private sector workers,
the social partners reached an agreement in 2013 which will partly reduce
deficits. An agreement to curb the deficit of the unemployment benefit system,
also run by the social partners, has been reached as well. Although both
agreements will have a positive impact on the general government balance, there
is a need to improve coordination mechanisms to ensure that
non-state-controlled sub-sectors of general government are effectively involved
in the country's deficit
reduction strategy. In particular, introducing a ceiling on the annual increase
in local government tax revenue while maintaining the planned reduction in
grants from the central government would help curb local government expenditure.
Long-term
sustainability of public finances
France
appears to face medium fiscal sustainability risks in the medium term. The medium-term sustainability gap,[12] showing the adjustment effort up to 2020 required to bring the debt
ratio to 60 % of GDP in 2030, amounts to 2.2 % of GDP, primarily due
to the high level of government debt (96.6 % of GDP in 2015). In the long term,
  France appears to face low fiscal sustainability risks, primarily related to
the projected ageing costs contributing with 1 pp of GDP over the very long
run, in particular in the field of healthcare expenditure. The long-term
sustainability gap,[13] which shows the adjustment effort needed to ensure that the
debt-to-GDP ratio is not on an ever-increasing path, is 1.6 % of GDP. Risks would be
higher if the structural primary balance was to revert to values closer to the
average recorded over the 2004-13 period. It is therefore appropriate for France to reduce government debt and further contain age-related expenditure[14] growth to contribute to the sustainability of public finances in
the long term. 
Limited progress has been made in
tackling the rise in public expenditure on health projected in the medium and
long run. Costs have been kept under control for
the last few years thanks to improved monitoring, with public expenditure on
health (ONDAM) below target for the fourth consecutive year in 2013. Savings measures
in 2014 include a further cut in pharmaceutical prices, efforts to eliminate
prescriptions and treatments deemed medically unnecessary and further lowering
tariffs for laboratory and imaging services. Savings in administrative costs
are also planned, although it remains to be seen how precisely these will be
achieved. While such savings will help keep spending under control in the short
term, there is a need to implement further cost-containment policies as the
system is expected to face a significant rise in expenditure over the medium and
long term. Indeed, according to the 2012 Ageing Report,[15] public spending on health is projected to increase by 2.1 % of
GDP by 2060 when factoring in both demographic and non-demographic factors.
This is higher than the EU-27 average of 1.7 % of GDP and far above the
projected rise in pension expenditure (0.5 % of GDP by 2060). Areas where
efficiency could be further improved include pharmaceutical and administrative
spending.[16] The government has acknowledged the need to increase the efficiency
of hospital care as well. Recent estimates from the OECD[17] suggest that the savings potential in the area of healthcare in France is sizeable (1.3 % of GDP) although below the OECD average (1.9 % of GDP).
These estimates are based on the difference between a scenario with no reform
and a scenario where countries become as efficient as the best-performing
countries. Overall, France can be considered to have made limited progress in
addressing the country-specific recommendation on the cost-effectiveness of the
health system.
France
has made some progress in improving the sustainability of the pension system
but adopted measures will likely not be sufficient to eliminate its deficit. A pension reform was adopted in December 2013 with a view to
ensuring the medium- and long-term sustainability of the system, improving its
fairness and strengthening governance rules. Until 2020, revenue measures will
account for the bulk of the adjustment. These mainly consist of higher employer
and employee social security contributions. Measures to increase the effective
retirement age will only come into effect from 2020. In particular, the minimum
number of years an employee must pay into the system before qualifying for a
full pension will rise to 43 years by 2035, from an expected 41¾ in 2020. A monitoring
committee has also be created, to revise the pension system annually and make
recommendations to the government, including on whether sustainability risks
need to be addressed. The reform contains a number of measures to take better account
of strenuous activities and to increase women's pensions. Despite the progress made, more still needs to be done. The
adopted measures will only halve the system's total deficit to approximately 0.5 %
of GDP by 2020, according to official projections from the authorities. In
particular, pension schemes for state government officials and employees
working in a number of state-controlled companies will need additional funding
to cover the cost of pension payments. The deficit reduction path planned by the
reform is also subject to significant risks. In particular, as was the case
with previous reforms, the macroeconomic scenario underpinning the government's
projections could prove overly optimistic notably when compared with the
near-term economic outlook shown in the Commission forecast and the medium- and
long-term macroeconomic assumptions in the 2012 Ageing Report. The budgetary
cost of measures to take better account of strenuous activities is subject to
significant uncertainty and is a further risk to the long-term financial
position of the pension system. The sustainability of the pension system will
also depend on the ability of the newly created monitoring committee to
effectively address potential deviations from the deficit reduction path underpinning
the reform.
Tax system
France
has a high and rising overall tax burden. In 2013,
France received a country-specific recommendation to continue efforts to
simplify the tax system and increase its efficiency, in particular through
broadening income tax bases while lowering statutory rates, increasing VAT
efficiency, shifting the tax burden from labour to environmental taxation and
consumption and further reducing the debt bias in corporate income taxation. France has made limited progress in addressing
these recommendations (for the detailed assessment, see the overview table in
Section 4). Tax-related challenges therefore remain relevant, especially in the
context of the AGS objectives of fiscal consolidation and promoting growth and
competitiveness. 
Additional cuts in the tax burden on
labour have been announced by the government. As of 2014, the CICE tax credit introduced for corporate taxation
amounts to 6 % of gross wages of up to 2.5 times the minimum wage,
compared to 4 % in 2013. The overall budgetary cost is estimated at EUR 10 billion
in 2014 and EUR 20 billion (1 % of GDP) when in full effect,
funded mainly through increases in standard and reduced VAT rates from January
2014 and through expenditure cuts. An increase in environmental taxation also
helps to fund the measure. In addition, in January 2014, the government
announced an additional EUR 10 billion by 2016 to reduce the cost of
labour for companies as part of the responibility and solidarity pact. This
includes EUR 4.5 billion on low wages (between 1 and 1.6 times the minimum wage), an
additional EUR 4.5 billion on medium wages (between 1.6 and 3.5 times
the minimum wage) and EUR 1 billion for the self-employed. Together
with the CICE these measures will account for EUR 30 billion or 1.5 %
of GDP, which is commensurate with the overall increase in business taxation
recorded in 2010-13.
No progress has been made in broadening
personal and corporate income tax bases and increasing VAT efficiency. Broadening tax bases would provide room to pursue a more robust tax
shift and for statutory rates to be reduced. No progress has been made over the last year in reducing and
streamlining income tax expenditures. Instead, a temporary surcharge on large
companies created in 2012 has been extended to 2015 and its rate has been more
than doubled to 10.7 %. This results in the all-in statutory corporate
income tax rate peaking at 38.1 %. The statutory rate is already one of
the highest in the EU at 33.3 %. The 2014 budget also introduced reduced
VAT rates on energy- or social housing-related renovation works and on cinema
tickets, with no review of their effectiveness. In such cases, specific ex post
evaluations would help determine whether a narrowing of the tax base is an
efficient method of achieving social and environmental goals.
Following opinions of the environmental
taxation committee, a number of measures in the area of environmental taxation
have been adopted or are planned. Steps were taken
with the introduction of a new CO2 component in excise duties on energy products (the 'carbon tax'), a
broadening of the tax base of the general tax on
polluting activities, a phasing out of reduced rates for certain biofuels and
the strengthening of bonus and penalty car taxation.
However, there is scope for further substantial improvement. First, excise
duties are not indexed with inflation although this would help maintain the
real value of taxes over time. Furthermore, some exemptions to the carbon tax and
partial reimbursements remain for some sectors (agricultural, fishing and
transport businesses), reduced VAT rates are in part applied on electricity and
natural gas (which conflicts with overall ambitions in energy and climate
policy) and diesel still benefits from a preferential rate of excise duty.[18] A tax on hydrofluorocarbons (HFC) also represents a possible source
of tax revenues in addition to its effect on greenhouse gas emissions
reductions.[19] Lastly, although the government has
suspended a tax on heavy goods vehicles in light of public resistance, its
implementation remains necessary and in line with the 'user pays' or 'polluter
pays' principles. Overall, France can be considered to have made some progress
in addressing the recommendation on environmental taxation, even though there
is scope for improvement in the sectors of water, waste[20] and air pollution[21] and in phasing out environmental harmful subsidies,[22] taking into account social concerns. 
Limited progress has been made in
further reducing the bias favouring debt rather than equity financing in
corporate income taxation. As part of the 2013
budget, France adopted a measure which limits the deduction of net loan interests
above EUR 3 million to 75 % (85 % in 2013). Both the fact
that the deduction is calculated on a net basis and the fact that the threshold
is relatively high suggest that this measure is targeted to large companies. France has also adopted measures to promote equity financing through tax incentives for
business angels and announced a decrease in the statutory rate of corporate income
tax (from 33.3 % to 28 %). However, the latter remains to be formally
adopted and it will take effect over 2017-20 only. Therefore, vulnerabilities
related to over-reliance on debt financing remain and need to be further
addressed. 
Overall, France has recently made some
progress in adressing the recommendation in the area of labour taxation which,
however, needs to be assessed against an increasing trend in the overall tax
burden since the beginning of the crisis and very limited action to pursue efforts
to simplify the tax system and improve its overall efficiency. A special committee (the Assises de la fiscalité) has
provided avenues for reform of the tax system within the current government
term. A number of measures were unveiled as part of the responsibility and
solidarity pact. Apart from the above-mentioned reduction in labour costs,
corporate taxation will be lowered by eliminating the 'C3S' turnover tax over the
next three years and the corporate income surcharge on large companies from
2016 (on top of the decrease in the statutory rate of corporate income tax), and
the purchasing power of low-income households will be boosted through a
reduction in employee social security contributions and (partly unspecified)
tax cuts. For most of the measures announced, implementation will, however, not
take place before 2015 and some would even run after the next parliamentary
elections (2017).

3.2.           
Financial sector 

The French banking sector reduced its
risk profile in 2013. In
2013, France did not receive a country-specific recommendation related to the
financial sector as no significant risks to stability or business funding were
identified. Between 2012 and 2013, the capitalisation
of French banks improved and their average solvency ratio stood at 14.7 % of
risk-weighted assets in June 2013, in line with that of their euro area
counterparts (15.0 %). French banks also reduced their loan-to-deposit
ratio to 144 %, down from 147 % one year before, and reduced their
reliance on wholesale funding. A law adopted in July 2013 seeks in particular to
insulate banks speculative activities from those which provide access to
finance for the economy. Although part of the implementing regulatory measures
related to this law has yet to be published by the government, measures taken so
far by French banks to comply with this regulation have had a limited impact on
their profitability and capital structure.
Although the credit dependency of French
companies, and in particular small and medium-sized enterprises, remains high,
access to finance does not seem to represent a major constraint. Given their low profitability, small and medium-sized enterprises (SMEs)
are highly dependent on bank credit. Credit from banking institutions represented
29 % of total liabilities for SMEs in 2012, compared to 12 % for
large companies. Access to bond financing for SMEs is marginal. While bank
lending surveys and business surveys do not point to specific difficulties in
accessing finance, the reliance on bank credit may represent a limitation in financing
long-term investments. As mentioned in the national reform programme, measures
have thus been taken by the government to diversify sources of funding,
although availability of debt and venture capital for SMEs in France is already above the EU average.[23]
The existing saving plan in shares (the plan d'épargne en actions) has
been extended to cover listed and unlisted SMEs. In addition, taxation of
capital gains has been reduced and a reform of the insurance code adopted in August
2013 allows life insurance companies to invest up to 5 % of assets under
management in SMEs. Finally, the Public Investment Bank (the Banque publique
d'investissement or BPI), which was created in March 2013, offers a single point
of contact for companies seeking access to public funds and guarantees. The
impact of these measures, which increase the availability of alternative
sources of finance, will remain limited as lending surveys suggest that
investment is constrained more by negative cyclical conditions than by credit conditions.
However, ensuring that more diverse sources of financing are available could
support a stronger recovery. 

3.3.           
Labour market[24], education and social policies

Despite a
number of policy measures, the situation in the labour
market continued to deteriorate in 2013 and
challenges remain acute. The overall employment
rate of people aged 20-64 was estimated at 69.5 % in 2013, showing only
limited progress towards the Europe 2020 target of 75 %. The unemployment rate
continued to increase, rising to 10.3 % in 2013 compared to 7.5 % in
2008, although quarterly figures showed a stabilisation in the second part of
the year. In particular, long-term unemployment worsened significantly (by 2.6 pps
since 2012). Young people, and in particular those with low levels of
qualifications, also remain at a higher risk of unemployment. The social impact
of the weakened labour market situation remains comparatively contained.
Nevertheless, in-work poverty is increasing, though from levels well below the
EU average. 
In 2013, France received a country-specific
recommendation on the need to conduct a broad set of reforms to improve the
functioning of its labour market. The recommendation
highlighted the need to reduce labour market segmentation, increase older
workers' access to employment, reform
the unemployment benefit system, ensure more efficient active labour market
policies and further develop lifelong learning. France has made some progress in
addressing this recommendation. Of particular note are the
law on securing employment adopted in June 2013 and the law on vocational
education and lifelong learning adopted in March 2014. In
addition, the reforms of compulsory and of higher education launched in July
2013 seek to improve school to work transition and notably aim to halve the
number of youngsters leaving the education system with no qualification by 2017.
However, some of these measures remain to be fully implemented and their impact
will only be felt over time. 
Labour market 
The French labour market remains segmented
with very low levels of transition from temporary to permanent contracts. The inter-professional agreement on
securing employment was translated into a law adopted in June 2013. The use of
partial unemployment has been made easier and the social partners have now the
possibility to negotiate collective dismissals. However, the overall impact of
this reform remains modest at this stage. In particular, efforts to reduce the
level of segmentation, notably through higher social security contributions for
very short-term contracts, have failed to curb the increase in the proportion
of fixed-term contracts among new contracts. The market remained highly
segmented, with 82.8 % of work contracts signed in 2013 being fixed-term
contracts and temporary work gaining 35 400 jobs while overall employment
in the business sector decreased. Very few companies seem to have used the
company-level agreements created by the new law to increase the flexibility of
work conditions in case of temporary economic hardship. This is notably linked
to the difficulties that eligible companies may encounter to prove the 'temporary'
character of the challenges they face and to the associated legal
uncertainties. Some progress has
been made in increasing security for temporary agency workers, as recommended
in the country-specific recommendation. Open-ended contracts for temporary
agency workers have been created as well as a fund to finance their training
actions during periods of inactivity. The agreement signed by the government
and temporary recruitment agencies set an objective of 20 000 open-ended
contracts to be signed within the next three years. This would, however,
represent less than 1 % of the 2 million temporary workers.
Developments in the minimum wage were restrained
in 2013 although its level remains high. Developments
in the minimum wage in France are guided by an indexation formula and by nudges
which can be decided by the government on top of the legal requirement. The
indexation formula was modified in 2013 to better reflect wage developments and
the cost of living of workers earning the minimum wage, with only a marginal
impact on long-term dynamics. In 2013, unlike the year before, no discretionary
rise in the minimum wage on top of the indexation formula was decided. As a
consequence, the hourly minimum wage increased by 1.1 % on 1 January 2014.
The level of the minimum wage in France offers one of the highest purchasing
powers of the EU countries with a minimum wage. Based
on 2012 figures, the cost of labour at the minimum wage in France is close to EUR 21 200 per year for a full-time employee. Even taking into
account the full impact of the CICE tax credit, which would bring the cost of
labour at the minimum wage close to EUR 20 000 per year, France,
together with the Netherlands, Belgium, Luxembourg and Ireland, belongs to the group
of Member States where the cost of labour at the minimum wage is the highest. In
 France, like in close to half of the 21 Member States with a minimum wage
(excluding Germany), exemptions to the minimum wage exist for underage workers.
However, the scope of the differentiation is reduced in France[25] and limited schemes exist to significantly reduce the cost of
labour for young workers. By comparison, and with the exception of Slovenia, countries where the minimum wage as a proportion of the average wage
is close to France's[26] have set up a number of exceptions to the minimum wage which are
linked to age, the length of service or skills.[27] Reducing the cost of labour for vulnerable
groups could take the form of targeted social security contribution exemptions
or of time-limited differentiations of the minimum wage as is the case in other
countries with a high statutory minimum wage. Such measures need to duly take
into account the existing wage support schemes in order to mitigate potential
impacts on earnings. However, these schemes suffer from shortcomings which have
been pointed out in a number of reports.[28] In particular, the two main wage support schemes (the prime pour
l'emploi and revenu de solidarité active) pursue the same objective,
introducing a complexity which increases the relatively low take-up by eligible
households. Despite recent announcements, no progress has been made in simplifying
the schemes and increasing their use by eligible low-wage earners. 
The employment rate of the older workers
over the past three years has increased together with unemployment. The employment rate of older workers stood at 45.6 % in 2013. Although
this ratio has gone up due in particular to successive pension reforms, it
remains low from an EU-wide perspective. In addition, the unemployment rate
among this group has also seen an upward trend, from 4.6 % in 2008 to 7.0 %
in 2013. Few measures have been taken to improve the employment prospects of
older unemployed people. The main reform introduced by the government to keep older
workers in employment (the contrats de génération) has proved
insufficient. The deadline for negotiating an agreement at company level, a
requirement for companies with more than 300 employees, has had to be postponed
from September 2013 to April 2014 due to the reluctance of employers to use
this tool. The inter-professional agreement, signed on 22 March 2014, on a
reform of the unemployment benefit system will not significantly change the
incentives to work for older workers. In particular, unemployed people over 50 will
continue to be eligible for a longer duration of benefit payments (36 months
compared to 24 months in the general case). On the other hand, the restrictions
on unemployment benefits for workers who have obtained a large severance
package from their employers reduce the incentives to use agreed dismissals[29] as a form of early retirement. 
Unemployment
support
The outcome of the negotiation on the
unemployment benefit system clearly falls short of the level of ambition set by
the 2013 country-specific recommendation. The
deficit of the unemployment benefit system has increased rapidly since 2009 and
is expected to represent EUR 4.4 billion in 2014 for a total debt of
EUR 22.3 billion. This calls for significant efforts to avoid
negative implications for the overall situation of public finances. The savings
envisaged in the agreement reached by the social partners in March 2014 will
clearly be insufficient to tackle the issue as they are expected to amount to
EUR 0.5 billion in 2014. The unemployment trap, measured through the
extent to which the gains from moving from unemployment to work are reduced as
a result of the tax and benefit system, remains relatively high in France although the gap with the EU average has been reduced in the last few years.[30] The 'transferability' of individual rights to unemployment benefits
(the droits rechargeables), which enables a jobseeker to retain previous
accumulated rights to unemployment benefits in future periods of unemployment
rather than forfeit them when taking up a job, and which was introduced already
in the inter-professional agreement adopted in January 2013, should increase
incentives to take up work. However, and despite the fact that a report by the
Court of Auditors[31] has notably pointed out the low progressivity of the unemployment
benefit replacement rate, the generosity of benefits for the most highly paid
workers has been maintained. The introduction of elements of degressivity in unemployment
benefits over time was not considered as part of the reform.[32] Finally, adjustments to the specific systems for older workers and
for workers in the entertainment industries were limited. 
Increased attention is paid by the
public employment service to providing personal guidance and addressing the
needs of vulnerable groups although implementation remains a challenge. Substantial progress has been made in delivering individual support
to unemployed people, as recommended in the 2013 country-specific
recommendation. Several types of guidance have been developed depending on the
jobseeker's situation, and new measures for young people facing multiple
obstacles in the labour market have been created, such as the youth guarantee (the
garantie jeunes) launched in October 2013 (see Box 3). In addition, the
roll-out of the emplois d'avenir programme, which came close to the
objective of 100 000 jobs for vulnerable young people by the end of 2013,
is set to continue in 2014. However, given the increasing number of unemployed,
and despite increased funding in 2013, the public employment service (the Pôle
emploi) and the local public employment services for youth (the missions
locales) face challenges in providing adequate service to jobseekers.[33]
Box 3: The delivery of the Youth
Guarantee[34] in France 
In
December 2013, France presented a Youth Guarantee Implementation Plan, the plan
national de mise en œuvre de la garantie pour la jeunesse en France. In light of the Council Recommendation of 22 April 2013 on
establishing a Youth Guarantee (2013/C 120/01), this plan seeks 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 a
period of four months of becoming unemployed or leaving formal education."
  France has undertaken first steps to implement the Council Recommendation on
establishing a Youth Guarantee. The French plans build upon an array of
existing schemes[35] targeting young NEETs (Not in Education, Employment or Training) and
identifying early-school leavers but do not represent yet a comprehensive Youth
Guarantee based on the criteria defined by the Council.

Some positive steps have been made but these remain insufficient. The
commitment has been taken that the 166 000 young people registered for the
longest time at the public employment service would receive support within four
months. However, the actual quality of this support, which includes CV-writing
workshops and interview simulations, is unclear at this stage. Moreover, this
guarantee only tackles a minor part of the overall youth unemployment as there
are 674 000 young people registered in total.
The Youth Guarantee also includes schemes such as the garantie
jeunes aiming to bring disadvantaged young people closer to the labour
market through social benefits, guidance services and work experience (10 000
beneficiaries in 2014, 20 000 more in 2015). The
related measures involve a variety of stakeholders and the coordination mechanisms – notably regarding the Pôle emploi and
the missions locales – and the educational actors may not be
sufficient. For example, France has not introduced one-stop shops providing a single information point. France has not established a comprehensive outreach strategy to ensure that all young
(non-registered) NEETs are proposed an offer of sufficient quality within four
months.

Education
Educational inequalities have been
widening for more than a decade due to a sharp
decline in the results of low achievers. As confirmed by the 2013 Programme
for International Student Assessment survey, educational inequality in France is among the highest in OECD countries. While the proportion of young people leaving
school with no qualifications[36] has remained close to 15 % since the mid-1990's, the economic crisis has only exacerbated
the difficulties those youngsters face entering the job market. The
unemployment rate of young people with no qualifications three years after
exiting the education system increased by 16 pps between 2007 and 2013,
compared to 8 pps on average for young people from the same generation.[37] The reform of compulsory education launched in 2013 focuses on
pre-primary and primary education to tackle inequalities at an early stage. It aims
notably to halve the number of young people leaving with no qualifications by
2017 and to raise the proportion of two- to three-year-olds in early childhood
education and care to 30 % by 2017. A new plan targeting schools providing
lower secondary education in disadvantaged areas was announced in January 2014
and is set to be fully implemented by 2015-16. Although the reform is a
positive development, reaching the 2017 targets and ensuring a long-lasting
reduction in inequalities seems challenging notably due to implementation risks.
In any case, it is still too early to assess the extent to which the various measures
will reach their objectives. 
While measures have been taken to build stronger
links between the education system and the labour market, the number of apprentices
decreased in 2013. The law on higher education and
research of July 2013 includes measures to develop guidance systems, better
transition to post-secondary education and improve links between education and
economic actors. An increase in the number of vocational qualifications (the baccalauréats
professionnels) in upper secondary education has been recorded since 2011,
notably as a result of the 2009 reform of upper secondary schools. Meanwhile, limited progress has been made in promoting apprenticeships. The number of new apprenticeships fell by
8.1 % compared to 2012, at odds with the government's objective of 500 000
apprentices by 2017. The number of apprentices whose highest qualification is
the baccalauréat or an equivalent, whose transition from school to work
is more problematic, decreased by 1 % between 2005 and 2011. The law on vocational training adopted in March 2014 includes
specific measures to promote apprenticeship such as introducing
open-ended apprenticeship contracts and providing more
secure funding for apprenticeships for those with fewer qualifications.
However, these measures will only come into force in 2015 and their impact
remains to be assessed. Limited progress has been made
in developing a Youth Guarantee (as indicated in Box 3). 
Adult participation in lifelong learning
remains low in France despite large needs. According
to a survey conducted by the OECD as part of its Programme for the
International Assessment of Adult Competencies, the level of adult literacy and
numeracy in France for those with at most lower secondary education is among
the lowest in the EU.[38] Access to lifelong learning remains easier
for younger people, those who are already employed and skilled people working
in larger companies than for older people, the unemployed and those with low
levels of skills. In order to reduce the number of unfilled positions,
the government has launched a scheme to provide specific training for
jobseekers in sectors with medium-term labour force needs. The vocational training
reform adopted in March 2014 makes some progress in implementing the
recommendation to increase adult participation in lifelong learning. The
reform, which transfers responsibility for lifelong learning to regional level,
clarifies the overall governance of the system. It also dedicates more funds to
jobseekers and companies with less than 10 employees. The creation of a
personal training account should facilitate access to training for both
jobseekers and employees. However, the impact will very much depend on the quality
of trainings offered and in particular on their relevance to the needs of the
labour market.
Social policies
The social situation in France is worsening but remains better than in the average in the EU. With 19.1 % of the population at risk of poverty or social
exclusion in 2012, France fares much better than the EU average (24.8 %) in
this aspect of the Europe 2020 strategy. While the rate of poverty among
unemployed people decreased slightly in 2012, the increasing proportion of part-time
workers, particularly where they earn close to the minimum wage, translates
into rising in-work poverty (8 % in 2012 compared to 6.5 % in 2010). Also,
the situation for the most vulnerable categories, including children, young
people and single-parents families seems to be deteriorating with increasing poverty
rates of 19.0 %, 23.0 % and 35 %, respectively, in 2012.
Employment and social outcomes remain
marked by significant inequalities. These particularly
affect women and migrants. The employment rate for women remains well below
that of men (65.5 % compared to 73.7 %). Moreover, women are 4.4
times more likely to work part-time and the gender pay gap remains large (14.8 %),
leading to a wide gender gap in pensions (39 %). The tax benefit system
contributes to this bias, continuing to provide disincentives for second
earners[39] to work full-time. Migrants, and in particular women, also face
lower employment rates and higher unemployment rates (25.1 % for the
population born outside the EU-27 compared to 10.3 % for the general
population in 2013). In 2012, 76 % of the population considered that discrimination
on the grounds of ethnic origin was widespread in France, the highest share in
the EU.[40] About 47 % of people with disabilities are employed compared
to 72 % of persons without disabilities[41] and the unemployment rate of people with disabilities is twice the
rate of other jobseekers. 
The implementation of the multiannual
anti-poverty plan adopted in January 2013 is underway but some major reforms
are overdue. An assessment of the government's
action plan against poverty, published in early 2014,[42] notes that significant actions have been taken, such as increasing
social minima or the youth guarantee. It is, however, too early to assess the
impact of the new package of measures on child and family poverty, which
includes increased minimum social benefits, access to school canteens and extra
childcare places (with 10 % saved for low income households). A number of
measures included in the plan also remain in limbo (e.g. measures on wage
support schemes). A decrease in employee social security contributions for
wages close to the minimum wage and additional fiscal measures targeting
low-income households were announced as part of the responsibility and solidarity
pact to further support those at risk of poverty. Overall, while some progress has
been seen, actions implemented to date have not been able to offset the impact
of an increasingly difficult situation in the labour market. 

3.4.           
Structural measures
promoting sustainable growth and competitiveness

The French economy has experienced significant
losses in its export market shares since 2000. Low
export performance, which has resulted in a current account deficit amounting
to 1.9 % of GDP in 2012, highlights weaknesses in the French growth model.
As a result, in the in-depth reviews for France published under the
Macroeconomic Imbalance Procedure since 2012, the Commission has pointed out
the need to conduct a broad range of structural reforms to ensure the long-term
sustainability of the French economy and to limit the risk of negative
spill-overs on other Member States (see Box 1). In light of this assessment,
the Council considered that the country-specific recommendations were all
relevant to address these imbalances. In particular, the
Council insisted on the need to reduce the cost of labour, the need to ensure
that developments in the minimum wage support competitiveness and job creation,
the need to foster innovation and the need to enhance competition in services
with a specific focus on the retail sector and on network industries. France has made some progress on measures taken to reduce the cost of labour and on the
minimum wage. On the other hand, limited progress has been made on measures to
improve innovation and to improve competition in services (for the full CSR
assessment, see the overview table in Section 4). 
Cost
competitiveness
France is among the European economies where the cost of labour is the
highest, with a negative impact on profitability of companies. The cost of labour has increased in line with growth in
productivity over the last 10 years. However, as noted in the 2014 in-depth review,
cross-country analysis suggests that the actual level of the cost of labour is
high. In particular, the tax burden on labour, which represented 27 % of
the cost of labour in 2012, is among the highest in the EU. The high cost of
labour impacts on the profitability of French non-financial companies. Indeed,
with a profit share representing 28 % of value added in 2012,
non-financial companies in France are the least profitable in the EU. Such a
low, and decreasing, level of profitability (-3 pps since 2008) reduces the
ability of French companies to invest and to effectively engage in export
activities.
The reforms
implemented to reduce the cost of labour (see Section 3.1) will have a positive
impact on competitiveness although its magnitude is uncertain. The CICE tax credit, adopted in December 2012, targets wages of up
to 2.5 times the minimum wage. As pointed out by the committee in charge of the
assessment of the CICE, as exporting companies tend to serve higher wages than
the others, they will benefit less from the measure than non-exporting firms.[43] As a consequence,
while the measure, which adds to the already existing exemptions on low wages,
can be expected to have a rapid and significant effect on employment, the size
and timing of the impact on competitiveness appears more uncertain. In
particular, assuming that lower labour costs for companies in the non-tradable
sector will result in a significant reduction in the cost of intermediary goods
for exporting firms could prove an optimistic assumption at the current
juncture. Indeed, a survey conducted by the INSEE statistical office indicates
that only a minority of companies intend to use the CICE to reduce prices.[44] The responsibility and
solidarity pact includes a EUR 4.5 billion reduction in employer social
security contributions targeted to wages of up to 1.3 times the minimum wage in
order to maximise the impact on employment and another EUR 4.5 billion
one targeted to wages between 1.6 and 3.5 times the minimum wage. The latter measure
is set to have a more direct impact on exporting firms due to its targeting on
higher wages although, as it will be implemented in 2016 only, there is a risk
that its targeting may be amended. 
France is
among the EU Member States which have the largest social security contribution exemptions
for low wage earners, with a potential impact on competitiveness. This can be seen in particular in the strong progressivity of the
tax wedge, which represents 54 % of the cost of labour for a single
full-time worker paid 1.67 times the average wage and only 36 % for
workers paid half the average wage. Not taking into account the CICE and the
responsibility and solidarity pact, these exemptions represent a total of EUR 20 billion
(1 % of GDP). This amount will be more than doubled once these measures
fully take their effect. While assessments of the measures for workers earning
low wages generally conclude that their impact on employment is positive, the
impact on productivity and competitiveness is more ambiguous. Acting on a
request of the Prime Minister, the High Council for the Financing of Social Protection
(the Haut Conseil du financement de la protection sociale) is currently
reviewing the potential economic impact of various scenarios related to the
upcoming tax exemptions. An interim report was released in March 2014 and the
final report is expected in May 2014. While the report makes a thorough
assessment of the impact on employment and on growth in the medium term,
limited focus is put on competitiveness and on wage dynamics. In particular,
further increasing the progressivity of social security contributions may entail
a risk of distorting incentives to increase wages and skills. The report by the
experts group on the minimum wage has estimated that, based on the current
system, an increase in the wages for workers paid close to the minimum wage had
only a marginal impact on earnings due to exemptions and social schemes. It
would therefore seem important to further evaluate the overall impact of
exemptions on wage developments and competitiveness. 
Competition in
services 
Restrictions
on access to and exercise of professions in the services sector persist in France, regarding in particular the legal form, shareholding structure, quotas and
territorial restrictions. Professional services
play an important role in business service markets, which account for 14 %
of French GDP and 14.6 %
of employment. Beyond the scope of the Services Directive, this sector,
composed largely of SMEs, faces a high regulatory burden which affects its
growth potential. Although barriers on legal forms, shareholding requirements
or tariffs have been removed for certain professions, a majority of professions
still face significant barriers to entry or practice (taxis, the health sector, notaries and more generally legal
professions). The principle of numerus clausus for access to many professions
is still hampering access to services and it could be reviewed without risking quality
or safety. Some progress has also been made in improving the competition
environment, in particular through recently adopted law on consumer protection (the loi sur la consommation) and the upcoming removal of capital
requirements for accountants and of the prohibition of active marketing by
lawyers. The law on consumer
protection will in particular increase competition in a
number of sectors, such as healthcare and optical services, and facilitate
insurance contract termination. It will also introduce a mechanism for collective
redress that the government hopes will spur competition. 
No cross-cutting
assessment of the necessity and proportionality of restrictions affecting regulated
professions has taken place to date. An economic
assessment of the impact of a set of structural reforms (see Box 4) shows that improving competition in France is the reform which would increase GDP
growth the most within 5 years. To do so, a horizontal assessment of barriers
to competition could provide a base to identify areas where efforts are most
needed. More precisely, in a working paper of the DG Trésor,[45] it was estimated that
bringing margins in selected services sectors (retail, hotels and financial
services) to the level reached by best performers in the OECD could increase
GDP by 1.2 %. The simplification exercise (the choc de simplification)
that began in November 2013 as well as the transparency
exercise at EU level on the basis of the modernised Professional Qualifications
Directive provide an opportunity to considerably simplify and rationalise the regulatory
framework for services. Such exercises need to be
implemented rigorously, with the clear objective to increase competition in services,
in order to promote competitiveness and employment. 
In the
retail sector, authorisation requirements for opening trade outlets and the ban
on sales at a loss still have an adverse impact on competition and on
consumers. Given the economic importance of the
retail sector in France, which accounts
for 4.3 % of GDP and
employs 7.5 % of the workforce, the smooth functioning of its regulatory
framework is essential. However, retailers establishing outlets face barriers
to entering the market, notably resulting from urban planning regulations, as pointed
out by the French competition authority.[46]
This affects the structure of the market, particularly in the already
concentrated grocery retail sector, and therefore affects competition in the
sector to the detriment of consumers. The ban on sales at a loss has also been
pointed out on several occasions, including by the French competition
authority, as contributing to the opacity of pricing dynamics in the retail
sector. This ban has therefore ultimately been detrimental to consumers. The French government has committed itself to carrying out reforms in
this area. As mentioned in the national reform programme, the on-going plans notably aim at simplifying the authorisation
procedure by creating a single authorisation procedure for the establishment of
retail outlets. It is also foreseen to remove from the legislation the
obligation to wait one year before filling a new authorisation request in cases
where a previous one was rejected. Discussions have been initiated on the
removal of the ban to sell below costs in the longer term. However, no concrete measures have been adopted by Parliament to date and limited progress has thus been seen on the
implementation of the country-specific recommendation.
Research, development
and innovation
France's research and development intensity is still far from the national
target of 3 %, due in large part to the eroding industrial base. Research and development (R&D) expenditure in France represented 2.3 % of GDP in 2012 and this share has remained relatively stable
since 2000. A comparison with the Member States which come close to dedicating,
or which already dedicate, more than 3 % of GDP to R&D[47] shows that low R&D
activity by the private sector accounts for most of the gap. Private sector expenditure
on R&D represented 1.5 % of GDP in 2012, compared to close to or above
2 % in the best performing countries. Progress on R&D investment by French
companies is hampered by the decreasing weight of medium-high- and high-technology
sectors, which represented 40 % of value added in the manufacturing sector
in 2010, a 4 pps decrease since 1999. Meanwhile, business R&D
expenditure increased at the same rate as those in Germany between 2007 and
2012 (22 % in France, 21 % in Germany and 15 % in the EU), to
which recent government efforts in favour of business R&D might have
contributed. 
The efficiency of the research and
innovation strategy could be more systematically evaluated and improved, with a
particular focus on the impact in terms of growth and jobs. The overall performance of the French public research system in
terms of scientific publications is slightly below the EU average, while France ranks seventh for public sector R&D intensity. Doubts remain as to the
efficiency of the knowledge transfer system due to its complexity. The cost of
the tax credit on research is expected to reach EUR 5.8 billion in
2014 (close to 0.3 % of GDP). This measure has undergone recent
extensions, notably the suppression of the ceiling in 2008 and the introduction
of an innovation component for SMEs in 2013, which have contributed to increasing
its costs. However, in spite of the costs of this measure, no ex post assessment
of its efficiency is available. Similarly, while some evaluation of the public
policy in support of competitiveness poles has been conducted, limited attention
has been paid to ensuring its efficiency. Currently, 71 poles are supported by
the government, of which 7 are considered of global relevance and concentrated
29 % of public sources of financing between 2008 and 2011. Despite this
effort to focus resources, the large number of poles and the diversity of
topics addressed may represent a risk of spreading resources across too large a
number of institutions (45 % of the funds distributed over 2008-11 were
allocated to poles of only national relevance). Moreover, the assessment of
this policy, commissioned by the government, shows that more attention should
be paid to ensuring that collaborative projects initiated within the poles actually
translate into a marketable innovation. The national
reform programme mentions a number of additional
measures which have been initiated to increase and facilitate innovation. These
include in particular the second tranche of the 'Investment plan for the future'
(EUR 12 billion), the 'France Broadband' plan (EUR 20 billion
which seeks to ensure the completion of a high speed infrastructure by 2017) and 34 industrial plans, led by industry
managers. As most of these initiatives have been launched recently, no concrete
impact can be assessed at this stage. It seems important to ensure an overall
consistency between priorities set by these initiatives and those of the
competitiveness poles. 
Box 4. Potential impact of structural reforms on growth – a benchmarking
exercise
Structural reforms are crucial for boosting growth. It is therefore
important to know the potential benefits of these reforms. Benefits of
structural reforms can be assessed with the help of economic models. The
Commission uses its QUEST model to determine how structural reforms in a given Member State would affect growth if the Member State narrowed its gap vis-à-vis the average of
the three best EU performers on key indicators such as the degree of
competition or labour market participation. Improvements on these indicators
could raise France's GDP by about 3.2 % in a 10-year period. Some reforms
could have an effect even within a relatively short time horizon. The model
simulations corroborate the analysis of Sections 3.2 and 3.3, according to
which the largest gains would likely stem from reforms to increase competition
in the final goods sector.[48]
A reform increasing the participation of female worker would also have a strong
impact already within five years. In the longer term, increasing the
participation of older workers, a measure which only gradually improves
potential growth, would have a very positive impact on GDP. As noted in Section
3.1, the various pension reforms enacted since 2010 will gradually increase the
retirement age. They should therefore already help decrease the pension-related
non-participation of older workers.
Table: Structural indicators, targets, and potential GDP effects[49]
 Source: Commission services. Note:
Simulations assume that all Member States undertake reforms which close their
structural gaps by half. The table shows the contribution of each reform to
total GDP after five and ten years. If the country is above the benchmark for a
given indicator, we do not simulate the impact of reform measures in that area;
however, the Member State in question can still benefit from measures taken by
other Member States.[50]
* The long-run effect of increasing the share of high-skilled population would
be 1.3% of GDP and of decreasing the share of low-skilled would be 3.8%. ** EU
average is set as the benchmark.
Network
industries
Substantial progress has been made in implementing
the recommendation to phase out regulated electricity and gas prices for
non-household customers while interconnections remain limited. Prices continue to be regulated for households and, for
electricity, their low level has been a barrier to entry for alternative
suppliers although recent evidence suggests an improvement.[51] Market concentration
both at wholesale and retail level remains very high. On the electricity
generation side, EDF, the incumbent operator, alone represents 91 % of the
installed capacity. The decision by the government to postpone the tendering of
hydro-concessions, which represent 20 % of the total installed electricity
capacity in France, is a missed opportunity to attract investments, technology and
competition in power generation, as has also been noted by the Court of
Auditors (the Cour des comptes). 
Energy interconnection capacity with
neighbouring countries remains limited in spite of substantial progress. On-going projects, in particular the Baixas-Santa Lloogaia
connection between France and Spain, should reinforce the electricity
interconnections with the neighbouring countries. However, this project will
bring the interconnection capacity between France and Spain from its current 3 % of peak demand in Spain to 6 %. The transmission capacity
between the two countries would, however, still remain below the 10 %
minimum recommended by the European Union. On gas, the low interconnection
level between the Spanish and French gas systems is a major infrastructure
bottleneck as the two existing interconnections (Larrau and Biriatou) face
recurrent congestion. Increasing capacity would allow a better integration of
the Iberian and the other Western European markets, hence increasing supply
security and competition in the European gas market. It is critical to effectively
implement current plans to strengthen the network so as to increase interconnection
capacity, in particular with Belgium and Spain, by 2015.[52]
Barriers to market entry in the transport sector continue
to prevent the market from functioning efficiently. France has not opened up its domestic
rail passenger market to competition, except for
international services, where there are few new entrants. For freight, new entrants' market share
rose to 32 % in 2012 but the overall freight volumes transported by rail decreased in 2012, after peaking in
2011. France has launched a reform of its railway system with a view to making
it more financially sustainable. A fully-fledged infrastructure manager is
expected to be set up within a vertically-integrated structure that includes
the incumbent operator. There is a risk that this new structure may hamper
network access for alternative operators. The
development of a more integrated European market for transport is also
constrained by the low capacity of cross-border
connections for both freight and passengers, in particular with Spain and Italy. Lastly, French ports perform unevenly and remain under-used, hence limiting their
contribution to growth. 
Energy and
resource efficiency
France
has a comprehensive set of measures in place for energy and resources efficiency
although the 'polluter-pays' principle could be further developed. France has taken measures to meet its target of a 17.4 %
reduction in final energy consumption. In addition, the 2015-17 objective for
energy saving certificates targeting energy suppliers has been set at 660 TWh,
compared to 345 TWh in the period between 2011 and 2013. Renewable energy sources provided 13.4 % of total
final energy consumption in 2012. A series of measures were adopted in 2013 and
are expected to accelerate the uptake of renewables and increase their weight
in energy consumption. In particular, the regulatory framework, notably the
authorisation regime for small sites, was streamlined and the support schemes
were simplified. By contrast, the inefficient
allocation of water between sectors and the insufficient implementation of the 'polluter-pays' principle in the agriculture sector remain
major issues in France.[53]
Farmers, for instance, do not pay for clean water in proportion to the amount
they pollute, passing the bill onto industry and households. This leads to
higher water costs for these sectors and distortions in the sectoral structure
of the economy. Additional costs borne by domestic users due to agricultural
pollution are estimated at between 7 % and 12 % of the water bill on
average in France. Further efforts could also be made to increase the proportion
of waste that is recycled and to develop fiscal incentives to reduce waste.[54] Landfill taxes are
currently at a low level compared with other Member States, limiting the
disincentive for sending waste to landfill.[55]
Although a number of reforms in these fields are considered as part of the 'second
roadmap for ecological transition', which was drawn up during the environmental conference of
September 2013, the actual measures to be implemented are yet to be fully
defined and put in place.

3.5.           
Modernisation of public administration

The business environment in France constitutes a drag on the competitiveness of French companies and limits their
growth. France is characterised
by both unprofitable and relatively small companies. With gross operating
surplus representing only 28.3 % of value added, French companies have the
lowest profit share in the EU. Moreover, in 2012, the average French firm had 5.8
employees compared to an EU average of 6.4 employees. As the in-depth review discussed,
this may represent an obstacle to engaging in export activities, with a
negative impact on aggregate export performance. Results of international
surveys suggest that some aspects of the business environment may constitute a
barrier to SMEs' potential for growth.

In 2013, the Council recommended to France to take action in order to improve the business environment. The analysis in this staff
working document leads to the conclusion that France has made some progress on
measures taken to address this recommendation, in particular as part of the simplification
plan launched in July 2013 (for the full CSR assessment, see the overview table
in Section 4).
Business
environment
The business environment needs to be
improved in order to limit the burden on SMEs' potential for growth and exports. France's global ranking in a number of international business environment
surveys has deteriorated. In particular, the 2013 World Economic Forum (WEF) ranked
  France 23rd compared to 21st in the previous year and 18th the year before. Similarly,
the World Bank's 'Doing
business' report records a
relative deterioration of the business environment in 2014, with France losing
three places compared to 2013 (in the 38th position compared to 35th last
year). In particular, the distance to the frontier appears the highest for
resolving insolvency and protecting investors, two areas where no progress was
seen in 2013. More specifically, several regulations
are associated with specific size thresholds, a feature which may hamper the
growth of French companies. This may also contribute to SMEs' difficulties in exporting and innovating.
Such size thresholds stem either from the labour code or from accounting rules,
with for example the requirement to establish a works council and to appoint an
external auditor for companies with more than 50 employees. There are still some concerns regarding the French point of single contact
under the EU Services Directive (the Guichet entreprises), included in
the national pact for growth, competitiveness and employment adopted in 2012,
especially relating to its accessibility for service providers from other
Member States (including language barriers) and making sure that more
procedures can be completed online. 
Some reforms, and in particular the
recently launched simplification plan, seek to reduce the administrative burden,
although concrete results have been limited to date. The simplification plan launched in July 2013 is expected to
simplify standards and procedures over a period of three years. A first set of 130 priority measures to simplify the business environment were
unveiled in July 2013 as part of the on-going spending review (the modernisation
de l'action
publique). The first measures, which notably aim to simplify tax and accounting
declarations for SMEs, were adopted in early 2014. Moreover, in January 2014, a national council on simplification was established,
whose task is to review the main interactions between the administration and
companies throughout their lifecycle, to identify opportunities to reduce red
tape. In April, this council published a set of 50 propositions to reduce the
administrative burden of companies. In addition to the
simplification plan, the national reform programme mentions that further simplification initiatives, notably on the
pay slip, are to be launched by mid-2014. However, it remains to be seen
whether these review exercises, notably the simplification plan, will translate
into significant measures to improve the business environment. Moreover, it is
still too early to assess to which extent the first simplification measures
adopted effectively improve the business environment, in particular for SMEs.
In that respect, the SME test, which consists of analysing the effects of a
legislative proposal on SMEs, has only been partially implemented as a pilot
exercise while it could contribute to limiting the additional burden created for
SMEs. In particular, such a test may have contributed to simplifying the
current CICE tax credit as the administrative
procedures necessary to benefit from it and its deferred disbursement have made
it less effective for the smallest enterprises. 
Development of
e-procurement
Take-up of e-procurement was still relatively
low in 2011. Many regions,
counties and towns are building their own e-procurement systems. These are
numerous and rarely interoperable, and there is little coordination at national
level to avoid duplications. This complicates participation by companies in
public procurement processes. A comprehensive strategy to encourage the
transition to e-procurement and to coordinate its implementation could generate
significant cost savings, improve the transparency of public procurement,
shorten lead time and increase competition. It is an opportunity to rethink the
way public procurement is organised and a key element for leveraging smart
procurement.

4.         
Conclusions

The economic recovery in France remains fragile and vulnerable. Based on the Commission
forecast, economic growth is expected to remain sluggish while the unemployment
rate is expected to continue increasing in 2014 before receding in 2015. The
imbalances which affect the French economy, namely its deteriorating export
performance and the high level of public debt, are expected to abate only
gradually and will still impact on economic growth by 2015 according to the
Commission forecast. This fragility of the French growth model, and the
negative impact that developments in France could have on other Member States,
call for decisive policy actions by the authorities aimed at mitigating the
imbalances in the medium term. 
The analysis in this staff working
document shows that some progress has been made in addressing the country-specific
recommendations. Regarding public finances, some
progress has been made in addressing both short-term and long-term challenges.
However, in the absence of fiscal measures beyond those described in sufficient
detail in the stability programme, the general government deficit is expected
to remain significantly above 3 % of GDP in 2015, the deadline set by the
Council for correcting the excessive deficit. France has also made some
progress in further reducing the tax burden on labour, specifically as regards the
cost of labour for companies. By contrast, limited progress has been made in increasing
the level of competition in the services sector and improving the business
environment. The tax system and particularly environmental taxation are other
areas where limited progress has been seen. Addressing these structural
challenges would help boost the growth potential of the French economy and thus
lead to sustainable economic growth and job creation.


Overview
table
 
 2013 commitments || Summary assessment[56] 
 Country-specific recommendations (CSRs) 
 CSR 1:   Reinforce and pursue the budgetary strategy in 2013. Enhance the credibility of the adjustment by specifying by autumn 2013 and implementing the necessary measures for the year 2014 and beyond to ensure a correction of the excessive deficit in a sustainable manner by 2015 at the latest and the achievement of the structural adjustment effort specified in the Council recommendations under the EDP. Use all windfall gains for deficit reduction. A durable correction of the fiscal imbalances requires a credible implementation of ambitious structural reforms to increase the adjustment capacity and boost growth and employment. || France has made some progress in addressing CSR 1   Some progress The government has initiated a process of fiscal consolidation. While the 2013 efforts mostly relied on increasing revenue, the government is expected to focus on expenditure cuts in 2014 (amounting to EUR 15 billion according to official estimates). The government continued to freeze public sector wages in 2014, and it reduced ministries' other operating expenses by 2 % and transfers to local authorities by EUR 1.5 billion. The healthcare expenditure norm (ONDAM) has been set at 2.4 %. The recently created High Council for Public Finances has considered that the growth forecast underpinning the 2014 budget was plausible but that the planned structural deficit reduction was optimistic. More recently, in its annual report published in February 2014, the Court of Auditors indicated that a EUR 4 to 6 billion risk to tax receipts was looming for 2014 and emphasised the lack of room for manoeuvre in the event of unforeseen expenditure. 
 CSR 1 (continued): Maintain a growth-friendly fiscal consolidation course and further increase the efficiency of public expenditure, in particular by proceeding as planned with a review of spending categories across all sub-sectors of general government. Take action through the forthcoming decentralisation law to achieve better synergies and savings between central and local government levels. After the correction of the excessive deficit, pursue the structural adjustment effort at an adequate pace so as to reach the MTO by 2016. || Limited progress The government has initiated a review of all public spending categories (the modernisation de l'action publique). However, the overall amount of savings to be achieved in 2014 (close to EUR 3 billion) is far below what is needed, as public spending increases by EUR 15 to 20 billion above inflation each year. The first of a series of laws on decentralisation has been adopted. A second law is expected by the end of 2014. However, the chance that this package will result in a significant streamlining of local government and in efficiency gains is small. The stability programme outlines a numbers of structural reforms (reducing the number of régions, enhancing intermunicipal cooperation, restricting the powers of or abolishing the départements). Although the planned timetable has since been brought forward, the measures will take effect only in the medium term and they are subject to significant implementation risks. 
 CSR 1 (continued): Take measures by the end of 2013 to bring the pension system into balance in a sustainable manner no later than 2020, for example by adapting indexation rules, by increasing the full-pension contribution period, by further increasing the effective retirement age by aligning retirement age or pension benefits to changes in life expectancy and by reviewing special schemes, while avoiding an increase in employer social security contributions, and increase the cost-effectiveness of healthcare expenditure, including in the areas of pharmaceutical spending. || Some progress Pension reform measures adopted in 2013 include an increase in the required contribution period, from 2020, and an increase in social security contributions by 0.6 pp to be in place by 2017. Limited progress has been made in increasing the cost-effectiveness of the healthcare system. 
 CSR 2:   Ensure that the reduction in the labour cost resulting from the 'credit d'impôt compétitivité-emploi' yields the planned amount and that no other measure will offset its effect. || France has made some progress in addressing CSR 2   Some progress Thanks to the CICE tax credit, the cost of labour should decrease by 6 % from 2014 for workers paid less than 2.5 times the minimum wage. This measure bridges half of the gap between the proportion of an individual's total wage paid as tax for the average wage in France and in the OECD. The government estimates that this measure could create up to 300 000 jobs by 2017. 
 CSR 2 (continued): Take further action to lower the cost of labour, in particular through further measures to reduce employer social security contributions, in association with the social partners. || Some progress The cost of labour will be further reduced as part of the responsibility and solidarity pact, through an additional reduction in employer social security contributions. The total amount of the reduction is EUR 10 billion (on top of the EUR 20 billion from the CICE tax credit). In particular, EUR 4.5 billion will be spent on low wages (between 1 and 1.6 times the minimum wage) and another EUR 4.5 billion on medium wages (between 1.6 and 3.5 the minimum wage). 
 CSR 2 (continued): Ensure that developments in the minimum wage are supportive of competitiveness and job creation, taking into account the existence of wage support schemes and social security contribution exemptions || Some progress In 2013 and 2014, the government did not increase the minimum wage beyond the minimum level set in the law (inflation and half of the purchasing power of the hourly wages of workers and employees (SHBOE)). 
 CSR 3:   Take further measures to improve the business environment and develop the innovation and export capacity of firms, in particular SMEs and enterprises of intermediate size.   || France has made some progress in addressing CSR 3   Limited progress A law adopted on 2 January 2014 allows the government to take actions by decree to simplify and make the business environment more secure for companies. 
 CSR 3 (continued): In particular, launch the announced simplification initiative of the regulatory framework, || Some progress The measures already adopted to simplify accounting and fiscal statements of SMEs (law of 30 January 2014), the increased validity period for identity cards and the creation of a unique identifying number for companies are positive, though limited steps. The government has committed itself to taking 10 additional measures every month, starting from May. 
 CSR 3 (continued): and improve the framework conditions for innovation, by enhancing technology transfer and the commercial exploitation of research, including through a reorientation of the competitiveness poles. || Some progress A number of policy measures have been announced to increase and facilitate innovation, including: 1) a second tranche of the 'Investment plan for the future'; 2) a new innovation tax credit for SMEs (EUR 160 million expected in 2014); 3) a plan to encourage knowledge transfer from public sector research; 4) new financial products from the Public Investment Bank, tailored to the perceived needs of innovative companies; 5) a five-year tax depreciation for acquisition of minority business participation in innovative companies; 6) the French Tech programme, aiming to accelerate the growth of digital start-ups and boost digital ecosystems; and 7) 34 industrial plans, led by industry managers. 
 CSR 4:   Take action to enhance competition in services; remove unjustified restrictions in the access to and exercise of professional services, notably regarding legal form, shareholding structure, quotas and territorial restrictions; || France has made limited progress in addressing CSR 4   Limited progress The only action undertaken relates to ending the limitation on the number of salaried public notaries, the monopoly for pharmacists on some specific products such as pregnancy tests and the restrictions on optical products. The government expects that the recently introduced law on consumption, which allows for class actions in French law, liberalises a number of sectors (notably opticians) and facilitates contract termination in the insurance sector, could also strengthen competition. Positive changes are underway, such as abolishing the ban on commercial communications for lawyers and the legal forms and shareholding requirements for accountants, which still need to be implemented by delegated acts. Discussions are ongoing regarding the regulation setting a minimum length of time required for tourism vehicles with a driver to serve their client, following its suspension by the Conseil d'Etat. 
 CSR 4 (continued): take action to simplify authorisation for the opening of trade outlets and to remove the ban of sales at a loss; || Limited progress Reforms are currently being considered to simplify the establishment of retail outlets. However, no concrete measures in this respect have so far been adopted. The ban on sales at a loss has not been removed. 
 CSR 4 (continued): remove regulated gas and electricity tariffs for non-household customers and strengthen interconnection capacity with neighbouring countries; in the railway sector, open domestic passenger transport to competition. || Some progress Regulated tariffs for electricity and gas will be phased out by the end of 2015 for non-household customers. Ongoing interconnection projects in gas and electricity will allow more competition and better market integration. The on-going railway reform aims to establish a fully-fledged infrastructure manager within an industry-wide structure with a view to improving financial sustainability. The reform does not address market opening and may have a negative effect on access to the network. 
 CSR 5:   Pursue efforts to simplify the tax system and improve its efficiency, while ensuring continuity of tax rules over time. || France has made limited progress in addressing CSR 5   Limited progress Few measures were taken in 2013 to rationalise the tax system. 
 CSR 5 (continued): Take additional measures to remove the debt bias in corporate taxation. Step up efforts to reduce and streamline personal and corporate income tax expenditures while reducing statutory rates; || No progress No additional measures to limit incentives to indebtedness have been taken since limiting the deduction of net loan interests above EUR 3 million to 75 % (85 % in 2013). No progress has been made either in broadening personal and corporate income tax bases and a temporary surcharge on large companies created in 2012 has instead been extended to 2015 and its rate has been more than doubled to 10.7 %. 
 CSR 5 (continued): bring reduced VAT rates closer to the standard rate and remove inefficient reduced rates. || No progress No progress has been made in increasing VAT efficiency. Instead, the 2014 budget introduced reduced VAT rates on energy- or social housing-related renovation works and on cinema tickets, with no review of their effectiveness. 
 CSR 5 (continued): Take further measures shifting the tax burden from labour to environmental taxation or consumption. || Some progress The cost of labour will be further reduced as part of the responsibility and solidarity pact, through an additional reduction in employer social security contributions. The government has also introduced a 'carbon tax' (the contribution climat-énergie), linking excise duties on energy products to their CO2 content. Among other measures, bonus and penalty car taxation has been strengthened and reduced rates for certain biofuels will be phased out. By contrast, VAT rates on energy- or social housing-related renovation works have been lowered and a tax on heavy goods vehicles (the éco-taxe poids lourds) has been suspended. 
 CSR 6:   Implement fully and without delay the January 2013 inter-professional agreement, in consultation with the social partners. Take further action to combat labour-market segmentation, in particular to address the situation of interim agency workers. || France has made some progress in addressing CSR 6   Some progress The law on securing employment, which transposed the inter-professional agreement into French law, was adopted in June 2013. It facilitates moving to part-time work and reduces the risks from an employer's perspective linked to dismissal procedures. 
 CSR 6 (continued): Launch urgently a reform of the unemployment benefit system in association with the social partners and in accordance with national practices to ensure sustainability of the system while ensuring that it provides adequate incentives to return to work. || Some progress In March 2014, an agreement was found among the social partners, including the MEDEF employers' federation, to reform the unemployment benefit system. The agreement introduces only moderate changes. It introduces the concept of droits rechargeables, which enables a jobseeker to retain previous accumulated rights to unemployment benefits in future periods of unemployment rather than forfeit them when taking up a job. The savings measures are expected to yield around EUR 800 million according to the national reform programme. Taking into account the costs linked to the implementation of the droits rechargeables, this will most likely be insufficient to significantly reduce the system's debt. 
 CSR 6 (continued): Enhance the employment rate of older workers and stimulate their participation in the labour market. Take specific action to improve the employment perspective of older unemployed people in particular through specific counselling and training. || Limited progress The measure introduced by the government in March 2013 to increase the number of older workers in employment (the contrats de génération) has proved insufficient. 
 CSR 6 (continued): Increase adult participation in lifelong learning, especially of the least qualified and of the unemployed. || Some progress A law on vocational training was adopted in March 2014. Personal training accounts aim to increase access to training for unemployed people and those with fewer qualifications. The law increases the role played by the régions. In addition, 30 000 jobseekers have been offered targeted training to help meet the needs of sectors which do not have a sufficient workforce. 
 CSR 6 (continued): Ensure that public employment services effectively deliver individualised support to the unemployed and that active labour market policies effectively target the most disadvantaged. || Substantial progress The reform of public employment services allows for an increased emphasis on personalised follow-up and a focus on unemployed people who have been out of the labour market for the longest period of time. 
 CSR 6 (continued): Take further measures to improve the transition from school to work through, for example, a Youth Guarantee and promotion of apprenticeship || Some progress The 'jobs of the future' programme has helped stabilise the number of young people registered as unemployed. The law on vocational training is expected to increase support for apprenticeships by increasing the regional coordination role and funds granted to the régions. It also aims to guarantee quality apprenticeships for those with fewer qualifications. Limited progress has been made, however, on the Youth Guarantee, with improvement needed in coverage, quality of offers and the coordination of actors in the scheme. 
 Europe 2020 (national targets and progress) 
 Policy field target || Progress achieved 
 Employment rate target set in the 2012 national reform programme: 75 % || The employment rate among 20-64 year-olds was 69.2 % in 2010 and 2011, and 69.3 % in 2012. Quarterly data suggest that this rate could have risen to 69.9 % by the end of 2013. Although employment is expected to rise again from 2014, this change is expected to be too moderate for France to meet its 75 % target. 
 R&D target: 3 % of GDP by 2020 || 2.26 % in 2012. France is not likely to reach its target, mainly because of the relatively low level of business investment in R&D. This is chiefly due to the decline of industry and to the sectoral structure of the economy, where the proportion of medium/high- and high‑tech sectors is relatively low. Business R&D intensity increased slightly, from 1.31 % in 2008 to 1.45 % in 2012, but a significant part of this is publicly funded (public sector funding of business R&D was 0.38 % of GDP in 2011). French companies do not under‑invest in R&D and the ratio of R&D expenses to sales of French companies that carry out R&D is similar to or higher than that seen in other OECD countries. France has long had policies involving significant public sector funding for business R&D. To date, this has not been effective enough to prevent the erosion of its industrial base. The significant public sector funding and the complex research and innovation system need careful monitoring and evaluation. 
 2020 Renewable energy target: 23 % Proportion of renewable energy in all modes of transport: 10 % || The proportion of RES in total energy consumption in 2012 was 13.4 %. However, the average proportion of RES for 2011-12 (12.4 %) was 0.4 pp below the Renewable Energy Directive benchmark of 12.8 %. RES proportion in the transport industry: 7.1 %. 
 Greenhouse gas (GHG) emissions target: -14 %, compared to 2005 emissions. Emissions Trading Scheme (ETS) emissions are not covered by this national target. || The change in non-ETS greenhouse gas emissions between 2005 and 2012 was -10 %. According to the latest national projections and taking into account existing measures, the target is expected to be met, with a margin of 2 pps, with a reduction of 16 % in 2020 compared to 2005. 
 Energy efficiency target. 17.4 % (reduction of final energy consumption in 2020). By 2020: level of 236.3 Mtoe primary consumption and 131.4 Mtoe final energy consumption. || In 2012, primary consumption amounted to 246.5 Mtoe while final energy consumption represented 153.5 Mtoe. The plans to improve energy efficiency in the real estate sector (500 000 dwellings refurbished every year) will only start in 2017. Although some measures have been implemented to improve energy efficient transport (such as strengthening bonus and penalty car taxation), the suspension of the éco-taxe poids lourds is a negative signal. 
 Early school leaving target: 9.5 % || In line with the general EU trend, the French early school leaving rate decreased between 2011 and 2012, from 12 % to 11.6 % (no provisional data are available for 2013), progressing towards the national target of 9.5 %. The rate remains below the EU average of 12.7 %. Modest progress has been made from 12.4 % in 2006 to the current early school leaving rate of 11.6 %. 
 Tertiary education target: 50 % The French tertiary education target differs from the Europe 2020 benchmark and refers to the age group 17 to 33 year-olds. The French indicator allows for the increase in recent HE graduates to be taken into consideration. || The tertiary educational attainment rate was 44.0 % in 2013 (according to provisional data), 43.6 % in 2012 and 43.4 % in 2011, getting closer to the national target of 50 %. Significant progress has been made, moving from 39.7 % in 2006 to the current tertiary attainment rate, which surpasses the EU average of 35.7 %. 
 Reduction of the number of people at risk of poverty or social exclusion by one sixth by 2020 (i.e. 1.9 million). || There were 11.84 million people at risk of poverty or social exclusion in 2011, falling to 11.76 million in 2012. While the figures showed a slight decrease between 2011 and 2012, there were 67 000 more people at risk of poverty or social exclusion compared to 2010. No progress has been made in achieving the poverty reduction target set by the previous government. In the last few years, the main measure to limit the risk of poverty and social exclusion was the introduction of an income support scheme (the revenu de solidarité active or RSA) in 2010. The effectiveness of this scheme is, however, hampered by the very high non-take-up rates among the working poor. The multiannual plan against poverty (published in January 2013) includes the creation of a Youth Guarantee, the extension of the complementary health coverage, measures to improve access to housing and accommodation for homeless people, reinforced activation measures and measures to support families. Most of these reforms are underway or have been completed. On the other hand, the plan was also supposed to include a much-needed reform of the RSA which is still to be launched. The government's 2014 roadmap against poverty maintains a particular focus on labour market participation, effective access to rights, family measures and better governance for social inclusion policies. 

Annex

Table I.  Macroeconomic indicators
Table II. Comparison
of macroeconomic developments and forecasts
Table III.
Composition of the budgetary adjustment
Table IV. Debt
dynamics
Table V.
Sustainability indicators
Table VI. Taxation indicators
Table VII. Financial
market indicators
Table VIII. Labour
market and social indicators
Table IX. Product
market performance and policy indicators
Table X. Green
growth
List of indicators
used in Box 4 on the potential impact on growth of structural reforms. 
Final goods sector mark-ups: Price-cost margin, i.e. the difference between the selling price of
a good or service and its cost. Final goods mark-ups are proxied by the
mark-ups in selected services sectors (transport and storage, post and
telecommunications, electricity, gas and water supply, hotels and restaurants
and financial intermediation but excluding real estate and renting of machinery
and equipment and other business activities).[57]

Source: Commission services estimation using the methodology of Roeger, W. (1995), Can imperfect
Competition explain the Difference between primal and dual Productivity?, Journal of
Political Economy, Vol. 103(2), pp. 316-30, based on EUKLEMS 1996-2007 data. 
Entry costs: Cost of starting a business
in the intermediate sector as a share of income per capita. The intermediate
sector is proxied by the manufacturing sector in the model. 
Source: World Bank, Doing Business Database, www.doingbusiness.org.
2012 data.
Implicit consumption tax rate: Defined
as total taxes on consumption over the value of private consumption. In the
simulations it is used as a proxy for shifting taxation away from labour to
indirect taxes. The implicit consumption tax rates are increased (halving the
gap vis-à-vis the best performers) while labour tax rates are reduced so that
the combined impact is ex ante budgetary neutral.
Source: European Commission, Taxation
trends in the European Union, 2013 edition, Luxembourg, 2013. 2011 data.
Shares of high-skilled and low-skilled:
The share of high-skilled workers is increased, the share of low-skilled workers
is reduced (halving the gap vis-à-vis the best performers). Low-skilled
correspond to ISCED 0-2 categories; high-skilled correspond to scientists (in
mathematics and computing, engineering, manufacturing and construction). The
remainder is medium-skilled. 
Source: EUROSTAT. 2012 data or latest available. 
Female non-participation rate: Share of women of working age not in paid work and not looking for
paid work in total female working-age population
Source: EUROSTAT. 2012 data or latest available.
Low-skilled male non-participation rates: Share of low-skilled men of working age not
in paid work and not looking for paid work in total male working-age population
Source: EUROSTAT. 2012 data or latest available.
Elderly non-participation rates (55-64 years): Share of the population aged 55-64 years
not in paid work and not looking for paid work in total population aged 55-64
years.
Source: EUROSTAT. 2012 data or latest available.
ALMP: Active Labour Market Policy
expenditures as a share of GDP over the share of unemployed in the population. 
Source: EUROSTAT. 2011 data or latest available.
Benefit replacement rate: Share of a worker's
pre-unemployment income that is paid out by the unemployment insurance scheme.
Average of net replacement rates over 60 months of unemployment. 
Source: OECD, Benefits and Wages Statistics. www.oecd.org/els/benefitsandwagesstatistics.htm.
2012 data.
[1]       COM(2013) 800 final.
[2]       COM(2013) 801 final.
[3]       COM(2013) 790 final.
[4]       Apart from the 16 Member States identified in the AMR, Ireland was also covered by an in-depth review, following the conclusion by the Council
that it should be fully integrated into the normal surveillance framework after
the successful completion of its financial assistance programme.
[5]       Figures in this section are based on the latest data
available at the time of publication (15 May 2014, based on the ESA10 system of
national accounts).
[6] http://ec.europa.eu/economy_finance/economic_governance/macroeconomic_imbalance_procedure/index_en.htm. 
[7]       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.
[8]       Unless stated otherwise, historical data in this section stem
from the figures reported in the first 2014 notification to Eurostat by the
Member States, based on the ESA95 system of national accounts.
[9]       Known as zéro valeur and zéro volume.
[10]     EUR 9-11 billion or 0.5 % of GDP over
2014-17 based on government sources (Comité
interministériel pour la modernisation de l'action publique).
[11]     Court of Auditors, Les finances publiques locales,
October 2013.
[12]     See Table V. The medium-term sustainability gap (S1) indicator
shows the upfront adjustment effort required, in terms of a steady improvement
in the structural primary balance to be introduced until 2020, and then
sustained for a decade, to bring debt ratios back to 60 % of GDP in 2030,
including financing for any additional expenditure until the target date,
arising from an ageing population. The following thresholds were used to assess
the scale of the sustainability challenge: (i) if the S1 value is less than
zero, the country is assigned low risk; (ii) if a structural adjustment in the
primary balance of up to 0.5 pp of GDP per year until 2020 after the last year
covered by the 2013 autumn forecast (year 2015) is required (indicating an
cumulated adjustment of 2.5 pps), it is assigned medium risk; and (iii) if it is greater than 2.5 (meaning a
structural adjustment of more than 0.5 pp of GDP per year is necessary), it is
assigned high risk.
[13]     See Table V. The long-term sustainability gap (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 (IBP) 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 increase 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. The following thresholds for the S2
indicator were used: (i) if the value of S2 is lower than 2, the country is
assigned low risk; (ii) if it is between 2 and 6, it is assigned medium risk;
and (iii) if it is greater than 6, it is assigned high risk.
[14]     Ageing costs comprise long-term projections of public
age-related expenditure on pensions, healthcare, long-term care, education and
unemployment benefits. See the 2012 Ageing Report for details.
[15]     European Commission, The 2012 Ageing Report, European
Economy 2/2012.
[16]     Regarding public spending on outpatient pharmaceuticals, France
was one of the highest spenders in the EU in 2011, both relative to GDP
(France: 1.2 %; EU: 0.9 %) and per capita (measured in Purchasing
Power Standards) (France: 337; EU: 224), and generic drug penetration was below
the EU average both in volume and in value (France: 42 % and 18 %,
respectively; EU: 47 % and 22 %, respectively). France also had one of the highest ratios of public expenditure on administration and insurance to
GDP (France: 0.4 %; EU: 0.2 %) and to public current expenditure on
health (France: 4.6 %; EU: 3.1 %).
[17]     OECD (2010), Health Care Systems:
Efficiency and Policy Settings, OECD Publishing.
[18]     "Specific objectives relating mainly to the period up to
2020 (…) the failure to effectively control NOx emissions from light-duty
diesel vehicles has contributed substantially to current air quality compliance
problems and should be rectified as a priority", SWD(2013)531, Impact
assessment – Air package, December 2013, pp. 21-22, 35; see also The
contribution of transport to air quality, EEA Report 10/12. Copenhagen, 2012, pp. 79-80.
[19]     France was the first emitter of HFC in the EU in 2011, with
19.4 % of EU HFC emissions (source: European Environmental Agency
greenhouse gas data viewer). HFC emissions in France more than doubled
between 2000 and 2011.
[20]     Comité pour la fiscalité écologique,
Avis portant diagnostic sur la fiscalité et le financement de l'économie
circulaire, November 2013.
[21]     Comité pour la fiscalité écologique,
L'écart de taxation entre le gazole et l'essence, April 2013.
[22]     OECD (2013), Inventory of Estimated Budgetary Support and
Tax Expenditures for Fossil Fuels 2013, OECD Publishing.
[23]     European Commission (2012), SME Access to Finance Index (SMAF),
sub-index on access to equity finance, 2012 data.
[24]     For further details, see the 2014 Joint
Employment Report, COM(2013)801, which includes a scoreboard of key employment
and social indicators.
[25]     Apprentices, interns, underage workers in the first months of
activity and workers with a subsidised contract may be paid less than the
minimum wage.
[26]     Based on 2012 data, the minimum wage represented more than
40 % of the average wage in Belgium, the Netherlands, Luxembourg, Ireland,  France and Slovenia.
[27]     For instance, at 18, workers are entitled to receive 79 %
of the minimum wage in Belgium and 46 % in the Netherlands. In addition, Luxembourg has a differentiated minimum wage according to the level of skills, while Belgium and Ireland set lower minimum wages in the first few months of activity.
[28]     See in particular Sirugue C. (2013), Réforme des
dispositifs de soutien aux revenus d'activité modestes, Rapport à M. le Premier
ministre, and Chérèque F. and S. Vanackere (2014), Evaluation de la 1ère
année de mise en œuvre du plan pluriannuel contre la pauvreté et pour l'inclusion
sociale, Inspection générale des affaires sociales.
[29]     The rupture conventionelle represented 25 % of the
reason to end an open-ended contract for workers above 58 in 2012 compared to
16 % on average.
[30]     For example, for a single worker earning 67 % of the
average wage, the unemployment trap stood at at 77 % in 2012, above in
particular the levels in Germany, Austria and Sweden, compared to 74 % for
the EU average. This level was however below that in Belgium, Italy and Spain. 
[31]     Court of Auditors, Face à un chômage élevé, mieux
cibler les politiques, January 2013. 
[32]     Degressive unemployment benefits were briefly introduced in France between 1992 and 1996. The related measure increased the generosity of the system
for high-wage earners by reducing gradually earnings for workers close to the
end of their benefit period (which was thereby increased). This measure
resulted in an increase in the duration of unemployment spells. See Dormont
B., D. Fougère and A. Prieto (2001), L'effet de l'allocation unique dégressive
sur la reprise d'emploi, Economie et statistique, INSEE.
[33]        Out of 4.8 million registered
jobseekers, only 2.3 million have a dedicated Pôle emploi counsellor.
The others are either followed by other partners (such as the missions
locales for some young people), not followed because they work 78 hours per
month or more, or waiting for their first interview.
[34]     Council Recommendation of 22 April 2013 on establishing a Youth
Guarantee (2013/C 120/01).
[35]     Services delivered by the public employment
service (the missions locales, Pôle emploi, CAP emploi)
and specific schemes such as CIVIS, the écoles de la seconde chance, the
emplois d'avenir, the service militaire adapté in overseas territories,
NACRE for entrepreneurship.
[36]     Without at least an upper secondary qualification (BAC, CAP,
BEP).
[37]     Céreq (2014), Enquête 2013 auprès de la
Génération 2010 : Face à la crise, le fossé se creuse entre niveaux de diplôme,
Bref du Céreq n°319.
[38]     Those results are influenced by the high proportion of French
seniors (55-64) with at most lower secondary educational qualification (41 %
compared to 36 % at EU level). However, detailed results show limited
improvements across generations in the level of numeracy and literacy.
[39]     Couples with a female second earners represent the majority of
couples in France (source: Tax-benefit systems and female employment, study
commissioned by DG Justice).
[40]     Eurobarometer (November 2012). 
[41]     Eurostat, European Union Statistics on Income and Living
Conditions. 
[42]     Chérèque F. and S. Vanackere (2014), Evaluation de la
1ère année de mise en œuvre du plan pluriannuel contre la pauvreté et pour l'inclusion
sociale, Inspection générale des affaires sociales.
[43]     46 % of the labour force of companies exporting more than
35 % of their turnover will be eligible to the CICE, compared to 79 %
for non-exporting firms. For details, see Comité
de suivi du Crédit d'impôt pour la compétitivité et l'emploi (2013), Rapport
2013, Commissariat général à la stratégie et la prospective.
[44]     INSEE, Conjoncture in France: the Eurozone perks up a little,
INSEE conjuncture, March 2014.
[45]     Bouis R. (2007), Quels secteurs réformer pour
favoriser l'emploi et la croissance ?, Document de travail, DGTPE.
[46]     Autorité de la concurrence, Décision
n°13-DCC-90, January 2013.
[47]     Finland, Sweden, Denmark, Germany and Austria.
[48] For the sake of calibrating the model, the final goods sector is
identified with the services sector.
[49] Final goods sector
mark-ups is the difference between the selling price of a good/service and its
cost. Entry cost refers to the cost of starting a business in the intermediate
sector. The implicit consumption tax rate is a proxy for shifting taxation away
from labour to indirect taxes. The benefit replacement rate is the % of a worker's pre-unemployment income that is
paid out by the unemployment scheme. For a detailed explanation of indicators see
Annex.
[50] For a detailed explanation
of the transmission mechanisms of the reform scenarios see: European Commission
(2013), "The growth impact of structural reforms", Chapter 2 in QREA No.
4. December 2013. Brussels; http://ec.europa.eu/economy_finance/publications/qr_euro_area/2013/pdf/qrea4_section_2_en.pdf
[51]     Commission de régulation de l'énergie,
Observatoire des marchés de l'électricité et du gaz naturel – 4ème
trimestre 2013.
[52]     On-going interconnection projects in gas
infrastructure are expected to almost triple transmission capacity with
neighbouring countries by 2015. Plans are considered to further increase this
capacity to six times its current level by 2020. 
[53]     The absence of the application of the 'polluter-pays' principle
leads to high nitrates and pesticides pollution (from diffuse agricultural
sources in particular). The overall costs of such pollution, taking into
account the costs of switching from tap water to bottles because of nitrates
and pesticides, of collecting and treating bottles, of filtering tap water
because of pollutions or costs arising from eutrophication borne by other
activities (e.g. tourism), range between EUR 1.1 and 2.4 billion per
year. These costs are directly paid for by water consumers. See Acteon (2013), Potential
for Growth and Job Creation through the Protection of Water Resources.
[54]     Moving towards eliminating landfill and limiting energy recovery
to non-recyclable waste is a milestones in the Roadmap for a resource
efficient Europe (COM(2011)21 final, A resource-efficient Europe,
p. 7) and a priority of the AGS 2014, Promoting resource efficiency by
improving waste and water management, recycling and energy efficiency
(COM(2013)800 final, pp. 10-11).
[55]     "There is a positive relationship between higher landfill
taxes (and higher total landfill charges) and lower percentages of municipal
waste sent to landfill", in Steps towards greening in the EU,
Monitoring Member States' achievements in selected environmental policy areas, Institute for European Environmental Policy, 2013.
[56]     The following categories are used to assess progress in
implementing the 2013 country-specific recommendations: No progress: The
Member State has neither announced nor adopted any measures to address the CSR.
This category also applies if a Member State has commissioned a study group to
evaluate possible measures. Limited progress: The Member State has announced some measures to address the CSR, but these measures appear insufficient
and/or their adoption/implementation is at risk. Some progress: The Member State has announced or adopted measures to address the CSR. These measures are
promising, but not all of them have been implemented yet and implementation is
not certain in all cases. Substantial progress: The Member State has adopted measures, most of which have been implemented. These measures go a
long way in addressing the CSR. Fully addressed: The Member State has adopted and implemented measures that address the CSR appropriately.
[57]     The real estate sector is excluded because of statistical difficulties
of estimating a mark-up in this sector. The sector renting of machinery and equipment
and other business activities is conceptually part of intermediate goods
sector.