COMMISSION STAFF WORKING DOCUMENT Country Report France 2017 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}
Date: 2017-02-22
Institutions: European Commission, Secretariat-General
Subjects: EU employment policy, EU investment, France, economic development, economic recovery, euro area, fiscal policy, macroeconomics, multilateral surveillance, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 22.2.2017  SWD(2017) 75 final   COMMISSION STAFF WORKING DOCUMENT Country Report France 2017 Including an In-Depth Review on the prevention and correction of macroeconomic  imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP  2017 European Semester: Assessment of progress on structural reforms,  prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011  {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}    
 
 
CONTENTS 

Executive summary 

1. 

Economic situation and outlook 

2. 

Progress with country-specific recommendations 

3. 

Summary of the main findings from the MIP in-depth review 

4. 

Reform priorities 

4.1.  Public finances and taxation 

4.2. 

Financial sector 

4.3. 

Labour market, education and social policies 

4.4.  Competitiveness 

4.5. 

Sectoral policies 

A.  Overview Table 

B.  MIP Scoreboard 

C. 

Standard Tables 

References 

LIST OF TABLES 

1.1. 

2.1. 

Key economic, financial and social indicators – France 

Summary Table on 2016 CSR assessment 

3.1.  MIP Assessment Matrix (*) – France 2017 

4.2.1.  Financial soundness indicators, all banks in France 

4.4.1. 

Labour productivity growth (per person employed) in France and in the rest of the euro 

area 

B.1. 

The MIP scoreboard for France 

C.1. 

Financial market indicators 

C.2. 

Labour market and social indicators 

C.3. 

Labour market indicators (cont.) 

C.4. 

Product market performance and policy indicators 

C.5.  Green growth 

LIST OF GRAPHS 

1.1. 

Contributions to GDP growth (2010-2018) 

1 

4 

10 

13 

21 

21 

29 

32 

39 

48 

54 

61 

62 

67 

9 

11 

19 

29 

42 

61 

62 

63 

64 

65 

66 

4 

 
 
1.2. 

1.3. 

1.4. 

1.5. 

1.6. 

3.1. 

3.2. 

Potential GDP growth breakdown in France 

Import penetration in selected EU countries 

Trade in services – France 

Net lending/borrowing by institutional sectors – France 

Private debt in France and in the euro area 

Export market shares in value and in volume – France and euro area 

Real compensation per employee and productivity in France 

4.1.1.  Difference in debt dynamics between France and the euro area 

4.1.2.  Public debt projections of French public debt under different scenarios 

4.1.3.  Changes in the composition of public expenditure 

4.1.4.  Healthcare expenditure as a share of GDP in selected countries (2005-2015) 

4.1.5.  Composition of total taxes on companies, 2015 

4.1.6. 

Taxes on consumption as percentage of total taxation in 2014 

4.2.1.  Funding of non-financial corporations 

4.3.1.  Unemployment rate in France, 2006-2015 

4.4.1.  Export market share breakdown for France – Goods 

4.4.2.  French export performance – Goods 

4.4.3.  Exports of selected sectors (in value) – France 

4.4.4.  Share of export values per 5 categories of quality rank – France (% of total exports) 

4.4.5.  Exports market shares in value and in volume – France 

4.4.6.  Share of services in total exports in selected EU countries 

4.4.7.  Real unit labour costs in selected EA countries (deflated by GDP deflator) – whole 

economy 

4.4.8.  Breakdown of real unit labour costs in France – whole economy 

4.4.9.  Sectoral breakdown of unit labour costs (average annual growth rate 2008-2015) 

4.4.10.  Investment composition (% of value added) – whole economy 

4.5.1.  Performance of France's innovation system - distance to EU innovation leaders and to EU 

average 

4.5.2.  Efficiency of public funding of private R&D 

4.5.3.  Competition per service sector and country 

4.5.4.  Regulatory restrictions, France and EU 

LIST OF BOXES 

2.1. 

3.1. 

Contribution of the EU budget to structural change 

Euro area spillovers 

4.1.1.  Effects of a tax shift from taxes on production factors to indirect taxes 

4.3.1.  Selected highlights: recent reforms to promote flexicurity in France 

4.4.1. 

Investment challenges and reforms in France 

4.5.1. 

Indebtedness of the State-owned network industries and implications for investment 

5 

5 

6 

6 

7 

13 

14 

21 

22 

24 

24 

26 

27 

30 

32 

39 

39 

40 

40 

41 

41 

42 

42 

43 

44 

48 

49 

50 

50 

12 

17 

28 

38 

46 

53 

 
 
 
EXECUTIVE SUMMARY 

This report assesses France’s economy in the light 
of  the  European  Commission’s  Annual  Growth 
Survey  published  on  16 November  2016.  In  the 
survey  the  Commission  calls  on  EU  Member 
States  to  redouble  their  efforts  on  the  three 
elements  of  the  virtuous  triangle  of  economic 
policy — boosting investment, pursuing structural 
reforms and ensuring responsible fiscal policies. In 
so  doing,  Member  States  should 
focus  on 
improving social fairness in order to deliver more 
the 
inclusive  growth.  At 
the 
Commission  published 
the  Alert  Mechanism 
Report (AMR) that initiated the sixth round of the 
macroeconomic  imbalance  procedure.  The  in-
depth  review,  which  the  2017  AMR  concluded 
should  be  undertaken  for  the  French  economy,  is 
presented in this report. 

same 

time, 

Economic  growth 
is  forecast  to  accelerate 
moderately.  GDP  growth  declined  slightly  to 
1.2%  in  2016  from  1.3%  in  2015,  despite  the 
acceleration  in  domestic  demand,  as  net  exports 
represented  a  drag  on  growth  of  almost  1  pp.  of 
GDP  growth.  The  Commission  2017  winter 
forecast projects French GDP to grow by 1.4 % in 
2017 and 1.7 % in 2018. The recovery in exports is 
expected  to  rebalance  growth  away  from  private 
consumption  and  help  sustain 
the  recovery, 
although net exports are forecast to continue to be 
a drag on growth. Inflation is expected to moderate 
gradually, as the effects of past oil price increases 
fade.  In  the  long  term,  growth  is  expected  to 
remain  moderate,  as,  in  line  with  an  EU  wide 
trend,  France’s  potential  growth  has  been  eroded 
since the 2008 financial crisis, to 0.9 % in 2015. 

Export  performance  remains  subdued.  Export 
market  shares  have  stabilised  since  2012  but 
exports  barely  grew  in  2016.  The  trade  deficit 
deteriorated  in  2016  and  is  expected  to  widen 
further,  as  imports  remain  more  vigorous  than 
exports  and  oil  prices  rebound.  While  external 
sustainability  is  not  a  concern  for  France  in  the 
short  term,  the  weak  export  performance  weighs 
on growth prospects. 

is 

improvements 

fully  regained  past 

improving  without 
Cost  competitiveness 
losses,  while 
having 
substantial 
non-cost 
in 
competitiveness  are  still  to  materialise.  The 
growth  of  unit  labour  costs  has  slowed  down 
thanks  to  labour  tax  cuts  and  continued  wage 
moderation,  but  low  productivity  growth  prevents 

1 

a faster recovery of France’s competitiveness. Low 
levels  of  product  market  competition  and  slow 
adoption  of 
technology  hamper  productivity 
growth. Incentives for employers to hire on open-
ended contracts have been introduced. In addition, 
derogations  through  firm-level  agreements  from 
branch-wide  and  general  legal  provisions  are 
the 
becoming  more 
minimum  wage  indexation  mechanism  has  not 
been  revised  and  the  labour  market  remains 
segmented  holding  back  the  improvement  of  the 
labour  force's  skills.  Finally,  the  tax  burden  for 
companies is high compared to other EU countries. 

systematic.  However, 

is 

slow  as 

the  durability  of 

France's public indebtedness is high. The deficit 
is expected to decline below the threshold value of 
3 %  of  GDP  in  2017,  but  the  pace  of  fiscal 
adjustment 
the  adjustment  of 
government  spending  proves  difficult.  This  raises 
the  deficit 
concerns  about 
high 
still 
correction.  The 
deficit - coupled  with 
inflation 
environment and low growth - indicates that debt, 
expected  at  96.4 %  of  GDP  in  2016,  continues  to 
increase.  More  progress  has  been  made  on  fiscal 
structural reforms: the sustainability of the pension 
system  has  been  improved,  territorial  reform  is 
allowing  local  government  to  make  efficiency 
gains  and  setting-up  the  High  Council  of  Public 
Finances has strengthened fiscal governance. 

comparatively 
low 
the 

since 

steadily 

increasing 

Unemployment is falling from the peak reached 
long-term  unemployment 
in  2015,  while 
continues to rise in contrast with the EU trend. 
After 
2008, 
unemployment started to fall, from 10.4 % in 2015 
to 10.0 % in 2016, and is forecast to fall further in 
the  coming  years.  Yet,  unemployment  for  young 
people  and  low-qualified  remains  high  and,  as  a 
percentage  of 
long-term 
unemployment reached 44.2 % in the third quarter 
of  2016,  contrary  to  the  decreasing  trend  in  the 
EU. 

total  unemployment, 

the 

2016 

Overall,  France  has  made  some  progress  in 
country-specific 
addressing 
recommendations.  Substantial  progress  has  been 
made  in  ensuring  that  labour  cost  reductions  are 
sustained  and  in  reforming  the  labour  law.  The 
for  a 
2016  Labour  Act  paves 
comprehensive  review  of  the  Labour  Code  and 
introduced  measures  aimed  at  improving  firms’ 
capacity to adjust. However, no progress has been 

the  way 

 
 
Executive summary 

  France performs well in terms of investment 
levels. Productive investment in machinery and 
equipment  has  started  to pick  up  supported  by 
fiscal  measures.  The  quality  of  investment  is 
however uneven. Investment in R&D is mainly 
in  sectors  whose  relative  weight  is  declining, 
and  businesses  are  relatively  slow  to  take  up 
to 
digital 
investment are overall moderate, investment is 
highly concentrated around a limited number of 
larger  firms.  These  investment  patterns  weigh 
on labour productivity and competitiveness and 
affect  the  long-term  growth  potential  of  the 
whole French economy. 

technologies.  While 

barriers 

  The  design  of  the  tax  system  weighs  on 
competitiveness.  The  high  tax  burden  on 
companies  may  be  an  obstacle  to  investment 
and  firms'  growth.  It  is  combined  with  a 
relatively low level of consumption taxes. The 
tax  wedge  on  labour  is  being  reduced  but 
remains  above  EU  average  at  the  average 
wage.  In  addition,  the  complexity  of  the  tax 
system  may  also  be  a  barrier  to  a  well-
functioning business environment. 

in 

the 

simplify 

regulatory  burden 

  The French business environment is middle-
ranking 
to  major 
comparison 
competitors.  While  the  government  has  tried 
to 
for 
businesses, the latter are still faced with a high 
regulatory 
fast-changing 
legislation. Size-related thresholds in social and 
tax legislation also continue to weigh on firms’ 
growth.  Competition  has  improved  in  some 
service  sectors,  but  is  still  weak  in  several 
sectors  of  major  economic  importance.  Given 
the  targeted  scope of  already  adopted  reforms, 
serious barriers remain in place. 

burden 

and 

in 

finances 

future.  Short 

  High  public  debt  coupled  with  low  growth 
could  be  a  source  of  significant  risks  for 
public 
term 
sustainability  risks  remain  low.  In  the  long 
term,  risks  are  also  contained,  notably  due  to 
favourable 
pension 
demographic  developments  compared  to  the 
rest  of 
there  are 
the  EU.  Nonetheless, 
significant  consolidation  needs  in  the  coming 
years  to  bring  down  the  public  debt.  The  debt 
burden for the private sector is stabilising albeit 

rules  and 

indexation 

made  on  reforming  the  unemployment  benefit 
system.  Some  progress  has  been  made 
in 
improving the system of vocational education and 
training.  Also,  some  progress  has  been  made  on 
removing barriers to activity in the services sector 
and  in  simplifying  administrative,  accounting  and 
fiscal  rules  for  companies.  By  contrast,  limited 
progress  has  been  made  in  reducing  taxes  on 
income 
production  and 
tax, 
simplifying 
schemes  and 
boosting  the  savings  identified  by  the  spending 
reviews. No progress has been made in alleviating 
the effects on firms of size-related legal thresholds. 
Although  the  deficit  is projected  to  decline  below 
the  3 %  Treaty  threshold,  the  limited  progress 
made  in  taking  the  required  structural  budgetary 
measures  means  that  there  are  no  fiscal  buffers 
against unforeseen circumstances. 

the  corporate 
innovation  policy 

the  Europe  2020  Strategy,  France 

Regarding  progress  in  reaching  national  targets 
is 
under 
performing  well  in  decreasing  greenhouse  gas 
emissions, 
improving  energy  efficiency  and 
reducing  early  school  leaving.  At  the  same  time, 
more action is needed to increase the employment 
rate, R&D intensity, use of renewable energy, and 
to reduce poverty. 

findings  of 

review 
The  main 
contained  in  this  report,  and  the  related  policy 
challenges, are as follows: 

in-depth 

the 

  French exports continue to suffer from weak 
competitiveness.  The  increased  specialisation 
of  goods  exports  on  a  few  sectors  makes 
France’s  export  performance  more  vulnerable 
to  negative  developments  in  these  sectors. 
Moreover,  the  quality  of  goods  exports  has 
declined slightly in recent years. Export market 
shares in services have been more resilient than 
those in goods since 2008. 

  Cost competitiveness has improved in recent 
years. Since 2013, unit labour cost growth has 
been  lower  in  France  than  in  the  rest  of  the 
euro  area,  in  particular  thanks  to  measures 
taken  to  reduce  the  labour  tax  wedge,  but 
accumulated past losses have not been made up 
for  yet.  Wage  moderation  continues,  but  low 
cost 
is  preventing 
productivity  growth 
competitiveness from recovering faster. 

2 

 
 
Executive summary 

  Educational  inequalities  remain  high  and 
the vocational education and training system 
is not sufficiently adjusted to labour market 
needs. France performs well with respect to the 
Europe  2020  indicators  concerning  education. 
However,  educational  inequalities  linked  to 
socioeconomic  background  are  among 
the 
highest  in  the  OECD.  The  system  of  initial 
vocational education and training does not lead 
to a satisfactory integration of young people in 
the  labour  market.  Access  to  the  continuous 
vocational 
is  uneven  for 
different categories of workers. 

training  system 

  France scores better than the EU average in 
relation  to  poverty,  social  exclusion  and 
inequality. Social situation indicators show no 
major  changes.  Yet,  some  population  groups 
remain more exposed to poverty, notably part-
time  workers  and  single-parent  families.  For 
very  low  income  earners,  access  to  affordable 
housing remains challenging. 

  The French national innovation system does 
not  match  the  performance  of  Europe's 
innovation 
leaders.  A  high  degree  of 
complexity remains and overall coordination is 
a  challenge.  The  discrepancy  between  the 
amount of public support granted and France's 
middling 
raises 
questions about the efficiency of public support 
schemes. 

performance 

innovation 

at a high level. The combination of high public 
and private debt is an additional risk factor. 

  The 

expenditure-based 

consolidation 
strategy  has  relied  mainly  on  declining 
interest rates and cuts in public investment. 
The  already  very  high  revenue-to-GDP  ratio 
leaves  little  margin  for  further  tax  hikes, 
suggesting  that  further  consolidation  needs  to 
be  expenditure-based.  However,  it  is  unlikely 
that  the  low  interest  rate  environment  will 
prevail  in  the  medium  term  and  if  productive 
investment is cut the economic potential could 
be  harmed.  In  contrast,  the  spending  reviews 
have identified a number of possible efficiency 
gains,  most  of  which  have  not  been 
implemented yet. 

  Its large economy and close integration with 
the  rest  of  the  euro  area  makes  France  a 
potentially significant source of cross-border 
spillovers.  Structural  reforms  in  France  can 
have  positive  spill-over  effects 
in  other 
Member States. Model simulations suggest that 
product and labour market reforms or a growth-
friendly  tax  shift  in  France  can  yield  positive 
GDP effects for both France and for the rest of 
the  euro  area.  These  effects  should  remain  in 
the long-term. 

Other key economic issues analysed in this report 
that  point  to  particular  challenges  facing  France’s 
economy are the following: 

  Measures  to  reduce  the  cost  of  labour  have 
had  an  effect  on  employment.  The  recent 
evaluations  of  the  crédit  d'impôt  pour  la 
compétitivité et l'emploi (CICE) highlighted its 
positive  effect  on  employment,  although  an 
increase in its credit rate was not found to have 
an  increased  impact  on  employment.  The 
Labour  Act  also  aims  to  reduce  labour  market 
rigidities.  Nonetheless, 
labour 
market  remains  segmented,  while  women  and 
people from a migrant background continue to 
be  affected  by  lower  employment  rates.  The 
unemployment  benefit  system  continues  to  be 
in  deficit  and  its  rules  reinforce  the  labour 
market  segmentation  by  favouring  successive 
short periods of work. 

the  French 

3 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth 

Economic  growth 
is  forecast  to  accelerate 
moderately.  GDP  growth  declined  slightly  to 
1.2%  in  2016  from  1.3%  in  2015,  despite  growth 
reaching  0.4%  in  the  fourth  quarter.  Private 
consumption  accelerated  on  the  back  of  dynamic 
household  purchasing  power,  while  investment 
growth has been boosted by anticipation of the end 
of the over-amortisation scheme, a fiscal incentive 
for  firms  to  invest.  However,  after  an  exceptional 
performance in 2015, export growth fell to 1.0% in 
2016,  due  to  several  temporary  factors,  while 
imports  remained  relatively  dynamic.  As  a  result, 
net exports represented a drag on growth of almost 
1 pp.  of  GDP  growth  in  2016.  According  to  the 
Commission  2017  winter 
is 
projected to pick up to 1.4 % in 2017 and 1.7 % in 
2018 under the usual no-policy-change assumption 
(Graph 1.1). 

forecast,  GDP 

Graph 1.1:  Contributions to GDP growth (2010-2018) 

Source: Commission 2017 winter forecast 

The recovery in exports is expected to rebalance 
growth  away  from  private  consumption  and 
help  sustain  the  recovery, although  net  exports 
are forecast to continue to be a drag on growth. 
Private  consumption  is  expected  to  decelerate  in 
line  with purchasing power, as  the  tailwinds  from 
lower  oil  prices  fade  out.  Also,  the  recovery  in 
investment  is  gaining  momentum,  particularly  in 
the  construction  sector.  After  the  strong  growth 
observed in 2016, equipment investment growth is 
the 
set 

somewhat.  However, 

to  moderate 

is  expected 

prolongation of the over-amortisation scheme until 
14  April  2017,  rising  profit  margins  and  easy 
financing conditions are expected to sustain robust 
to 
growth  rates.  Export  growth 
gradually normalise in 2017 and 2018, in line with 
the  moderate  recovery  projected  in  French  export 
markets.  Meanwhile, 
to 
moderate  somewhat  in  2017,  in  a  context  of 
decelerating  domestic  demand,  allowing  for  a 
more balanced contribution of net exports to GDP 
growth. 

imports  are  forecast 

The  unemployment  rate  has  been  declining 
since mid-2015, supported by the labour market 
measures  adopted  since  2013.  Employment  is 
forecast  to  continue  growing  at  a  sustained  pace, 
supported  by  the  ongoing  economic  recovery  and 
by  policy  measures  to  encourage  job  creation  by 
reducing the labour tax wedge (the Tax Credit for 
the 
Competitiveness 
Responsibility  and  Solidarity  Pact,  and  the Hiring 
Subsidy).  Moreover, 
the  emergency  plan  for 
employment announced in January 2016 is further 
decreasing  the  unemployment  rate  by  providing 
training  to  unemployed  people  who  subsequently 
do  not  appear  as  unemployed  any  more. 
Consequently,  the  unemployment  rate  is  forecast 
to decline to 9.9% in 2017 and 9.6% in 2018. 

Employment, 

and 

Inflation  is  set  to  moderate  gradually.  Inflation 
rose  sharply  to  1.6%  in  January  2017,  from  0.8% 
in  December  2016.  Overall,  HICP  is  expected  to 
average 1.5% in 2017, before declining slightly to 
1.3%,  as  the  strong  positive  contribution  from 
recent  oil  price  increases  fades  out  and  domestic 
price pressures increase only gradually. 

Risks to the outlook are more balanced. Despite 
continued  global  uncertainty,  risks  to  the  forecast 
for  France  are  less  tilted  to  the  downside  than  in 
the  autumn.  The  improvement  of  labour  market 
conditions could allow for a more significant drop 
in  the  household  saving  rate  and  thus  stronger 
private consumption. 

Potential growth 

In  the  long term, growth  is  expected  to remain 
moderate  as  potential  growth  has  slowed  since 
the  2008  financial  crisis.  Averaging  1.8 %  from 
2000  to  2008,  France’s  potential  GDP  growth 
declined  to  0.9 %  on  average  from  2009  to  2015 

4 

-1012310111213141516 (f)17 (f)18 (f)Changes in inventoriesNet exportsInvestmentGovernment consumptionPrivate consumptionReal GDP (y-o-y%)%, pps.  
 
 
1. Economic situation and outlook 

market rigidities weigh on total factor productivity 
by hampering resource reallocation. Labour market 
segmentation  limits  the  improvement  of  labour 
force’s  skills  (see Section 4.3).  Moreover  size-
related social and tax thresholds and slow adoption 
of 
factor 
productivity  growth  (see Section 4.5).  Finally,  the 
tax structure is not growth-friendly. 

technology  also  weigh  on 

total 

Imports 

Imports  have  been  relatively  more  dynamic 
than  final  demand  since  2008.  The  increase  in 
import  penetration  reflects  first  and  foremost 
general  trends  in  world  trade  as  a  result  of 
globalisation.  However,  import  penetration  has 
increased  relatively  more  in  France  than  in  other 
major 
This 
deterioration  in  the  French  market  shares  in  the 
domestic  market  reflects  the  weak  cost  and  non-
cost competitiveness of the French economy. 

(Graph 1.3). 

economies 

EU 

Graph 1.3: 

Import penetration in selected EU countries 

Source: European Commission 

increasingly 

France  has  been 
importing 
intermediate  goods,  which  currently  represent 
half  of  all  imports  of  goods.  The  import  content 
of its goods exports has also been growing over the 
years  (from  33 %  in  1995  to  39 %  in  2009).  Yet, 
French  companies  seem  to  be  less  integrated  in 
global value chains, certainly less so than German 
companies.  France's  goods  imports  remain  mostly 
downstream in the production chain (i.e. near final 
demand).  Based  on  Andras 
'upstreamness 
indicators',  46.3 %  of  French  goods  imports  are 

(TFP) 

growth,  while 

and  is  expected  to  pick  up  only  moderately,  to 
1.3 %  by  2018.  While  this  decline  has  been 
observed in all major euro area economies, France 
is characterised by a stronger decline in total factor 
productivity 
capital 
accumulation and labour force remained relatively 
dynamic (1).  France’s  decline 
total  factor 
productivity (TFP) growth, at −0.5 pp. from 2000-
2008 to 2009-2015 (Graph 1.2), is larger than that 
of  Germany  (−0.3 pp.),  Italy  (−0.2 pp.)  or  Spain 
(+0.1 pp.).  As  a  result,  potential  TFP  growth  in 
France  has  decoupled  from  Germany,  although  it 
remained higher than in Spain and Italy. 

in 

Graph 1.2: 

Potential GDP growth breakdown in France 

Source: Commission 2017 winter forecast 

The  decline  in  total  factor  productivity  growth 
contributes  to  the  weak  competitiveness  and 
exacerbates  the  challenges  linked  to  the  high 
increases  have 
public  debt.  Although  wage 
moderated in recent years, the slowdown of labour 
productivity  growth,  largely  due  to  a  decline  in 
TFP growth despite a continued increase in capital 
intensity,  prevents  a  faster  recovery  of  cost 
competitiveness  (see Section 4.4).  The  decline  in 
potential  GDP  also  makes  it  more  difficult  for 
France  to  bring  down  its  public  debt  without 
greater 
efforts 
(see Section 4.1). 

consolidation 

fiscal 

Structural  reforms  are  key  to  addressing  the 
economic 
the 
declining  potential  growth.  Labour  and  product 

challenges  associated  with 

(1)  European Commission (2016c). 

5 

-0.5%0.0%0.5%1.0%1.5%2.0%2.5%00010203040506070809101112131415161718Total labour (hours) contributionCapital accumulation contributionTFP contributionPotential GDP growth859095100105110115120080910111213141516(f)17(f)18(f)2008=100Ratio of imports over final demand (in volume)FRDEITESUKEA-19 
 
                                                           
 
1. Economic situation and outlook 

near  final  demand  against  39.7 %  of  German 
imports. Additionally, the ratio of domestic added 
value  in  French  exports  to  foreign  added  value  in 
its imports fell between 1995 and 2011 (from 51 % 
to 43 %), while again increasing in Germany (from 
59 % to 67 %) in the same period. 

the  overall  trade  balance  in  services.  The  trend  in 
transport  services  is  also  negative:  this  sector  has 
been  running  a  deficit  since  2013,  mainly  driven 
by a deteriorating balance in freight road transport 
and passenger air transport. 

Graph 1.4: 

Trade in services – France 

External position 

The  trade  deficit  reached  a  trough  in  2011  at 
−2.6 %  of  GDP.  The  trade  balance  has  been 
steadily improving since then and reached −1.4 % 
of  GDP  in  2015.  A  significant  part  of  this 
improvement is due to lower oil prices, as the trade 
balance  excluding  energy  products  has  been 
deteriorating  again  since  2013.  As  oil  prices 
rebound,  the  total  trade  deficit  is  forecast  to 
increase.  According  to  the  Commission  2017 
winter  forecast,  the  trade  deficit  is  set  to  reach 
−2.3 % of GDP in 2018. 

Graph 1.5:  Net lending/borrowing by institutional sectors – 

France 

Source: Eurostat – Balance of payments 

In  addition,  the  fast–rising  imports  of  services 
are eroding the trade surplus in services. While 
still  on  the  positive  side,  the  trade  balance  in 
services  declined  by  EUR 16 billion  (0.7 %  of 
GDP) from 2012 to 2015 to reach its lowest value 
since  1999  (Graph 1.4) (2).  This  decline  occurred 
because,  while  exports  of  services  grew  fast 
(see Section 4.4), 
imports  were  growing  even 
faster, accounting for the bulk of the change in the 
trade  balance  developments 
in  recent  years. 
Imports  have  been  growing  particularly  fast  in 
technical, trade-related and other business services 
since  2013,  while  the  balance  in  tourism  has 
since  2014,  presumably  as  a 
deteriorated 
terrorist  attacks. 
consequence  of 
Tourism is the service sector where France has the 
highest  revealed  comparative  advantage (3).  Thus, 
developments in this sector have a large impact on 

recent 

the 

(2)  According  to  national  accounts  statistics  the  trade  balance 
in services has even turned negative since 2014 and stood 
at EUR −8.8 bn in 2015. 

(3)  Revealed comparative advantages are calculated based on a 
formula  developed  by  Balassa  (1966)  which  indicates  a 
country's  relative  advantages  or  disadvantages  in  exports 
by sector. It reflects the contribution to the trade balance of 
each sector, on the scale of total trade in goods and services 
in value, corrected by the overall trade balance. 

6 

Source: Eurostat, Commission 2017 winter forecast 

Net  borrowing  of  the  nation  is  also  set  to 
deteriorate,  to  −2.4 %  of  GDP  in  2018.  In 
France,  all  institutional  sectors  except  households 
were  net  borrowers  in  2015  (Graph 1.5).  The  net 
lending of households remains insufficient to fully 
finance  net  borrowing  by  the  general  government 
and  by  corporations.  In  particular,  France  is  the 
only  major  EU  economy  in  which  non-financial 
corporations  are  net  borrowers,  while  the  net 
borrowing of the public sector is higher than in the 
euro area as a whole. Over the forecast period, the 
deterioration  in  the  net  borrowing  of  the  total 

010203040500501001502002509900010203040506070809101112131415Trade balance of servicesExports of servicesImports of servicesbn €bn €-10-8-6-4-202468080910111213141516(f)17(f)18(f)General governmentHouseholds and NPISHNon-financial corporationsFinancial corporationsFinancial and non-financial corporationsTotal economy% of GDP 
 
                                                           
 
economy  stems  from  a  fall  in  the  net  lending  of 
households  and  a  rise  in  net  borrowing  by 
corporations. 

Private indebtedness 

Graph 1.6: 

Private debt in France and in the euro area 

1. Economic situation and outlook 

Based  on  the  measures  presented  in  the  draft 
budgetary plan, the government deficit is expected 
to further decrease to 2.9 % of GDP in 2017. The 
structural balance is projected to improve by only 
0.2 % of GDP in both 2016 and 2017, well below 
the  recommended  efforts  in  March  2015  (Council 
of  the  European  Union,  2015).  Moreover,  at 
unchanged  policy  the  deficit  is  projected  to 
increase to 3.1 % of GDP in 2018.  

The  general  government  debt  is  projected  to 
keep  rising  until  2018.  The  public  debt-to-GDP 
ratio  reached  96.2 %  of  GDP  in  2015,  compared 
with  92.6 %  for  the  euro  area  on  average.  Such 
difference  is  expected  to  widen  further  in  the 
coming years (see Section 4.1). Despite this trend, 
sovereign  yields  remain  very  close  to  historical 
lows  driven  by  the  expansionary  monetary  policy 
of  the  ECB.  These  low  yields  have  resulted  in 
interest  expenditure  decreases  while  preventing 
negative  spillovers  to  the  financial  sector  and  the 
real economy. 

Source: Eurostat 

Social developments 

The  level  of  consolidated  private  debt  has 
steadily  increased  since  1998  to  reach  144.3 % 
of  GDP  in  2015.  Both  household  debt  and  non-
financial  corporation  debt  continued  to  grow  at  a 
relatively  rapid  pace  throughout  the  crisis  and 
beyond. By contrast, in the euro area, private debt 
has  been  falling  since  2009,  as  a  number  of 
European  economies  have  experienced  significant 
deleveraging.  As  a  result,  private  debt  in  France 
now  exceeds 
the  euro  area  average.  While 
household  debt  remains  below  that  of  the  euro 
area, the debt of French non-financial corporations 
exceeded  the  euro  area  average  by  7.5 pps.  in 
2015.  Non-financial  corporation  debt,  combined 
with still low profitability, is a potential source of 
concern for France, should this trend persist. 

Public finances 

The  general  government  deficit  is  projected  to 
fall  below  the  3 %  of  GDP  reference  value  in 
2017, although its durable correction is at risk. 
the  Commission  2017  winter 
According 
forecast, 
is 
expected  to  decrease  from  3.5 %  of  GDP  in  2015 
to  3.3 %  in  2016  due  to  slow  expenditure  growth 
contained  by  low  inflation  and  low  interest  rates. 

the  general  government  deficit 

to 

Modest economic growth has led to a stagnation 
of  real  household  income  in  France.  Between 
2012  and  2015,  real  GDP  per  capita  grew  more 
slowly  in  France  than  in  the  EU  and  in  the  euro 
area (0.43 %, against 1.16 % in the EU and 0.81 % 
in  the  euro  area).  The  poverty  rate  stabilised  at 
13.5 %  in  2015  and  the  population  at  risk  of 
poverty  or  social  exclusion  reached  17.7 %  of  the 
total  population,  below  the  level  observed  in  the 
EU  and  the  euro  area.  Also,  the  intensity  of 
poverty,  as  calculated  by  national  figures,  has 
recorded  a  slight  increase  to  20.1 %  in  2014  after 
having decreased from a peak of 21.2 % in 2012 to 
19.8 % in 2013. 

Income  inequality  remains  relatively  low  in 
France  compared  to  the  EU  average (4).  It  has 
slightly  decreased  since  2011,  partly  reversing  an 
upward  trend  since  2007 (5).  This  decrease  has 

(4)  As measured by the Gini index and by the income quintile 
share  ratio.  The  Gini  index  considers  the  shape  of  the 
whole income distribution and takes values between 0 and 
1 with higher values indicating a higher degree of income 
inequality.  The  income  quintile  share  ratio  is  the  ratio  of 
total  income  received  by  the  20 %  of  the  population  with 
the  highest  income  to  that  received  by  the  20 %  of  the 
population with the lowest income. 

(5)  The Gini index of disposable income went down from 30.8 
in  2011  to  29.2  in  2015,  while  the  income  quintile  share 

7 

020406080100120140160FREAFREA20092015HouseholdsNon financial corporationsMIP threshold% of GDP 
 
                                                           
1. Economic situation and outlook 

been  due  to  the  tax  benefit  system,  whilst  market 
income inequality — that is inequality of incomes 
before  taxes  and  transfers  including  pensions  — 
has  been  rising  since  2012  and  is  now  somewhat 
above  the  EU  average (6).  Over  the  same  period, 
the lower 10 % of income earners have benefitted 
from slightly better income developments than the 
median  household  —  contrary  to  what  happened 
between  2000  and  2012  —  and  their  income  gap 
with median earners is smaller than in many other 
EU  countries (7).  The  French  benefit  system  has 
also  helped  to  reduce  the  risk  of  relative  poverty, 
which  is  close  to  the  EU  average  before  social 
transfers  and  rather  low  after  transfers (8).  By 
contrast,  households'  net  wealth  (9)  inequality  is 
relatively  higher  than  income  inequality  and  was 
among the highest in the EU (ECB, 2016). 

The significant rise in youth unemployment and 
long-term  unemployment  over  the  past  10 
years,  however,  may  increase  the  risks  for  the 
economic  performance  of  France  stemming 
from  higher  inequality.  The  segmentation  of  the 
labour  market  and 
to 
education (see also Section 4.3) play an important 
role  in  inequality  outcomes  and  perceptions.  This 
raises  concerns  about  possible  risks  of  hysteresis 
effects and further pain for low income earners. 

inequalities 

in  access 

ratio  fell  from  4.6  in  2011  to  4.3  in  2015.  The  2015  EU 
average is 31.0 and 5.2 for the Gini index and the income 
quintile share ratio respectively. 

(6)  The  difference  between  the  Gini  coefficient  before  and 
after  taxes  and  transfers  was  50.2  in  2015  before  social 
transfers  and  pensions  were  taken  into  account,  and  29.2 
after social transfers and pensions  – a gap of 21. This gap 
exceeds the EU average of 19.9. 

(7)  The  real  S10  income  growth  was  significantly  lower  than 
the real mean income growth between 2000 and 2012, but 
higher  since  2012.  For  the  latest  year  available,  the  ratio 
S50/S10 is below the EU average. 

(8)  The  relative  poverty  is  measured  by  the  at-risk-of-poverty 
rate, defined as the share of individuals whose equivalised 
disposable income falls below 60 % of the median income. 

(9)  Difference between total assets and total liabilities. 

8 

 
                                                                                   
1. Economic situation and outlook 

Table 1.1: 

Key economic, financial and social indicators – France 

(1) Sum of portfolio debt instruments, other investment and reserve assets 
(2,3) Domestic banking groups and stand-alone banks 
(4) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches 
(*) Indicates BPM5 and/or ESA95 
Source: European Commission 

9 

2004-20082009201020112012201320142015201620172018Real GDP (y-o-y)1.9-2.92.02.10.20.60.61.31.21.41.7Private consumption (y-o-y)1.90.21.80.5-0.20.50.71.51.91.21.6Public consumption (y-o-y)1.62.41.31.01.61.51.21.41.61.21.2Gross fixed capital formation (y-o-y)3.3-9.12.12.10.2-0.8-0.31.02.83.14.1Exports of goods and services (y-o-y)3.5-11.39.06.92.51.93.36.11.03.14.0Imports of goods and services (y-o-y) 5.0-9.48.96.30.72.14.76.63.73.14.8Output gap2.0-2.3-1.4-0.4-1.1-1.4-1.7-1.3-1.3-1.1-0.6Potential growth (y-o-y)1.70.91.01.00.90.90.90.91.11.21.3Contribution to GDP growth:Domestic demand (y-o-y)2.1-1.51.81.00.30.40.61.42.01.62.1Inventories (y-o-y)0.1-1.10.31.1-0.60.20.50.10.0-0.10.0Net exports (y-o-y)-0.4-0.3-0.10.00.5-0.1-0.5-0.3-0.9-0.1-0.3Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.30.10.20.20.10.10.20.20.30.30.3Capital accumulation (y-o-y)0.80.50.50.50.50.50.40.40.50.50.6Total factor productivity (y-o-y)0.60.30.30.30.30.30.30.30.30.40.4Current account balance (% of GDP), balance of payments-0.2-0.8-0.8-1.0-1.2-0.9-1.1-0.2...Trade balance (% of GDP), balance of payments-0.3-1.2-1.6-2.0-1.4-1.1-1.1-0.7...Terms of trade of goods and services (y-o-y)-0.62.6-1.4-2.4-0.31.11.12.61.2-0.90.3Capital account balance (% of GDP)0.10.10.10.10.00.10.10.1...Net international investment position (% of GDP)-6.6-14.8-9.3-8.7-12.8-16.6-16.9-16.4...Net marketable external debt (% of GDP) (1)-19.2-21.6-23.1-22.3-26.4-26.2-30.8-32.3...Gross marketable external debt (% of GDP) (1)169.9181.6190.5182.9182.0176.3192.5192.8...Export performance vs. advanced countries (% change over 5 years)-5.7-7.2-10.7-7.7-8.9-6.7-7.7-3.42...Export market share, goods and services (y-o-y)-4.10.4-10.1-2.5-4.51.90.6-1.0...Net FDI flows (% of GDP)1.82.61.30.70.7-0.51.7-0.1...Savings rate of households (net saving as percentage of net disposable income)9.810.810.410.09.58.78.78.9...Private credit flow, consolidated (% of GDP)8.83.34.66.44.42.22.94.5...Private sector debt, consolidated (% of GDP)112.8130.4131.9135.3138.5137.8142.4144.3...of which household debt, consolidated (% of GDP)43.952.553.754.855.255.756.056.6...of which non-financial corporate debt, consolidated (% of GDP)68.977.978.280.583.382.186.487.7...Corporations, net lending (+) or net borrowing (-) (% of GDP)-0.41.00.9-1.0-1.8-1.9-2.5-1.9-1.9-2.3-2.4Corporations, gross operating surplus (% of GDP)18.117.017.817.516.816.817.117.718.118.018.1Households, net lending (+) or net borrowing (-) (% of GDP)2.84.64.23.93.53.13.23.43.53.23.1Deflated house price index (y-o-y)7.5-4.93.63.9-1.9-2.6-1.7-1.3...Residential investment (% of GDP)6.46.36.36.46.26.16.05.8...GDP deflator (y-o-y)2.10.11.10.91.20.80.50.60.80.91.2Harmonised index of consumer prices (HICP, y-o-y)2.20.11.72.32.21.00.60.10.31.51.3Nominal compensation per employee (y-o-y)3.01.83.12.52.41.61.21.10.91.51.9Labour productivity (real, person employed, y-o-y)1.1-1.81.81.3-0.10.30.20.8...Unit labour costs (ULC, whole economy, y-o-y)1.83.51.01.02.31.10.80.20.50.71.1Real unit labour costs (y-o-y)-0.33.4-0.10.01.10.30.3-0.4-0.4-0.2-0.2Real effective exchange rate (ULC, y-o-y)0.90.5-1.60.2-1.93.10.6-4.20.0-0.4-0.7Real effective exchange rate (HICP, y-o-y)0.30.4-4.1-0.7-3.21.60.3-4.51.2-1.1.Tax rate for a single person earning the average wage (%)28.527.727.828.028.228.428.728.9...Tax rate for a single person earning 50% of the average wage (%)18.3*17.518.420.120.319.119.522.1...Total Financial sector liabilities, non-consolidated (y-o-y)10.71.65.70.72.11.85.43.1...Tier 1 ratio (%) (2).10.110.710.913.313.113.113.8...Return on equity (%) (3).4.68.35.63.46.04.66.8...Gross non-performing debt (% of total debt instruments and total loans and advances) (4).4.34.54.64.54.63.63.5...Unemployment rate8.49.19.39.29.810.310.310.49.99.99.6Long-term unemployment rate (% of active population)3.23.03.53.63.74.04.24.3...Youth unemployment rate (% of active population in the same age group)20.423.623.322.724.424.924.224.725.2..Activity rate (15-64 year-olds)69.770.370.370.170.771.171.171.3...People at risk of poverty or social exclusion (% total population)19.018.519.219.319.118.118.517.7...Persons living in households with very low work intensity (% of total population aged below 60)9.38.49.99.48.48.19.68.6...General government balance (% of GDP)-2.9-7.2-6.8-5.1-4.8-4.0-4.0-3.5-3.3-2.9-3.1Tax-to-GDP ratio (%)44.443.944.145.246.547.447.847.947.647.747.5Structural budget balance (% of GDP)..-5.8-5.0-4.2-3.4-3.0-2.7-2.5-2.3-2.7General government gross debt (% of GDP)66.079.081.785.289.592.395.396.296.496.797.0forecast 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

the 

with 

to  France 

implementing 

introduction  of 

the 
Progress 
recommendations  addressed 
in 
2016 (10)  has  to  be  seen  in  a  longer-term 
the 
perspective  since 
European  Semester  in  2011.  As  regards  public 
finances,  the  general  government  deficit  was 
reduced  from  4.8 %  of  GDP  in  2012  to  3.3 %  in 
2016 and was 1.5 pp. higher than in the rest of the 
euro  area  in  2016.  In  terms  of  fiscal  structural 
reforms  the  sustainability  of  the  pension  schemes 
has  been  improved,  the  territorial  reform  has 
provided a framework to realise efficiency gains at 
local  level  and  the  fiscal  governance  has  been 
strengthened  with  the  setting-up  of  the  High 
less 
Council  of  Public  Finances.  However, 
the 
concerning 
progress  has  been  made 
identification  of  efficiency  gains 
in  public 
spending,  raising  concerns  about  the  durability  of 
the deficit correction. 

growth  of  size-related  regulations,  but  their  scope 
has been limited overall. 

the 

tax  burden  has 
The  composition  of 
somewhat  improved,  but  distortive  features 
remain and the potential for simplifying the tax 
system  remains  largely  untapped.  The  total  tax 
burden on companies increased between 2010 and 
2013, with policy measures such as the CICE, the 
responsibility and solidarity pact and the phase-out 
of  the  C3S  started  to  reverse  the  trend  in  2014. 
These  measures  have  been  partly  financed  by  an 
increase in VAT rates and environmental taxation, 
but the burden of taxation continues to fall less on 
consumption  than  it  does  in  other  EU  countries. 
While  some  tax  expenditures  were  phased  out  at 
the beginning of the period, overall the tax system 
has  not  been  simplified,  with  tax  expenditures 
rising as a share of GDP. 

Measures  have  been  adopted  to  improve  the 
functioning  of  the  labour  market.  The  cost  of 
labour  has  been  reduced,  notably  thanks  to  some 
fiscal measures (Sections 4.3 and 4.4). At the same 
time,  the  2013  accord  national  interprofessionnel 
(ANI),  the  2014  reform  of  the  unemployment 
benefit  system,  and  the  Labour  Act  of  8  August 
2016  have  aimed  to  tackle  some  of  the  major 
rigidities  hampering  the  good  functioning  of  the 
labour market, although the social partners' take-up 
of  the  flexibility  they  offer  is  key  in  determining 
their  impact  on  the  labour  market  segmentation. 
Moreover,  no  ad-hoc  increases  of  the  minimum 
wage  have  been  adopted  since  2012,  although  its 
indexation mechanism has not been reviewed. The 
implementation  of 
the 
vocational training system is ongoing. 

the  2014  reform  of 

improve 

The French authorities have taken some action 
to 
the  middle-ranking  business 
environment.  A  number  of  service  sectors  have 
been reformed and access to regulated professions 
has been eased in some cases. Efforts to reduce red 
tape  for  firms  have  been  stepped  up,  notably 
through  the  multi-year  simplification  programme 
which  has  been  in  effect  since  2013.  The  social 
dialogue  law  of  2015  and  the  2016  budget  law 
have  attempted  to  soften  the  impact  on  firms’ 

(10)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular section 4. 

the 

The 

been 

the  CSRs, 

the  publication  of 

Overall, France has  made some (11) progress in 
addressing 
country-specific 
2016 
recommendations, which are all relevant to the 
macroeconomic  imbalance  procedure  (MIP). 
Since 
few 
consolidation  strategy  measures  have  been  taken 
on  the  expenditure  side  and  tools  to  rein  in 
spending  growth  have  not  been  strengthened 
significantly.  Progress  in  addressing  CSR  1  has 
therefore 
continued 
limited. 
implementation of the CICE and the responsibility 
and  solidarity  pact  (RSP)  and  the  adoption  in 
August 2016 of the Labour Act suggest substantial 
progress  with  CSR  2.  Progress  in  implementing 
CSR  3  has  been  limited.  Employment  prospects 
offered by the initial vocational training system are 
the 
not  satisfactory,  while 
unemployment  benefit  system  is  still  pending. 
Some  progress  has  been  made  in  improving  the 
business  environment  (CSR  4).  Competition  has 
improved  in  some  service  sectors,  some  very 
preliminary steps are being taken to rationalise the 
innovation  support  system  and  the  simplification 
of companies administrative, fiscal and accounting 
rules  is  ongoing.  By  contrast,  no  action  has  been 
taken since the end of 2015 to further reform size-
related  criteria  in  business  regulations.  Finally, 

reform  of 

the 

(11)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the Overview Table in the Annex. This 
overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact. 

10 

 
 
                                                           
                                                           
2. Progress with country-specific recommendations 

base  on  consumption.  The  scrapping  of  taxes 
yielding little  or no revenue continues to progress 
at  a  very  slow  pace  while  tax  expenditures  keep 
increasing in number and in value. 

progress  in  improving  the  efficiency  of  the  tax 
system  as  called  for  by  CSR  5  has  been  limited. 
The statutory corporate income tax rate is starting 
to  be  reduced  in  2017  for  some  SMEs,  but  the 
turnover  tax  (C3S)  has  not  been  entirely  phased 
out  and  no  further  steps  have  been  taken  to 
broaden  the  tax  base  on  consumption. Apart  from 
government  plans  to  introduce  a  withholding  tax 
for personal  income  tax,  very  little  has  been done 
to streamline the tax system  or to broaden the tax 

Table 2.1: 

Summary Table on 2016 CSR assessment 

(1) The overall assessment of CSR1 does not include an assessment of compliance with the Stability and Growth Pact. 
Source: European Commission 

11 

France Overall assessment of progress with 2016 CSRs:  Some  CSR 1:  Ensure a durable correction of the excessive deficit by 2017 by taking the required structural measures and by using all windfall gains for deficit and debt reduction. Specify the expenditure cuts planned for the coming years and step up efforts to increase the amount of savings generated by the spending reviews, including on local government spending, by the end of 2016. Reinforce independent public policy evaluations in order to identify efficiency gains across all sub-sectors of general government. (MIP relevant)  Limited progress  Limited progress in reinforcing and identifying savings and efficiency gains generated by the spending reviews and public policy evaluations.(1) CSR 2: Ensure that the labour cost reductions are sustained and that minimum wage developments are consistent with job creation and competitiveness. Reform the labour law to provide more incentives for employers to hire on open-ended contracts. (MIP relevant) Substantial progress  Substantial progress in ensuring that labour cost reductions are sustained.  Some progress in ensuring that minimum wage developments are consistent with job creation and competitiveness.  Substantial progress in reforming the labour law to provide more incentives for employers to hire on open-ended contracts.  CSR 3: Improve the links between the education sector and the labour market, in particular by reforming apprenticeships and vocational training, with emphasis on the low-skilled. By the end of 2016, take action to reform the unemployment benefit system in order to bring the system back to budgetary sustainability and to provide more incentives to return to work. (MIP relevant)  Limited progress  Some progress in improving the links between the education sector and the labour market.  No progress in reforming the unemployment benefit system. CSR 4: Remove barriers to activity in the services sector, in particular in business services and regulated professions. Take steps to simplify and improve the efficiency of innovation policy schemes. By the end of 2016, further reform the size-related criteria in regulations that impede companies' growth and continue to simplify companies' administrative, fiscal and accounting rules by pursuing the simplification programme. (MIP relevant) Some progress  Some progress in easing access to and exercise of activity in the services sectors.   Limited progress in improving the efficiency of innovation policy schemes.   No progress in reforming the size-related criteria in regulations that impede companies' growth.  Some progress in pursuing the simplification programme.    CSR 5: Take action to reduce the taxes on production and the corporate income statutory rate while broadening the tax base on consumption, in particular as regards VAT. Remove inefficient tax expenditures, remove taxes that are yielding little or no revenue and adopt the withholding personal income tax reform by the end of 2016. (MIP relevant) Limited progress  Limited progress in reducing taxes on production and the corporate income tax while broadening the tax base on consumption.  Some progress in modernizing the tax system, mainly through adopting the withholding personal income tax. The phasing out of tax expenditure and taxes yielding little or no revenue is progressing very slowly.      
 
 
 
 
 
2. Progress with country-specific recommendations 

12 

 Box 2.1: Contribution of the EU budget to structural changeThe total allocation of the European Structural and Investment Funds (ESI funds) in France amounts to EUR 28 billion under the current financial framework 2014-2020. This is equivalent to around 0.2 % of annual GDP (calculated over the period 2014-2017) and to 4.7% of the expected national public investment (1). By 31 December 2016, an estimated EUR 6.8 billion were allocated to concrete projects. This represents around 25 % of the total allocation of ESI funds.  Financing under the European Fund for Strategic Investments (EFSI), Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is additional to the ESI funds. By end 2016, France has signed agreements for EUR 1.9 billion for projects under the Connecting Europe Facility. The European Investment Bank Group approved financing under EFSI amounts to EUR 4 billion as of end-2016, which is expected to trigger nearly EUR 21 billion in total investments.  In 2015 and 2016, ESI Funds supported progress in a number of structural reforms via ex-ante conditionalities (2) and targeted investment. Examples include smart specialisation strategies in the area of research and innovation, in ultra-peripheral regions, the existence of waste management and the water sector actions plans.   The relevant CSRs focusing on structural issues were taken into account when designing the 2014-2020 programmes. These included improving access and quality of initial and continuous education and training; reinforcing active labour market policy for the most vulnerable; addressing early-school leaving; reducing poverty and social exclusion; and increasing investment in research and innovation in the specialisation domains identified in regional innovation strategies. To date, almost 199 000 young people have been supported under measures financed under the Youth Employment Initiative (YEI); of whom nearly 52 000 are in employment, education or training after the end of the YEI support. The YEI supported in particular the Garantie Jeunes, a specific intensive counselling and training scheme that targeted people who are not in education, employment, or training (NEETS).                                                            (1) National public investment is defined as the sum of gross capital formation, investment grants, and national expenditure on agriculture and fisheries. (2) Before programmes are adopted, Member States are required to comply with a number of ex-ante conditionalities, which aim at improving framework and conditions for the majority of public investments areas. For Members States that did not fulfil all the ex-ante conditionalities by the end 2016, the Commission has the possibility to propose the temporary suspension of all or part of interim payments.  
 
 
 
 
 
 
 
 
 
 
 
 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE MIP IN-

DEPTH REVIEW 

The  2017  Alert  Mechanism  Report  (European 
Commission,  2016b)  called  for  further  in-depth 
analysis  to  monitor  progress  in  the  unwinding  of 
the  excessive  imbalances  identified  in  the  2016 
MIP cycle. The selection was motivated by the fact 
identified  with  excessive 
that  France  was 
imbalances  in  spring  2016  after  an  in-depth 
analysis, so that a new in-depth review is needed to 
assess how these imbalances evolve. The identified 
excessive  macroeconomic  imbalances  related  to  a 
weak  competitiveness  and  a  high  and  increasing 
public  debt,  in  a  context  of  low  productivity 
growth.  Other  vulnerabilities  were 
identified, 
including as regards the segmentation of the labour 
limited 
innovation  capacity, 
market, 
efficiency of public spending and the complex tax 
system,  which  weighs  significantly  on  production 
factors,  as  highlighted  in  the  Review  of  progress 
on  policy  measures  relevant  for  the  correction  of 
macroeconomic 
(European 
Commission,  2017c).  These  vulnerabilities  have 
cross-border relevance. 

imbalances 

the 

the 

included 

imbalances  have  developed. 

Analyses 
in  this  Country  Report 
provide an In-Depth Review (IDR) into how the 
identified 
In 
particular,  IDR-relevant  analysis  is  found  in  the 
following  sections:  sources  of  imbalances  related 
to  public  debt  are  covered  in  section 4.1;  the 
situation  of  the  financial  sector  in  section 4.2; 
sources of imbalances related to competitiveness in 
section 4.4;  and  vulnerabilities  associated  with 
market  performance  of  the  services  sector  in 
section 4.5.  Potential  spillovers  to  the  rest  of  the 
euro area are discussed in box 3.1. 

Imbalances and their gravity 

French  export  performance  has  deteriorated 
significantly over the past 15 years. Since 1999, 
its  export  market  shares  have  fallen  by  36.8 %  in 
value (Graph 3.1), compared to 20.4 % for the euro 
area  as  a  whole.  In  volume,  the  decline  is  also 
significant  (−25.4 %,  against  −11.0 %  in  the  euro 
area). This loss in export market share, linked to a 
non-cost 
deterioration 
competitiveness, 
growth 
outcomes. At the same time, external sustainability 
is not a concern for France in the near term as its 

both 
has  weighed 

cost 

and 

on 

of 

international 

net 
investment  position  remains 
contained at −16 % of GDP (after −17 % in 2014). 

Graph 3.1: 

Export market shares in value and in volume – 
France and euro area 

Source: Eurostat, IMF 

Cost  competitiveness  deteriorated  markedly 
from 1999 to 2013. Unit labour costs increased at 
a  faster  pace  in  France  in  both  nominal  and  real 
terms.  From  1999  to  2008,  the  loss  of  cost 
competitiveness was largely due to containment of 
unit  labour  costs  in  the  rest  of  the  euro  area,  in 
particular  in  Germany.  From  2008  to  2013,  there 
was a disconnection between the trend in nominal 
unit  labour  costs  and  the  GDP  deflator  in  France, 
in  a  context  of  low  productivity  growth.  This 
resulted  in  a  further  decline  in  the  relative  cost 
competitiveness  in  that  period,  this  time  for 
domestic reasons. 

Weak  non-cost 
competitiveness  has  also 
weighed on export performance. Despite reform 
efforts, the French business environment continues 
to be characterised by a relatively high regulatory 
burden.  Complex 
regulations,  high 
labour 
corporate  tax  rates  and  a  complex  tax  system 
continue to weigh on firms.  Rigidities persist in a 
number  of  sectors  and  prevent  the  downward 
adjustment  of 
the  detriment  of 
downstream  industries  that  use  these  services. 
Increased size-related social and fiscal obligations 
give rise to threshold effects and discourage firms 
labour 
from  growing  with 

implications 

tariffs 

for 

to 

13 

60657075808590951001051109900010203040506070809101112131415FR (in value)FR (in volume)EA (in value)EA (in volume)1999 = 100 
 
 
3. Summary of the main findings from the MIP in-depth review 

by  2.5 %  over  3  years  and  0.9 %  once  the  Tax 
credit for competitiveness and employment (CICE) 
is taken into account, compared to 2.1 % in the rest 
of the euro area. Productivity picked up slightly in 
2015  (rising  by  0.8 %),  but  remained  below  both 
long-term trends and the euro area average. Part of 
the  decline 
in  productivity  growth  can  be 
explained  by  the  measures  aimed  at  boosting 
employment growth, which often focused on low-
qualified  employment.  However,  potential  growth 
has also declined since 2008. 

Graph 3.2: 

Real compensation per employee and 
productivity in France 

Source: Eurostat 

recent 

reforms, 

substantial 
Despite 
improvements  in  non-cost  competitiveness  are 
still to materialise. Although France has improved 
its  overall  regulatory  performance,  its  business 
environment  continues  to  be  middle-ranking.  In 
the  Doing  Business  survey  (World  Bank,  2017), 
France  fell  from  28th  to  the  29th  position  (out  of 
190 economies assessed), and ongoing reforms do 
not  appear  to  be  significantly  improving  business 
perceptions.  Regulatory  bottlenecks  continue  to 
affect  firms’  economic  performance.  As  regards 
investment,  equipment 
is  slowly 
gaining  ground  supported  by  fiscal  incentives  for 
amortisation, but R&D investment continues to be 
concentrated  in  sectors  of  declining  economic 
importance  as  measured  by  their  share  in  total 
value 
computers, 
electronics,  and  pharmaceuticals),  which  has 
implications  for  the  long-term  growth  potential  of 
the whole economy. Non-financial corporate profit 

investment 

vehicles, 

(motor 

added 

productivity  and  competitiveness.  The 
low 
profitability  of  non-financial  corporations  also 
weighs  on  France’s  non-cost  competitiveness, 
through  its  impact  on  the  quality  of  investment. 
Although  corporate  investment  is  relatively  high 
and  supported  by  favourable  macroeconomic  and 
framework  conditions,  it  tends  to  be  concentrated 
in  less  productive  purposes  thereby  weighing  on 
productivity growth. 

The  high  public  debt-to-GDP  ratio  is  a  major 
source of vulnerability and compounds the risks 
stemming from the weak competitiveness of the 
French  economy.  High  public  debt  weighs  on 
growth  prospects  by  crowding  out  productive 
public  expenditure  and  requiring  a  higher  tax 
burden.  However,  in  the  current  context  of  also 
high (though stable) private sector debt, still weak 
growth,  low  inflation  and  heightened  uncertainty, 
not only is public deleveraging more difficult, but 
also  high  public  debt  makes  France  more 
vulnerable  as  it  might  give  rise  to  negative 
feedback  loops  to  the  real  economy  and  the 
financial  sector  should  a  new  wave  of  negative 
shocks  materialise.  Moreover,  sustainability  risks 
in  the  medium  term  are  high,  partly  due  to  the 
projected 
in  age-related  expenditure. 
Given  the  size  of  the  French  economy,  such  a 
situation  could  also  entail  potentially  negative 
spillovers  to  the  rest  of  the  euro  area  (see  also 
Box 3.1 on euro area spillovers).  

increase 

Evolution, prospects and policy responses 

Export  performance  remains  subdued.  Export 
market  shares  have  stabilised  since  2012  but 
export  growth  stalled  in  2016  and  is  expected  to 
fall  well  short  of  both  world  trade  and  French 
export market  growth. The current account deficit 
rose  to  −1.2 %  of  GDP  in  2016  according  to 
annualised  monthly  data  (after  −0.2 %  in  2015) 
and  is  expected  to deteriorate further.  Taking  into 
account 
the  French 
economy  in  the  business  cycle,  the  cyclically-
adjusted  current  account  deficit  is  worse  than  the 
headline indicator. 

the  relative  position  of 

Cost  competitiveness 
improving  without 
is 
having fully regained past losses. The labour tax 
cuts and continued wage moderation have allowed 
a  slowdown  of  labour  costs,  but  low  productivity 
growth  is  preventing  cost  competitiveness  from 
recovering  faster.  In  2015,  unit  labour  costs  rose 

14 

971001031061091121151189900010203040506070809101112131415Real comp. per employee (GDP deflator)Real comp. per employee (GDP deflator), incl. CICEProductivity1999=100 
 
3. Summary of the main findings from the MIP in-depth review 

in 

recent  years, 

increases 
the  consolidation 
measures in the 2017 budget law have been scaled 
down compared to the plans included in the April 
2016  stability  programme.  Overall,  the  current 
primary  expenditure  ratio,  this  is  expenditure 
minus  the  interest  burden  and  public  investment, 
has  continued 
increasing  since  2012.  While 
spending reviews identified a considerable amount 
of  potential  saving  measures, 
the  budgetary 
measures  adopted  as  a  result  of  the  spending 
reviews  have  had  a  limited  yield  and  have  not 
contributed  so  far  to  significantly  improve  public 
spending efficiency. Furthermore, as demonstrated 
in last year's country report, in key areas of public 
policy,  e.g.  pensions  and    healthcare,  France 
achieves  good  results  but  other  Member  States 
reach  same  or  better  outcomes  at  a  lower  cost.  In 
turn,  the  tax  burden  is  high,  with  the  tax  system 
remaining  too  complex  and  heavily  reliant  on 
production factors, which reins in growth.  

High  sustainability  risks  show  up 
in  the 
medium  term  mainly  due  to  the  high  initial 
deficit and debt ratio. Despite the high debt ratio, 
short  term  sustainability  risks  are  considered  as 
low (see section 4.1). France is able to issue long-
term  debt  at  very  low  rates  also  bearing  in  mind 
the  expansionary  monetary  policy  stance  of  the 
ECB.  However,  the  high  initial  deficit  and  debt 
and 
in  age-related 
expenditure  over  the  next  15  years  lead  to  a 
significant sustainability gap in the medium term.  

the  projected 

increase 

Overall assessment 

margins  have  somewhat  recovered  since  2013,  in 
part due to the labour tax wedge cuts and to lower 
oil  prices,  but  they  remain  below  their  pre-crisis 
level. 

its 

revision  of 

Some  action  has  been  taken  to 
improve 
competitiveness. France has taken some measures 
to address the rigidity of the wage setting process 
through  the  labour  law  adopted  in  2016,  which 
provides  for  company-level  majority  agreements 
on  working  time.  The  impact  of  this  law  on  the 
competitiveness of the French economy, however, 
will depend on its implementation and the extent to 
which the social dialogue at firm level will be able 
to transform the new legal possibilities granted by 
law  into  tangible  action.  Also,  while  no  ad-hoc 
increase  in  the  minimum  wage  has  been  adopted 
since  2012,  no 
indexation 
mechanism  has  been  undertaken  and  the  French 
labour  market  remains  both  segmented  and 
insufficiently  linked  with  the  vocational  training 
system.  As  regards  the  business  environment, 
competition  has  been  improved  in  a  number  of 
services sectors, including legal professions, retail 
trade and passenger transport services. Some effort 
is 
firms' 
administrative, fiscal and accounting rules through 
the  multiannual 
programme. 
However,  the  tax  system  remains  a  drag  on 
competitiveness  despite  recent  reforms.  Corporate 
taxes  are  still  high  and  France  has  abandoned  the 
phase-out  of  the  last  tranche  of  the  turnover  tax 
(C3S), while the tax base on consumption remains 
narrow. 

also  being  made 

simplification 

simplify 

to 

Public  debt  is  projected  to  keep  rising  due  to 
still  high  deficits.  The  general  government  debt-
to-GDP  ratio  is  expected  to  increase  to  97 %  of 
GDP  in  2018,  which  implies  growing  divergence 
in  indebtedness  vis-à-vis  the  euro  area  due  to  a 
slower pace of deficit reduction than in the rest of 
the  EU  (see  Sections  1  and  4).  The  budgetary 
strategy,  which  is  to  meet  just  the  nominal 
headline  deficit 
relies  on 
favourable macroeconomic conditions and interest 
rate  windfalls.  Such  a  strategy  is  risky  as,  on  the 
one hand, it does not ensure durable correction of 
the excessive deficit and, on the other hand, there 
are  significant  consolidation  needs  in  the  coming 
years to bring down the public debt. 

targets,  basically 

Spending  dynamics  prove  hard  to  contain. 
to  contain  spending 
Despite  France's  efforts 

in 

The 

growth. 

in  2015, 

is  expected 
coming 
the 

France  faces  important  sources  of  imbalances 
related to a weak competitiveness and high and 
increasing  public  debt,  in  a  context  of  low 
productivity 
substantial 
improvement  in  export  performance  in  2015  has 
proved  short-lived.  The  current  account,  close  to 
to  deteriorate 
balance 
significantly 
years.  Cost 
competitiveness is improving but has not regained 
past  losses.  Wage  moderation  continues,  but  the 
decline  in  productivity  growth  prevents  a  faster 
recovery  of  France’s  cost  competitiveness.  The 
product  market  reforms  of  the  last  years  and 
continued efforts to reduce red tape on firms could 
improvement  of  non-cost 
contribute 
competitiveness  but there  is still  substantial  scope 
simplify 
to 
for 
regulation,  and 

competition, 
the 

increase  market 

tax  burden 

to  an 

reduce 

15 

 
3. Summary of the main findings from the MIP in-depth review 

companies.  Public  debt 
remains  high  and 
increasing, which represents a major imbalance, as 
it  weighs  on  growth  prospects  and  reduces  the 
fiscal  space  to  offset  adverse  macroeconomic 
shocks.  Public  debt  reduction  is  thus  important  to 
help 
improve  overall  French  macroeconomic 
performance and avert medium-term sustainability 
risks. 

Policy measures have been taken in recent years 
in  particular  to  reduce  the  labour  tax  wedge. 
However,  policy  challenges  remain,  in  particular 
as  regards  the  regulatory  impediments  to  firms’ 
growth,  the  initial  and  continuous  system  of 
vocational 
the 
unemployment  benefit  system.  In  addition,  the 
spending  review  has  not  delivered  the  expected 
results to address the growing public debt-to-GDP 
ratio. 

training  and 

reform  of 

the 

16 

 
3. Summary of the main findings from the MIP in-depth review 

(Continued on the next page) 

17 

 Box 3.1: Euro area spilloversThe large size of the French economy and its strong trade and financial integration with the rest of the euro area, in particular with neighbouring countries, makes France a potentially important source of spillovers for several other Member States. France represents an important export destination and import partner for many EU countries. Exports to France account for almost 13 % of the GDPs of Belgium and Luxembourg, while in the case of Ireland, Malta, the Netherlands, Slovakia, Portugal and the Czech Republic the same indicator ranges between 4 % to 7 %. Trade integration with large euro area economies such as Germany, Spain and Italy is likewise significant (Graph 1, lhs). Financial linkages between France and the euro area are likewise strong (Graph 1, rhs). In 2014, Ireland, Belgium and the Netherlands had gross financial exposures to France via equity and debt instruments totalling 50 % or more of their respective GDP. The large economies of the UK, Italy and Germany also had large financial exposures to France in the range of 10 % to 30% of their GDP. Overall, the euro area shows total financial exposures to France worth more than 25% of GDP, mostly through the form of debt. Graph 1: Trade and financial linkages between France and other EU countries  (1) Data for goods correspond to 2014. Data for services correspond to 2012. Data for financial exposures are European Commission 2014 bilateral data covering all economic sector, based on correspond to 2014 based on Hobza and Zeugner (2014).  Source: United Nations (lhs), Hobza and Zeugner (2014) (rhs). Structural reforms in France can have positive cross-border economic effects. Model simulations suggest that product and labour market reforms in France can have important domestic and cross-border macroeconomic effects by boosting productivity and employment. By bridging half of the gap with the three best EU performers in these reform areas, France can raise GDP by 3.7% after 5 years, and by 6.7% after 10 years based on the Commission’s QUEST model. At the same time, spillovers to the rest of the euro area would be positive, even in the short run. GDP in the rest of the euro area would increase by 0.1% relative to the baseline after 5 years and by 0.2% after 10 years. The simulated structural reforms focused on decreasing mark-ups and entry barriers in services and manufacturing, increasing the labour market participation rate for the elderly, the low-skilled and female workers, raising the share of medium- and high-skilled labour force, tax and unemployment benefit reforms, active labour market policies and innovation subsidies.  (Varga and in 't Veld, 2014). This positive effect would remain in the long run (Graph 1, lhs).     0246810121416% of trading partner GDPFrench imports per country of origin (top 15 EU countries)GoodsServices020406080100120% of trading partner GDPExposures of EU countries to French liabilities (top 15 EU countries,  excluding LU)EquityDebt 
 
 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Box (continued) 

18 

 Graph 2: Macroeconomic effects of structural reforms in France  (1) Left-hand side simulations are based on Varga and in't Veld (2014), percentage deviations from baseline Source: European Commission A growth-friendly tax shift as discussed in Section 4, can also yield positive effects for both France and the rest of the euro area. Graph 2 (rhs) shows the effects on GDP of a tax shift whereby an increase in VAT worth 0.4% of GDP is fully offset by an equivalent reduction in social security contributions and corporate income taxes, as well as an increase in transfers to liquidity-constrained households. The weights on the three offsetting components are 71%, 25% and 4% respectively, in line with the simulations shown in Box 4.1.1. While in absolute terms the effects are overall small owing to the small size of the shock, euro area spill-overs are positive and felt immediately on the first year of the reform. In relative terms, spill-over effects to the rest of the euro area can represent close to one fifth of the domestic effect when measured in terms of the GDP of the respective geographical areas. More generally, addressing existing economic and fiscal challenges in France would not only benefit the domestic economy but also feed into the euro area confidence cycle and provide a stimulus to the fragile and slowing-recovering euro area economy. Conversely, France's economic prospects largely depend on developments in its main trade and financial partners in the euro area, which underlines the need for coordinated policy action and rebalancing efforts at euro area level. 00.20.40.60.810510155101520% deviation, rest of EA and EU France (left axis)rest of EA (right axis)GDP effects and spill-overs from structural reforms in France00.0010.0020.0030.0040.0050.0060.0070.0080.00900.0050.010.0150.020.0250.030.0350.040.0450.0512345678910% deviation, rest of EA and EU France (left axis)rest of EA (right axis)GDP effects and spill-overs from an increase in VAT offset by a growth-friendly policy mix 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Table 3.1: 

MIP Assessment Matrix (*) – France 2017 

(Continued on the next page) 

19 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) Competitiveness Since 1999, France lost export market shares by 36.8 %. External sustainability is not a concern for France in the near term as its NIIP remains contained at −16 % of GDP (after −17 % in 2014). Cost competitiveness is improving but has not yet regained past losses (see Section 4.4). Over the past ten years, ULC increased at a slightly higher pace in France relative to other EA countries. The structural decline in productivity growth reinforces the challenges associated with a weak competitiveness. The low profitability of non-financial corporations also weighs on non-cost competitiveness, through its impact on the quality of investment. Similarly to other EU economies, export market shares have stabilised in recent years (+1.5 % from 2012 to 2015 in cumulated terms). Export performance improved substantially in 2015, but this improvement has proved short-lived in 2016 (see Section 4.4). The current account, close to balance in 2015 (−0.2 % of GDP), is expected to deteriorate significantly over the coming years. Annual ULC growth has kept decelerating since 2012 thanks to labour tax cuts and continued wage moderation (see Section 4.4). In 2015, the depreciation of the euro, combined with subdued HICP inflation developments, led to a renewed decrease of the REER headline indicator. While labour productivity picked up in 2015 (+0.8 %), it remained below both long-term trends and the euro area average, preventing a faster recovery of France's cost competitiveness (see Section 4.4). Despite a recent increase, the corporate profit share of the French non-financial companies remains below its pre-crisis level. The French authorities implemented the CICE and the Responsibility and Solidarity Pact (RSP). Both measures should lower labour taxes by EUR 30 bn by 2017 and corporate taxes by EUR 10 bn. Studies using firm-level data for the period 2013-2014 found a positive effect of the CICE on profit margins and employment, while an impact on investment, R&D and exports is expected to materialise over the medium-term (see Section 2 and Section 4.3). The CICE transformation in permanent reductions in employers' social security contributions is announced for 2018, while its rate applicable on the 2017 payroll with budgetary implications in 2018 has been extended from 6 % to7 %. France has taken some measures to address the rigidity of the wage setting process, notably through the El Khomri law adopted in 2016. The impact of this law on the competitiveness of the French economy, however, will depend on its implementation and if the social dialogue within firms will be able to transform into concrete actions the new legal possibilities granted by the El Khomri law (see Section 2 and Section 4.3). While no ad-hoc increase in the minimum wage has been adopted since 2012, no revision of its indexation mechanism has been undertaken (see Section 2).  
 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Table (continued) 

(*) The first column summarises "gravity" issues which aim at providing an order of magnitude of the level of imbalances. The 
second column reports findings concerning the "evolution and prospects" of imbalances. The third column reports recent and 
planned relevant measures. Findings are reported for each source of imbalance and adjustment issue. The final three 
paragraphs of the matrix summarise the overall challenges, in terms of their gravity, developments and prospects, policy 
response. 
Source: European Commission 

20 

Public debt Already at a very high level, government debt continued to increase to 96.2 % of GDP in 2015. Such a high debt level and its upward trend constitute a vulnerability for the economy and reduce the fiscal space available to respond to future shocks. The high public debt also weighs on growth prospects by crowding out productive public expenditure and requiring a higher tax burden. Potential growth is estimated at 0.9 % in 2015 while inflation is also low. Low nominal growth makes it also more difficult for France to bring down its public debt. Although the financial sector does not face immediate risks, pressures from the combination of a high public and private debt may increase in the future under adverse economic conditions.  The government has used low government bond yields to lengthen the maturity of sovereign bonds by around 5 months, which is a mild mitigating factor for refinancing problems. The widely diversified French debt investor base in terms of type of investors as well as geographically could also be a mitigating factor. Public debt is projected to increase to 97.0 % by 2018. The structure of public debt financing, both in terms of maturity and diversification, does not give rise to short-term risks. France is able to issue long-term debt at very low rates. However, in a somewhat longer perspective, debt dynamics between France and the rest of the euro area are diverging, mainly due to the higher French primary deficit. The debt trajectory and the sustainability gap at horizon 2031 point to high indebtedness risks in the medium term. The Commission 2017 winter forecast projects the headline deficit target to be met in 2016. For 2017, the Commission projects a headline deficit of 2.9 % of GDP. While slightly below the 3 % reference value in the Treaty, this is 0.2 pp. higher than planned by the French authorities and 0.1 pp. higher than the deficit target recommended by the Council. The budgetary strategy envisaged by France is risky. It relies mainly on cyclical factors and lower interests payments on government debt. Therefore, the projected structural efforts for 2016 and 2017 fall clearly short of the recommended effort set by the Council. Moreover, not all measures are sufficiently specified resulting in a higher Commission deficit forecast for 2017. Expenditure-based consolidation has seen a setback in the course of 2016 and expenditure trends could rise again in the future showing the limit of the across-the-board spending cuts and expenditure containments based on norms. Conclusions from IDR analysis  France is characterised by a weak competitiveness and a high and increasing public debt, in a context of low productivity growth. Associated vulnerabilities have cross-border relevance.  The substantial improvement in export performance in 2015 has proved short-lived and the current account, close to balance in 2015, is expected to deteriorate significantly over the coming years. Cost competitiveness is improving but has not yet regained past losses. Wage moderation continues, but the decline in productivity growth prevents a faster recovery of France's cost competitiveness. Non-financial corporate profit margins have somewhat recovered since 2013, but remain below their pre-crisis level, weighing on non-cost competitiveness. Besides, public debt is projected to reach 97.0 % of GDP in 2018. The spending reviews have not contributed so far to significantly improve public spending efficiency, necessary to alleviate the tax burden and improve the efficiency of the rest of the economy.  Policy measures have been taken in recent years, in particular to reduce the labour tax wedge. However, policy challenges remain, in particular as regards the regulatory impediments to firms’ growth, the initial and continuous system of vocational training and the reform of the unemployment benefit system. In addition, the spending review has not delivered the expected results to address the growing public debt-to-GDP ratio.  
 
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

General government debt sustainability (12)*  

Graph 4.1.1:  Difference in debt dynamics between France 

and the euro area 

real 

growth, 

economic 

in  French  debt 

Debt  dynamics  between  France  and  the  rest  of 
the  euro  area  continue  to  diverge  although  the 
is  slowing.  The 
increase 
Commission 2017 winter forecast puts the general 
government debt in France at about 8 pp above the 
euro  area  level.  The  higher  general  government 
deficit  in  France  explains  most  of  this  difference, 
although 
interest 
expenditure  and  stock-flow  adjustments  have 
partly compensated for the higher primary deficits 
in  recent  years  (Graph 4.1.1).  The  lower  interest 
to 
expenditure  has  contributed 
reducing the deficit and debt since 2011 and this is 
expected 
to  continue  over  2016  and  2017. 
However,  the  declining  interest  rate  burden  is 
expected  to  come  to  a  halt once  interest  rates  and 
inflation  normalize.  Therefore,  without  further 
consolidation  and  sustained  growth,  the  reduction 
in  the  public  debt-to-GDP  ratio  is  not  guaranteed 
and  debt  dynamics  between  France  and  the  euro 
area will continue to diverge. 

significantly 

The high public debt ratio does not seem to pose 
significant sustainability challenges in the short 
term.  The  short-term  sustainability 
indicator 
S0 (13)  does  not  flag  any  significant  risk  overall, 
although the short-term fiscal sub-index flags high 
risk due to the high level of gross financing needs, 
of  the  primary  deficit  and  of  public  debt.  In  spite 
of the weaknesses revealed by the fiscal sub-index 
of  the  S0  indicator,  the  rating  outlook  for  French 
government  debt  is  AA  stable  for  the  three  major 
rating agencies.  

(12)  This section is based on the 2015 Ageing Report (European 
Commission,  2015a)  and  the  Debt  Sustainability  Monitor 
2016 (European Commission, 2017a).  

*  An  asterisk  indicates  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
section 3 for an overall summary of main findings). 

(13)  S0 is a composite  indicator aimed at evaluating the extent 
to which there might be a fiscal stress risk in the upcoming 
year,  stemming  from  the  fiscal,  as  well  as  the  macro-
financial and competitiveness sides of the economy.  A set 
of 25 fiscal and financial-competitiveness variables proven 
to perform well in detecting fiscal stress in the past is used 
to  construct  the  indicator.  Countries  are  deemed  to  face 
potential high short-term risks of fiscal stress, whenever S0 
is above an estimated critical threshold. 

Source: European Commission, 2017 winter forecast 

Sound  debt  management  strategies  reduce  the 
short term risks. All French debt is denominated 
in euro so there is no currency risk. Moreover, the 
average maturity of debt instruments has increased 
to  nearly  7.5  years,  reflecting  longer  issuance 
maturities, which allows securing low interest rates 
over  the  coming  years.  While  the  share  of  short-
term  debt  has  declined,  it  remains  relatively  high 
(8.3 %  of  total).  The  investor  base  is  diverse  and 
broadly  equally  distributed  between  residents,  the 
euro area and the rest of the world. While holdings 
by foreign investors have slightly declined to 60 % 
of  total  French  debt,  the  high  share  held  by  non-
residents  could  be  a  source  of  vulnerability. 
However, investor appetite is still high. Traditional 
investors in search of higher yields have turned to 
riskier  investments,  but  are  expected  to  readjust 
their  holdings  once  interest  rates  increase.  French 
debt  is  a  sought-after  investment  for  capital  and 
liquidity  requirements  reasons  and  diversification 
purposes,  as  it  offers  the  possibility  of  holding 
nominal and inflation linked bonds issued in euros. 

However,  France's  public  debt  faces  high 
sustainability  risks  in  the  medium  term.  The 
debt  sustainability  analysis  for  France  shows  that 
in the baseline scenario assuming no policy change 
public debt would be roughly stable at some 97 % 
of  GDP  until  2021.  However,  it  would  begin  to 

21 

-10-50510151112131415161718Primary balanceInterest expenditureGrowth effect (real)Inflation effectStock flow adjustmentsGross debt ratio 
 
                                                           
 
4.1. Public finances and taxation 

to 

in  relation 

high-debt  countries 
the  SGP 
requirements.  Moreover,  long-term  risks  could 
arise under more adverse scenarios, such as in the 
lower total factor productivity growth scenario for 
pension  expenditures,  or  the  Ageing  Working 
Group  risk  scenario  for  healthcare  and  long-term 
care expenditures. 

Graph 4.1.2:  Public debt projections of French public debt 

under different scenarios 

Source: European Commission, Debt Sustainability Monitor 
2016. 

Favourable  demographic  dynamics  and  past 
reforms  mean  that  pension  expenditure 
is 
projected  to  decline  in  the  long  run.  Pension 
spending in France is among the highest in the EU, 
at  14.9 %  of  GDP  versus  11.3 %  in  the  EU  in 
2013, and so is the benefit ratio, 51.3 % in France 
versus  46.9 %  in  the  EU,  defined  as  the  average 
pension  as  a  share  of  the  economy-wide  average 
to 
wage.  Pension  expenditures  are  projected 
remain  broadly  constant  at  a  high  level  in  the 
medium-term and to decline only in the long term. 
A  relatively  moderate  increase  in  the  old-age 
dependency  ratio  (by  14.9 pps.)  represents  a 
relatively favourable demographic trend compared 
to  other  EU  countries  that  allows  containing 
pressure  on  pension  expenditure.  The  average 
effective  exit  age  from  the  labour  market  (61  in 
2014),  which  is  low  in  a  EU  perspective,  is  also 
projected to increase progressively to 63 in 2060 as 
a  result  of  recent  reforms  described  in  the  2016 
Country  Report  (European  Commission,  2016c). 
However, the savings envisaged from the foreseen 
increase  in  the  retirement  age  might  be  partly 
offset by rises in other types of public expenditure, 

rise  again  thereafter,  to  reach  103.5 %  of  GDP  in 
2027,  the  last  projection  year.  This  public  debt 
shows that the fiscal effort is insufficient to offset 
the  increasing  costs  of  an  ageing  population  and 
the  unfavourable  snow-ball  effect,  mainly  due  to 
the  rising  interest  rate  burden.  Based  on  these 
projections,  the  S1  sustainability  indicator,  which 
measures sustainability risks at horizon 2031, flags 
a  high  medium-term  risk.  This  indicator  implies 
that  a  cumulative  gradual  improvement  in  the 
French  structural  primary  balance  of  4.7 pps.  of 
GDP,  relative  to  the  baseline  scenario,  would  be 
required  over  5  years  to  reduce  the  debt  ratio  to 
60 % of GDP by 2031.  

the 

initial 

required 

budgetary 

the  remaining  0.3 pps. 

The  high  medium-term  sustainability  risks  are 
primarily  due  to  high  initial  indebtedness  and 
position. 
unfavourable 
Specifically,  2.8 pps.  of 
fiscal 
adjustment  would  be  due  to  debt  ratio's  distance 
from  the  60 %  reference  value,  1.5 pps.  to  the 
unfavourable initial budgetary position (defined as 
the  gap  to  the  debt-stabilising  primary  balance) 
and 
the  projected 
increase  in  age-related  public  spending.  Public 
debt projections are especially sensitive to interest 
rate developments: a 1 pp.  increase  in  the interest 
rate  of  newly  issued  bonds  and  rolled-over  debt, 
other  things  being  equal,  would  lead  to  a  6-point 
increase  in  the  public  debt-to-GDP  ratio  (around 
EUR 190 bn.) compared to the baseline projection 
by  2027  (Graph 4.1.2),  thereby  aggravating  the 
sustainability gap significantly. 

to 

Despite  medium-term  challenges,  sustainability 
risks  appear  contained  in  the  long  run.  The  S2 
indicator, which measures sustainability risks at an 
infinite  horizon,  calculated  under  a  baseline  no-
fiscal  policy  change  scenario,  indeed  points  to  a 
relatively small required fiscal adjustment (0.8 pp. 
of GDP), to ensure that the debt ratio remains on a 
sustainable path over the long run horizon. This is 
primarily  due  to  the  projected  fall  in  age-related 
spending  from  the  late  2030s  (contribution  of  -
1.0 pp. of GDP to S2), offset by the unfavourable 
initial budgetary position (1.8 pp. of GDP). It is the 
projected  decrease  of  public  pension  expenditure, 
in  particular,  that  drives  down  ageing  costs  (- 1.7 
pp.  of  GDP),  given  the  reforms  implemented  in 
this  area  in  the  past.  However,  the  adjustment 
implied  by  the  S2  indicator  could  lead  to  debt 
stabilising  at  relatively  high  levels.  Consequently, 
the  indicator  has  to  be  treated  with  caution  for 

22 

85.090.095.0100.0105.0110.0Baseline no-policy change scenarioStandardized (permanent) negative shock (-1p.p.) to theshort- and long-term interest rates on newly issued androlled over debtStandardized (permanent) positive shock (+1p.p.) to theshort- and long-term interest rates on newly issued androlled over debt 
 
4.1. Public finances and taxation 

likely  been  less  strong  than  suggested  by  the 
normal  multipliers (14).  Public  investment  was 
mainly  cut  by 
local  authorities,  who  are 
responsible  for  more  than  50 %  of  total  public 
investment,  and  has  mainly  affected  the  least 
efficient  projects,  thereby  leaving  the  existing 
public  capital  stock  unaffected.  Local  investment 
displays a clear cyclical pattern linked to the local 
electoral cycle, but this time round the cycle seems 
to  have  been  amplified  by  the  cut  in  the  global 
State transfers to local authorities of 0.5 % of GDP 
since 2014. Nonetheless, while in a first phase the 
cut  in  global  dotations  has  impacted  investment. 
Since  recently,  operational  expenditure  of  local 
authorities started declining from a growth rate of 
3.0 % in 2013 to 0.9 % in 2015. 

into  question 

to  durability  of 

Primary current expenditure increased due to a 
strong increase in subsidies. The primary current 
expenditure  ratio  is  projected  to  increase  from 
49.0% of GDP in 2012 to 50.1% of GDP in 2017. 
This  increase  in  the  expenditure  ratio  once  the 
interest  burden  and  capital  expenditure  is  filtered 
out,  puts 
the 
expenditure  containment  strategy.  One  important 
driver  of  spending  has  been  an  increase  in 
subsidies,  due  to  the  introduction  of  the  crédit 
d'impôt  pour  la  compétitivité  et  l'emploi  (CICE), 
which  is  a  tax  credit  on  the  salary  mass  of  firms 
introduced  in  2014,  focused  on  the  lower  end  of 
the  wage  scale.  The  effect  of  the  increase  in 
subsidies  on  economic  activity  is  closer  to  a 
targeted  cut  in  social  contributions,  which  is  a 
relatively efficient way of strengthening economic 
activity as opposed to other types of subsidies. 

The spending reviews were scaled back in 2016. 
the  spending  reviews 
In  place  since  2015, 
identified a fraction - less than 2 % - of the overall 
planned  expenditure  savings  of  EUR  50  billion 
over the period 2015-2017. Based on the first wave 
of reviews, savings with a total yield of EUR 325 
million  were  included  in  the  2016  budget.  The 
second review exercise took place in 2016, but the 
proposals  in  the  draft  budget  2017  relied  on 
measures  identified  already  in  the  2015  spending 
review exercise. The planned savings would yield 
EUR 400 million. In general, it appears that only a 

(14)  IMF (2014) World Economic Outlook, October 2014. For a 
more in-depth discussion, see Cour des Comptes (2015) La 
situation  et  les  perspectives  des  finances  publiques,  Juin 
2015. 

in 

the  short 

term.  Despite 

invalidity  or  unemployment-related 
such  as 
expenditure 
the 
favourable  long-term  financial  prospects  of  the 
French  public  pension  system,  some  special 
regimes  that  allow  early  retirement  continue  to 
weigh  negatively  on  the  balance  of  the  pension 
system. 

Quality of fiscal consolidation*  

Given  the  already  high  revenue  ratio,  the 
government  adopted  an  expenditure  based 
consolidation  strategy.  Between  2012  and  2017, 
the  deficit  is  projected  to  decline  from  4.8 %  to 
2.9 % of GDP according to the Commission 2017 
winter  forecast  (ibid.).  Over  the  same  period,  the 
revenue  ratio  is  projected  to  increase  by  1.3 %  of 
GDP to 53.3 % of GDP. This ratio is forecast to be 
8.5 % of GDP higher than the EU average in 2017, 
with  the  high  tax  burden  weighing  on  economic 
activity (see  the  taxation sub-section, below).  The 
expenditure-to-GDP  ratio  is  set  to  decline  by  0.6 
pp over 2012-2017, helped by lower interest rates 
(Graph 4.1.3).  A  quarter  of  the  planned  deficit 
reduction  would  thus  be  due  to  changes  in 
expenditure,  in  particular  from  the  reorientation 
towards 
consolidation 
expenditure-based 
strategy  since  the  budget  2015.  However,  at 
56.2 %  of  GDP  in  2017,  the  expenditure  ratio 
would remain 9.7 % of GDP higher than in the EU.   

an 

The  largest  contributor  to  the  decline  in  the 
expenditure ratio is the interest burden (-0.8 pp 
over 2012-2017), with broadly neutral effects on 
economic  activity.  Interest  rates  are  projected  to 
increase  somewhat  in  the  short  term  but  remain 
low  by  historical  standards.  However,  the  low 
interest rate environment is not expected to prevail 
in  the  medium  term.  For  example,  in  the  ageing 
projections,  the  interest  burden  is  projected  to 
gradually rise from 1.8 % of GDP in 2017 to 3 % 
of GDP by 2025. 

Expenditure  growth  was  also  contained  by  a 
reduction  in  public  investment.  The  second 
largest contributor to the fall in public expenditure 
is  public  investment  which  declined  by  0.6  %  of 
GDP over the same period. Public investment cuts 
typically  have  a  stronger  negative  effect  on 
economic  activity  than  cuts  in  other  expenditure 
items,  with  a  multiplier  for  public  investment  of 
2.5 points in the long run. However, the economic 
impact  of  the  decline  in  public  investment  has 

23 

 
                                                           
4.1. Public finances and taxation 

subset  of  the  savings  identified  in  the  spending 
reviews  appear  in  the  budget.  This  is  partly 
because more than 50 % of the spending reviewed 
in  2016  concerned  local  authorities,  and  they  are 
autonomous in managing their budgets. In general 
no  mechanism  exists  to  ensure  that  the  different 
administrations act on the recommendations of the 
spending reviews. 

Graph 4.1.3:  Changes in the composition of public 

expenditure 

Source: Ameco database, European Commission 

Efficiency  and  effectiveness  of 
system (15)*  

the  health 

The  French  health  system  performs  well  in  a 
European  perspective.  The  population  enjoys 
high  life  expectancy  at  birth  (82.3  years  in  2015, 
one  of  the  highest  in  the  EU).  The  healthcare 
terms  of  overall 
system  performs  well 
accessibility  as  it  is  characterised  by  fee-for-
service  payment  of  doctors,  unrestricted  freedom 
of  choice  for  patients  and  a  traditional  focus  on 
hospital based care.  

in 

However, healthcare spending is relatively high 
in  a  European  perspective.  French  health 
expenditure was at 11 % of GDP in 2015 which is 
similar  to  the  level  of  expenditure  in  Germany 
(Graph 4.1.4).  In  the  long  run,  the  increase  in 
health care expenditure is expected to be relatively 

(15)  This  section  is  largely  based  on  Commission  services  and 
Economic Policy  Committee, Joint Report on Health Care 
and  Long-Term  Care  Systems  &  Fiscal  Sustainability 
(2016). 

contained  in  comparison  to  other  EU  Member 
States  although  health  care  expenditure  would 
remain one of the highest in the EU. In the light of 
cost  pressures,  an  ageing  population  and  the 
increased  prevalence  of  chronic  diseases,  a  more 
coordinated  use  of  care  is  being  encouraged.  In 
other countries, but to some extent also in France, 
this  is  done  through  greater  use  of  primary  care 
and more effective referrals from family doctors to 
steer  demand  to  other  types  of  care  and  organise 
appropriate 
channels  of 
treatment. 

cost-effective 

and 

Graph 4.1.4:  Healthcare expenditure as a share of GDP in 
selected countries (2005-2015) 

Source: OECD Health statistics 2016 

reforms 

control.  Key 

A  range  of  reforms  has  been  implemented  in 
recent  years  to  keep  health  care  expenditure 
under 
included 
improvements  in  access  to  health  insurance  for 
those  most  vulnerable,  improvements  in  hospital 
efficiency,  better  data  collection  and  monitoring 
and  better  control  of  pharmaceutical  expenditure, 
greater  use  of  primary  care  and  improvements  in 
care coordination from primary to secondary care. 
In tandem with the reforms, the enforcement of the 
healthcare  expenditure  norm, 
the  ONDAM 
(Objectif  National  de  Dépenses  d'Assurance 
Maladie),  has  allowed  for  a  contained  growth  of 
health expenditure in recent years. 

Low spending on prevention could weigh on the 
overall  efficiency  and  effectiveness  of  the 
French  health  system.  France  spends  1.9%  of 
total  health  resources  on  prevention,  versus 

24 

0.1%-0.8%-0.6%-2%-1%0%1%2%2012-20152015-20172012-2017% of GDPSubsidiesInterestOtherPublic InvestmentIntermediate consumptionSocial transfers in kind (health care,…)Compensation of employeesSocial transfers (pensions, unemployment, ...)Total6.07.08.09.010.011.012.00506070809101112131415FranceGermanyItalySpain% GDP 
 
                                                           
 
4.1. Public finances and taxation 

Finally,  the  ONDAM  and  the  norm  of  the  state 
cover about half of public expenditure. 

Taxation*  

tax  wedge  on 

labour  has 
lower  end  of 

fallen 
The 
substantially  at  the 
income 
distribution,  but  remains  high  at  the  average 
wage. Between 2012 and 2015, the tax wedge was 
reduced by around 1 ppt. at the average wage and 
by  more  than  3 pps.  for  workers  earning  50%  of 
the  average  wage.  This  change  in  trend  is  mainly 
due  to  the  introduction  of  the  CICE and  the  RSP. 
The tax wedge for very low income earners (50% 
of the average wage), at 31.6%, was below the EU 
average  of  32.7%  in  2015.  For  income  earners  at 
the  average  wage,  the  tax  wedge,  at  48.7%, 
remained above the EU average of 40.7% and one 
of the highest in the EU, which may undermine the 
functioning of the labour market. 

social 

employers' 

Although 
security 
contributions are falling, they are still relatively 
high. At the average wage, France has the highest 
employers' social security contributions in the EU 
as  a  share  of  total  labour  costs  paid  by  the 
employer,  which  explains  the  relatively  high  tax 
wedge.  This  partly  stems  from  the  social  security 
employer's 
system  being 
contributions,  which  is  only  partially  the  case  in 
other  countries.  High  employers'  social  security 
contributions  are  also  conducive  to  a  large  tax 
burden on companies. 

financed 

through 

The  high  level  of  taxes  weighing  on  companies 
represents  an  obstacle  to  private  investment 
and  hampers  companies'  growth  (European 
Commission,  2016e).  The  effective  average 
corporate  tax  rate was  the  highest  in  the  EU  in 
2016  (38.4 %)  (ZEW,  2016).  French  corporate 
income tax combines a high nominal rate (38 % in 
2014  including  the  surcharge,  the  highest  in  the 
EU),  and  relatively  little  revenue  as  a  share  of 
GDP (2.7 % of GDP in 2014, against 2.4% in the 
EU, for a nominal rate of 22.9% for the same year) 
because of generous tax credits and relatively low 
profit margins. Finally, the debt-equity tax bias in 
corporate financing remains the highest in the EU 
in  2016.  Due  to  a  less  favourable  tax  treatment, 
investments  financed  by  equity  need  to  earn  5 
percentage points more in return than investments 
financed by debt to yield the same after-tax return 
(ZEW, 2016). 

average spending on  prevention  of 3%  in  the  EU. 
Low  spending  on  prevention  can  lead  to  higher 
healthcare costs in the longer run, certainly as it is 
accompanied by low vaccination levels for certain 
preventable  diseases  and  comparatively  high 
prevalence of risky behaviour such as alcohol and 
tobacco consumption.  

Fiscal frameworks* 

The fiscal framework has been strengthened in 
the  last  few  years,  although  weaknesses  still 
remain.  Since  the  founding  in  2012,  the  High 
Council  of  Public  Finances  (HCFP) (16), 
the 
systematic  positive  bias  in  the  macroeconomic 
forecasts  underpinning 
the  draft  budgets  has 
disappeared. In September 2016, the HCFP issued 
a  more  critical  opinion  than  in  previous  years  on 
the  macroeconomic  scenario  underpinning  the 
2017  draft  budgetary  plan  (Haut  Conseil  des 
Finances  Publiques,  2016).  There  is  no  formal 
mechanism  in  place  to  reconcile  divergent  views 
between  the  HCPF  and  the  Ministry  of  Finance, 
and  in  the  that  case,  the  Ministry  of  Finance  did 
scenario 
not 
underpinning the 2017 DBP following the HCFP's 
opinion . 

the  macroeconomic 

adjust 

for 

the 

every  year 

the  expenditure  norms  are  an 
Although 
effective means to control expenditure, they are 
becoming more difficult to meet. The norms are 
as 
ambitious 
becoming  more 
respective 
rates 
expenditure  growth 
spending  categories  decrease.  At  the  same  time, 
new  spending  announcements  are  projected  to 
increase  spending  on  a  permanent  basis,  whereas 
the  savings  allowing  the  norms  to  be  met  are 
across-the-board  spending  cuts.  Consequently,  in 
2017 the ceilings for the norms had to be raised for 
State 
these 
developments  point  to  the  limits  of  the  existing 
rules,  as  they  become  harder  to  obey  without 
taking structural measures. Furthermore, the cut in 
transfers  from  the  State  to  local  authorities  has 
been reduced, leading to an upward revision of the 
indicative  spending  norm  for  local  authorities 
(ODEDEL).  At  the  same  time,  no  correction 
mechanism or alert committee exists to oversee the 
ODEDEL and prevent local expenditure overruns. 

expenditure.  All 

health 

and 

(16)  Created  as  an  independent  fiscal  body  by  the  organic  law 

of 17 December 2012 

25 

 
                                                           
4.1. Public finances and taxation 

Other  taxes  on  production  (17)  are  particularly 
high (Graph 4.1.5). They stood at 3.1 % of GDP in 
2015 (18),  above  Italy  (2.0%),  Spain  (1.1%)  or 
Germany (0.4%), although it is generally accepted 
that such taxes are particularly distortive since they 
disregard  the  economic  performance  of  the  firm 
and directly affect profit margins. These taxes have 
not  been  curbed  by  recent  policy  measures  and 
have  continued  to  increase  in  GDP  terms  since 
2011,  in  spite  of  the  phase-out  of  part  of  the 
turnover  tax  (C3S).  Local-level  taxes  account  for 
roughly  two  thirds  of  such  taxes  and  have  been 
increasing  as  a  share  of  GDP  since  the  reform  of 
local government taxation. However, this increase 
in  tax  revenue  has  stemmed  mainly  from  a  base 
effect in recent years (Cour des Comptes, 2016b). 

Graph 4.1.5:  Composition of total taxes on companies, 

2015 

income 

insurance  products  and  implicit  rents  on  the  main 
property are taxed according to rental values which 
have not been updated since the 1970s, while real 
estate  capital  gains  are  not  taxed.  By  contrast, 
capital  gains  on  securities  are  taxed  according  to 
the  progressive  personal 
tax  regime. 
Furthermore,  specific  tax  regimes  such  as  the  full 
exemption  of savings products (e.g.  Livret A),  the 
deductibility of interest from the corporate income 
tax  basis  or  the  capital  gain  tax  create  a  relative 
distortion  between  fixed-income  instruments  (and 
especially  deposits)  and  shares.  Such  distortions 
negatively affect growth, investment and financial 
stability.  To  counterbalance  some  of 
these 
discrepancies,  the  tax  system  also  includes  a  high 
number  of  tax  rebates  and  specific  schemes  to 
encourage  investment  in  innovation,  SMEs  and 
start-ups;  one  more  has  been  introduced  by  the 
2017 finance law.  

to 

a  well-functioning 

The  relative  complexity  of  the  tax  system  is  a 
barrier 
business 
environment.  France  has  a  high  tax  burden 
coupled  with  many  tax  breaks,  reduced  rates  and 
various tax schemes to address specific objectives. 
It results in detailed rules and derogations that may 
increase  compliance  costs  and  may  create 
uncertainties  (France  Stratégie,  2016b;  Michel 
Taly,  2016).  Total  tax  expenditure  is  sizeable  in 
France at more than 3 % of GDP (CICE excluded). 
to  measure 
Indicators  commonly  used 
the 
complexity 
tax  system  show  a 
contrasting picture for France. In 2015, the country 
scored  well  in  terms  of  the  number  of  hours 
needed to comply with taxes (World Bank, 2016). 
However, the administrative cost to tax authorities 
of  collecting 
tax 
collected,  was  above  the  EU  average  in  2013 
(latest data available) (OECD, 2015b). Looking at 
trends,  tax  complexity  has  increased  in  recent 
years.  The  General  Tax  Code  (Code  général  des 
impôts)  expanded  by  61  %  (in  number  of  pages) 
between  2002  and  2015  (Cour  des  Comptes, 
2016c). 

taxes,  as  a  percentage  of 

level  of  a 

The burden of taxation continues to fall less on 
consumption than it does in other EU countries. 
In 2014, France ranked 27th in the EU in terms of 
tax revenues from consumption as a percentage of 
taxation  (24.1  %)  below  neighbouring 
total 
countries such as Germany, Italy, or Spain, and the 
Nordic countries (Graph 4.1.7). 

Source: National Tax Lists 2016 and AMECO 

Capital taxation in France is high compared to 
other Member States and favours "lower-risk" 
products  investments  like  housing  and  deposits 
over  "riskier" 
like  shares.  At 
investments 
10.5 % in 2014, France's ratio of taxes on capital-
to-GDP was the third highest in the EU, above the 
EU  average  (8.2  %).  The  overall  tax  burden  on 
capital  increased  by  1.3  pp.  between  2010  and 
2013, then stabilised in 2014. Furthermore, capital 
taxation  favours  investment  in  housing  and  life 
insurance.  A  reduced  rate  of  7.5  %  applies  to  life 

(17)  Other  taxes  on  production  include  more  than  40  taxes 

mainly on capital and on labour.  

(18)  This figure excludes producer households. 

26 

024681012141618FranceGermanyItalySpain% of GDPOther taxes on production (householdsexcluded)Employers' actual social contributions - CICEretrievedTaxes on the income or profits of corporationsincluding holding gains 
 
                                                           
4.1. Public finances and taxation 

As  a  result  the  taxation  gap  between  diesel  and 
petrol is closing but still remains. 

The  VAT  system  is  characterised  by  middle-
ranking  standard  rate  and  low  reduced  rates 
applied to a large base. France applies a standard 
rate  (20 %)  which  is  middle-ranking  as  compared 
with  neighbouring  countries  (above  Luxemburg 
(17 %)  and  Germany  (19 %),  but  below  Belgium 
(21 %),  Italy  (21 %)  and  Spain  (21 %)),  but 
relatively  low  reduced  rates  –  the  5.5 %  reduced 
rate  is  lower  than  that  of  neighbouring  countries. 
In  addition,  reduced  rates  are  applied  to  a  large 
base, (European Commission, 2016c). In 2014, the 
revenue  foregone  from  applying  reduced  rates 
represented  10 %  of  the  theoretical  total  VAT 
liability  which  would  have  resulted  from  a 
perfectly flat system, above the 5.3 % EU average 
(CASE,  2016).  Furthermore,  VAT  compliance  is 
worsening (CASE, 2016). 

Graph 4.1.6:  Taxes on consumption as percentage of total 

taxation in 2014 

Source: Taxation Trends in the European Union 2016 

In  terms  of  environmental  taxation.  recent  tax 
increases  have  not  yet  closed  the  gap  with  the 
EU  average.  Revenues  from  environmental  taxes 
steadily  increased  from  2009  onwards  to  reach 
2.1% of GDP in 2014 (ranking 23rd in the EU), the 
level that it had back in 2004. This remains below 
the EU-28 average (2.5%), and, as a percentage of 
total taxation (4.5%), France ranked 28th in the EU 
in 2014. Environmental taxation is set to continue 
to rise as the carbon tax will increase significantly 
until 2030. In addition, excise duties on diesel have 
increased  in  2017  (by  0.01  EUR  per  litre)  while 
they have decreased on petrol by the same amount. 

27 

2223242526272829302014% of total taxationFranceItalyGermanySpainSwedenEU-28DenmarkFinland 
 
 
4.1. Public finances and taxation 

Furthermore, VAT compliance is worsening. The compliance gap, which provides an estimate of revenue loss due to fraud, tax evasion, bankruptcies and miscalculations, has increased to 14 % of total VAT tax liabilities in 2014, against 12 % in 2013. Since 2011, the compliance gap in France has increased by 5 pps. of the total VAT tax liabilities (CASE, 2016). This is higher than in Spain (9 %) or Germany (10 %), but lower than in Italy (28 %). 

28 

 Box 4.1.1: Effects of a tax shift from taxes on production factors to indirect taxesThe Council recommended France to reduce taxes on companies while broadening the tax base on consumption, in particular as regards VAT. This box simulates a 0.5 point increase in the implicit VAT rate (that would yield additional revenues of 0.4 % of GDP) using the DG ECFIN’s DSGE model QUEST III (Ratto et al., 2009), assuming that these additional revenues (excluding second-round and behavioural effects) are used to finance three policy alternatives and that VAT compliance is constant. According to the calculation performed by the Joint Research Centre using the EUROMOD model, an equivalent VAT reform has a negligible impact on tax incidence. If the VAT increase is used to finance a reduction in social security contributions borne by entrepreneurs, a short-term negative response by private investment and consumption is observed, the latter eventually offset by an increase in employment and real wages. This tax shift brings about a long-lasting increase in GDP and a reduction in the general government deficit (Graph 1).    If the VAT increase is used to finance an equivalent reduction in corporate income tax, GDP also rises, driven by higher private investment. By contrast, private consumption and employment decline with respect to the baseline. The general government balance deteriorates persistently due to the increase in public transfers indexed to inflation. A mixed policy option could consist of using the additional VAT revenues to finance cuts in social security contributions (by 71 % of the additional VAT revenues) and corporate income tax rates (by 25 %), while devoting the rest to raising social transfers targeted to financially-constrained consumers. In that case, persistent GDP and employment increases are observed, jointly with permanent fiscal consolidation and public-debt reduction. Graph 1: Impulse responses to an increase in VAT offset by three policy alternatives  Source: European Commission  -0.020.000.020.040.060.080.100.120.140.160.182014201520162017201820192020202120222023Social contributionsCorporate taxMixed optionGDP%-0.500.000.501.001.502.002014201520162017201820192020202120222023Social contributionsCorporate taxMixed optionPrivate investment%-0.16-0.14-0.12-0.10-0.08-0.06-0.04-0.020.000.022014201520162017201820192020202120222023Social contributionsCorporate taxMixed optionPrivate consumption%-0.15-0.10-0.050.000.050.102014201520162017201820192020202120222023Social contributionsCorporate taxMixed optionGeneral government balance% of GDP-0.04-0.020.000.020.040.060.080.102014201520162017201820192020202120222023Social contributionsCorporate taxMixed optionEmployment%-0.60-0.40-0.200.000.200.400.600.801.002014201520162017201820192020202120222023Social contributionsCorporate taxMixed optionPublic debt% of GDP 
 
 
 
 
 
 
4.2.  FINANCIAL SECTOR 

The  French  banking  sector  seems  relatively 
sound. Domestic banks represent more than 90 % 
of the French banking sectors total assets. The four 
largest  French  banking  institutions  are  considered 
of  global  systemic  importance  by  the  Financial 
Stability  Board.  Overall,  French  banks  appear 
somewhat  more  profitable  than  their  counterparts 
in  the  euro  area,  with  a  return  on  equity  which 
amounted to 6.8 % in 2015 compared to 4.4 % on 
average  in  the  euro  area.  French  banks  rely  more 
than  their  peers  in  the  euro  area  on  non-interest 
rate  income  given  the  importance  of  investment 
banking  activities.  They  also  benefit 
from 
relatively  low  impairments.  Moreover,  French 
banks are able to re-price liabilities more easily to 
lower  interest  rates  than  their  euro  area  peers 
whereas  asset  repricing  is  occurring  more  slowly 
than  in  the  rest  of  the  euro  area  (see  Box  1.3  in 
IMF  2016)  implying  that  margins  have  suffered 
less than for euro area peers from the low interest 
rate  environment.  With  a  Tier  1  ratio  of  13.8 %, 
the capitalisation of French banks appears broadly 
in  line  with  that  of  their  euro-area  counterparts 
(14.2 %)  and  slowly  improving  over  time.  Their 
loan  portfolio  is  less  risky,  with  non-performing 
loans  representing  a  stable  3.5 %  of  the  total 
portfolio  in  Q1-2016  (vs.  5.6 %  in  the  euro  area). 
Substantial progress has been made over the last  

year  in  terms  of  stable  funding,  with  a  loan-to-
deposit  ratio  close  to  102.7 %  in  2015.  Lower 
dependence on short-term wholesale funding is an 
asset  when 
experience 
difficulties. 

interbank  markets 

In  an  environment  of  low  net  interest  income 
across  the  euro  area,  banks'  profitability  is 
under pressure from a structurally high cost-to-
income  ratio.  The  interest  rates  set  by  the 
government  on  regulated  savings  instruments  like 
the  Livret  A  or  the  "Plan  Epargne  Logement" 
appear  relatively  high  and  squeeze  banks'  interest 
margins.  This  is  especially  true  for  the  latter, 
where the interest rate is fixed for the whole term 
of the contract and currently stands at 2.5 % for the 
existing  stock  of  "Plan  Epargne  Logement".  The 
overall  impact  on  banks'  profitability  is  however 
limited  as  deposits  make  up  a  relatively  small 
share  of  total  liabilities  (see  above).  In  order  to 
address their high cost-to-income ratio, one of the 
highest in the EU, banks are expected to continue 
investing  in  digitalisation  and  to  close  branches, 
although no massive lay-offs seem to be planned in 
the short-term. 

There has been some correction in house prices 
since  2011.  Housing  prices  fell  by  9 %  between 
their peak in the third quarter of 2011 and the first 

29 

 
 
 
 
 
 
 
 
4.2. Financial sector 

quarter of 2016, although prices stabilised in recent 
quarters.  The  correction  observed  since  2011  has 
led to some correction in house prices with respect 
to  fundamentals.  However,  valuation  metrics 
continue  to  signal  some  risk  of  overvaluation. 
Compared to the historical trends, price-to-rent and 
price-to-income ratios suggest an overvaluation of 
more than 20 %. Based on rental prices per square 
meter, French house prices do not seem overvalued 
compared to other euro area markets (see Dujardin 
et  al.,  2015).  Moreover,  another  metric  based  on 
the 
total 
relationship  between  house  price, 
population,  housing  investment,  real  disposable 
income  per  capita  and  the  real  long-term  interest 
rate  suggests  an  overvaluation  of  only  3 %.  The 
latter metric is more strongly linked to supply and 
demand fundamentals and confirms the qualitative 
analysis  also  made  in  the  2015  Country  Report 
(European Commission, 2015c). More specifically, 
structurally  strong  demand  supported  by  positive 
demographic  trends  and  the  absence  of  excess 
housing supply together with prudent credit supply 
by  banking  institutions  suggest  that  downward 
price  pressure  is  limited  and  further  downward 
adjustment, if any, will be very gradual. 

Mitigation measures exist to contain the impact 
of  house  price  developments  on  the  financial 
sector. The decline in house prices since 2011 led 
to  a  moderate  rise  of  the  loan-to-value  ratio  to 
85 %  for  new  loans  and  to  68 %  for  the  existing 
stock.  However,  credit  standards  are  based  on 
revenue  rather  than  housing  value  and  more  than 
half  of  housing  loans  are  secured  by  a  guarantee 
from  a  bank  or  an  insurer,  which  reduces  the 
importance  of  the  value  of  the  collateral  when 
assessing  credit  risk.  Therefore,  in  line  with  the 
analysis  in  the  Country  Report  2015  (ibid.),  a 
moderate adjustment in house prices does not seem 
to  pose  a  considerable  risk  to  the  financial  sector. 
In  contrast 
to  residential  real  estate  prices, 
commercial  real  estate  prices  have  significantly 
increased over the past few years. As a result, the 
Haut Conseil de Stabilité Financière (HCSF) asked 
banks,  insurance  companies  and  investment  funds 
to  perform  stress  tests.  Depending  on  the  results, 
the  authorities  could  consider  macro-prudential 
measures where appropriate. 

The relatively low guaranteed interest rate and 
the  strong  development  of  unit-linked  business 
mitigate  the  risks  of  the  low  interest  rate 
environment for French life insurers. In contrast 

to  other  Member  States,  the  French  insurance 
industry has proposed very low guaranteed interest 
rates  on  their  traditional  life  insurance  products. 
For many years, this rate has been as low as 0 %, 
so that the average guaranteed rate is now close to 
0.51 %.  This  special  circumstance  has  allowed 
French insurers to suffer much less from the fall in 
interest rates than insurers in other Member States, 
where  guaranteed  interest  rates  have  been  much 
higher.  To  compensate  for  this  low  guaranteed 
interest  rate,  policyholders  are  remunerated  by  a 
minimum  mandatory  profit  sharing.  While  the 
average  return  (including  profit  sharing)  on  life 
insurance  contracts  of  2.34 %  seems  relatively 
high,  the  mandatory  minimum  for  profit  sharing 
does  not  seem  to  threaten  life  insurers  at  the 
the 
to  some 
moment, 
modalities. At the same time, the surge in the unit-
linked business, which accounts for the majority of 
new  production,  has  allowed  insurers  to  transfer 
risks to the policyholders. 

flexibility 

thanks 

in 

Graph 4.2.1:  Funding of non-financial corporations 

Source: ECB, AMECO (December 2015) 

As  in  the  rest  of  the  euro  area,  SME  access  to 
capital  markets  remains  a  challenge.  Capital 
markets  for  large  corporations  are  functioning 
smoothly.  The  stock  market  is  very  deep  and  is 
dominated  by  non-financial  corporations.  Market 
debt  funding  of  non-financial  corporations  has 
been increasing and reached EUR 555 billion, i.e. 
25.4 %  of  GDP  in  2015,  from  less  than  15 %  in 
2008.  For  SMEs,  access  to  liquidity  can  be  more 
problematic  as  in  the  rest  of  the  euro  area.  Banks 
account for 61 % of funding, excluding equity,  for 

30 

0.000.010.010.020.020.030.030.0401020304050607080Listed sharesDebt securitiesMFI loansGross operating surplus:corporationsVenture capital (rhs)FREU% of GDP 
 
4.2. Financial sector 

all  non-financial  corporations  in  France,  but  this 
figure  rises  to  96 %  for  SMEs.  The  French 
authorities are trying to improve market access for 
SMEs  by  various  means,  such  as  ensuring  that 
financial 
are 
proportionate,  developing  financial  analysis  on 
SMEs  and  supporting 
institutionalisation  of 
crowdfunding.  They  are  also  expecting  positive 
effects from the Capital Markets Union.  

requirements 

information 

31 

 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

2008 

since 

4.3.1), 

(Graph 

Unemployment  is  slowly  decreasing  from  the 
peak reached in 2015, although it remains high 
for  some  categories  of  workers.  Having  risen 
the 
steadily 
unemployment  rate  fell  in  2016  (from  10.4 %  in 
2015 to 10.0 % in 2016) and is forecast to decrease 
further in the coming years. However, in 2016 the 
unemployment  rate  remained  higher  than  in  the 
EU  (8.6 %).  Unemployment  remains  higher  for 
low-skilled (19) workers (17.4 % against 16.3 % in 
the EU), especially if young (39.2 % compared to 
28 %  in  the  EU).  The  non-EU-born,  representing 
9.6 %  of  the  working  age  population  in  2015,  are 
facing  increasing  difficulties  in  accessing  the 
labour  market;  the  unemployment  rate  for  them 
was  19.4 %  in  2015,  up  from  19.0 %  in  2014 
(17.9 % in the EU in 2015). 

Graph 4.3.1:  Unemployment rate in France, 2006-2015 

(1) The International Standard Classification of Education 
(ISCED) is a statistical framework for organising information 
on education maintained by the United Nations 
Educational, Scientific and Cultural Organization (UNESCO). 
An ISCED level between 0 and 2 corresponds to less than 
primary, primary and lower secondary education. 
Source: Eurostat 

Long-term  unemployment  is  still  rising,  in 
contrast  with  the  EU  trend.  The  average  length 
of  unemployment  has  kept  increasing  well  above 
the  2008  level.  The  figure  was  580  days  (1  year 
and 7 months) in November 2016, up from close to 
400  days  in  2008.  As  a  percentage  of  total 
unemployment, 
(12 
months or more) remained high at 42.6 % in 2015 

long-term  unemployment 

(19)  The  ‘low-skilled’  are  defined  as  part  of  the  active 
population  with  a  lower  secondary  education  diploma  or 
less (ISCED 0-2 levels). 

compared to 42.5 % in 2014, while in both the EU 
and euro area it had started to fall in 2015 (48.1 % 
and 51.2 %). Very long–term unemployment (over 
two years) also keeps increasing, to 22.0 % of the 
unemployed in 2015, compared to 20.9 % in 2014. 

There is a gender gap in the labour market. In 
2015,  the  employment  rate  was  higher  for  men 
(74 %) than women (66.6 %), while a higher share 
of  women  worked  part-time  (30 %  compared  to 
7.3 %  of  men).  Moreover,  the  gender  pay  gap 
(15.5 % in 2014) has only marginally decreased in 
recent years. In turn, differences in work patterns, 
wages  and  career  lengths  may  have  an  impact  on 
women’s  pension  entitlements,  which  are  35 % 
lower  than  men’s  entitlements.  The  law  of  4 
August 2014 on real equality between women and 
men  and  the  November  2016  inter-ministerial 
action  plan  aimed  to  promote  gender  equality  in 
the  labour  market.  However,  the  joint  taxation 
system  (quotient  conjugal)  creates  disincentives 
for second earners – mainly women – to enter the 
labour  market  and  to  increase  their  working  time 
(OECD,  2012,  2016c;  Landais,  Piketty  and  Saez, 
2011). 

The  employment  situation  of  the  non-EU-born 
is deteriorating and the labour market inclusion 
of second generations remains challenging. The 
employment  rate  of  the  non-EU-born  residing  in 
France  further  decreased  between  2014  and  2015 
(from  55.4 % 
the  resulting 
to  54.9 %)  and 
employment  gap  with  the  EU-born  increased  (at 
16.5 pp. in 2015 and at about 22 pp. if considering 
women  alone).  Their  lower  employment  rate  is 
explained by a lower level of education on average 
than native-born  residents, a lower activity rate for 
non-EU-born  women  (57.8 %  in  2015  vs  75 % 
among  native-born  women)  and  a  higher 
unemployment rate for non-EU-born men (19.8 % 
in 2015 compared to 9.8 % among EU-born men). 
In  addition,  second  generations  (i.e.  native-born 
with  two  foreign-born  parents,  representing  6.9 % 
of  the  working  age  population  in  2015)  remain 
labour  market;  even  when 
penalised  on 
individual 
in 
differences 
accounting 
characteristics, their chance of having a job is 15.7 
pp. lower (OECD, 2014a). Indeed, in 2014, native-
born 
two 
residents,  aged  15-64  and  with 
foreign-born parents, had an unemployment rate of 
14.5 %,  and  as  high  as  49.6 %  for  young  people, 
compared  with  8.8 %  and  18.7 %  for  native-born 
residents  with  native-born  parents.  Several  recent 

the 

for 

32 

0510152025303540452006200720082009201020112012201320142015All15-64, ISCED 0-215-24 years, all15-24 years, ISCED 0-215-64, non-EU born(%) 
 
 
                                                           
4.3. Labour market, education and social policies 

stressed 

studies  have 
the  persistence  of 
discrimination  among  people  with  a  migrant 
background  in  hiring  processes  and  the  potential 
impact  on  GDP  of 
positive  macroeconomic 
reducing the impact of discriminations. 

Labour market segmentation and rigidity 

the 

labour  market 

is 
Segmentation  of 
temporary 
entrenched.  The  proportion  of 
contracts  has  been  gradually 
increasing,  and 
reached  16.8 %  of  the  total  number  of  employees 
in the third quarter of 2016. While the percentage 
of temporary employment is slightly above the EU 
average,  its  duration  has  been  rapidly  shortening 
over  time;  at  the  end  of  2015,  almost  one  fifth  of 
temporary contracts were for less than one month. 
On the other hand, France also appears to have one 
of the lowest rates of mobility according to the EU 
Labour Force Survey, with an average seniority of 
11 years. 

Rehiring  and  job  instability  are  typical  of 
temporary contracts of short duration. In 2000, 
temporary  hires  accounted  for  75 %  of  total 
hirings.  In  2016,  they  represented  86.4 %  of  total 
hirings,  with  temporary  jobs  of  less  than  one 
month representing 80 % of total temporary hires. 
Moreover,  more  than  two  thirds  of  the  new  hires 
are  rehires  with  an  old  employer  (Unédic,  2016); 
about  half  of  these  were  rehires  with  the  last 
employer 
in  1995. 
Temporary rehiring concerns both activities where 
the  nature  of 
temporary 
job 
employment  (i.e.  the  so-called  contrat  à  durée 
déterminée  d’usage)  and  activities  which  have 
seen  a 
temporary 
employment  (e.g.  health,  construction,  retail  trade 
and  public  administration).  The  transition  rate 
from  a  fixed-term  contract  to  an  open-ended 
contract  remains  very  low,  at  10.9 %  in  2015 
compared with 23 % across the EU. 

the  proportion 

increase  of 

justifies 

recent 

twice 

rapid 

the 

- 

Impact of labour market reforms 

The  Labour  Act  of  8 August  2016  addresses 
some of the rigidities of the labour market. This 
law paves the way for a reform of the Labour Code 
aiming  at  clearer  differentiation  between  rules  to 
be  defined  by  regulation,  branch-level  and  firm-
level  agreement,  with  the  express  intent  to  extend 
the  perimeter  of  autonomous  firm-level  rules  and 
to clarify individual economic dismissal rules. The 

to 

increase 

law  also  contains  measures 
the 
effectiveness  of  collective  bargaining,  mainly  by 
reducing  the  number  of  branches,  introducing  the 
majority  principle  for  the  adoption  of  collective 
agreements,  reforming  the  rules  underpinning  the 
collective 
denunciation 
agreements, 
‘offensive 
agreements’ that firms can use to adjust wages and 
working  time  arrangements,  while  maintaining  or 
increasing  the  level  of  employment.  In  particular, 
firms will be able to adopt a collective agreement 
that will prevail over individual contracts, even in 
terms of working time and pay.  

revision 
introducing 

and 
and 

of 

According  to  preliminary  assessments,  the 
Labour Act is expected to reduce segmentation 
of  the  labour  market  and  to  have  a  milder 
impact  on  the  level  of  employment.    According 
to  Kant,  Ballot  and  Goudet  (2016)  the  new 
definition  of  economic  dismissal  would  decrease 
unemployment by 150 000 jobseekers in the short 
term  and  create  200 000  jobs  over  2  years,  with 
strong  substitution  effects  from  short  to  longer-
term  contracts.  The  same  study  estimates  that  the 
decrease  in  the  minimum  overtime  premium  from 
25 %  to  10 %  -  that  can  now  be  agreed  upon  by 
social  partners  at  firm  level  -  will  have  an  initial 
negative  impact  for  the  employment  of  workers 
aged 25-64 over the first 2 years after the adoption 
of the law, which would be compensated over the 
following 2 years. 

incentives 

in  smaller 

to  recruit  on 

longer-term 
The 
contracts have helped to address labour market 
firms.  The  SME 
segmentation 
recruitment 
(prime  à 
incentive  programme 
l'embauche PME) (20) had benefited about 670 000 
new employees as of October 2016. Two thirds of 
these  were  on  open-ended  contracts,  while  the 
remaining  third  were  fixed-term  contracts  of  6  or 
more months. According to recent French Treasury 
incentive  on 
estimates, 
employment  would  be  to  create  or  maintain,  on 
average, up to 60 000 jobs per year. 

the  effect  of 

this 

(20)  This programme allows for an annual, lump sum, bonus of 
EUR  2000  paid  quarterly  over  a  two-year  period  to 
companies  with  fewer  than  250  employees,  which  have 
hired  new  employees  on  an  open-ended  or  fixed-term 
contract of more than 6 months between 18 January and 30 
June 2017 for wages up to 1.3 time the statutory minimum 
wage. 

33 

 
                                                           
4.3. Labour market, education and social policies 

insurance  system  mimics 

In  addition,  the  benefit  calculation  favours  a 
succession  of  short-term  work  periods.  The 
unemployment 
the 
functioning of an unemployment account, whereby 
a  worker  brings  with  him  the  rights  acquired  and 
not  used  in  previous  occupations,  when  moving 
between  different  jobs.  This  feature  provides 
incentives  for  the  unemployed  to  look  for  work 
more intensively since they do not lose their entire 
stock  of  benefits  by  taking  up  a  job.  Yet,  the 
method  used 
the  unemployment 
benefit  gives  employees  an  incentive  to  combine 
from  short-term  employment  with 
revenues 
those 
unemployment  benefits,  particularly 
sectors  where 
are 
the 
allowed (Cahuc  and  Prost,  2015).  This  has 
those 
favoured  particular  schemes,  such  as 
concerning  the  contrats  d’usage,  interim  and 
entertainment  sector  workers,  whose  structural 
deficit is partly financed by a structural surplus in 
the general scheme for open-ended contracts. 

to  calculate 

contrats 

d’usage 

in 

less 

subsidising 

firms  with 

The financing of unemployment insurance does 
not  encourage  firms  to  take  into  account  the 
consequences  of  their  high  labour  turnover  on 
the  deficit  in  the  insurance  funds.  By  levying 
higher  contribution  rates  from  sectors  with  higher 
turnover,  the  law  of  14  June  2013  addresses  the 
problem  of  firms  with  more  stable  recruitment 
patterns 
stable 
recruitment  patterns (21).  However,  compared  to 
systems  where  contributions  are  firm-specific  and 
depend  on  the  extent  to  which  laid-off  employees 
claim  unemployment  benefits, 
the  French 
unemployment insurance does not require firms to 
internalise 
impose  on 
that 
unemployment insurance funds. On the contrary, it 
those  economic 
provides  an 
activities, 
low 
by 
productivity,  which  make  most  use  of  short-term 
contracts 
of 
by 
unemployment for workers.  

characterised 

interrupted 

the  cost 

incentive 

usually 

layoffs 

spells 

short 

for 

(21)  Under  the  law  of  14 June  2013,  employers  pay  higher 
social  contributions  for  temporary  hires  of  less  than  3 
months. For standard temporary contracts, justified to meet 
the  need  for  temporary  increases  in  production,  the 
additional  contribution  is  3 %  for  contracts  of  less  than 
1 month and 1.5 % for contracts of duration between 1 and 
3  months;  for  the  contrats  d’usage  of  less  than  3  months, 
the  additional  contribution  is  0.5 %,  while  those  of  longer 
duration are not taxed more than permanent contracts. 

The  recent  evaluations  of  the  'crédit  d’impôt 
pour  la  compétitivité  et  l’emploi'  (CICE)  have 
pointed  to  its  positive  effect  on  firms’  profit 
margins  and  employment,  while  the  effects  on 
investment,  R&D  and  exports  are  expected  to 
take time to materialise. Based on the analysis of 
firm-level  data  for  2013-2014  by  three  groups  of 
researchers,  the  CICE  has  been  found  to  have  a 
positive  impact  on  employment  and  firms’  profit 
margins, although its effect on employment did not 
increase when its credit rate increased from 4 % to 
6 %.  By  contrast,  no  impact  has  been  found  on 
average wages, only on some categories of wages 
within certain firms. Also, no effect on investment, 
R&D  and  exports  has  been  found,  given  that  the 
period  for  which  firm-level  data  are  available  at 
the  moment  is  too  short.  No  comprehensive 
evaluation  of  all  social  contribution  reduction 
schemes 
their 
architecture,  socioeconomic  impact  or  budgetary 
efficiency.  

is  yet  available 

to  assess 

Unemployment benefit system 

the  unemployment 

Since  2008,  the  deficit  of  the  unemployment 
insurance organisation has been rising steadily, 
due  to  both  business  cycle  and  structural 
features of the unemployment insurance system. 
The  2008-2009  and  2011-2012  crises  led  to  an 
increase  in  the  number  of  jobseekers  eligible  for 
unemployment  benefits  from  2  million  in  2008  to 
2.8  million  in  2016.  Consequently,  the  budget 
insurance 
performance  of 
(Unédic)  steadily  worsened.  In  September  2016, 
the  deficit  in  the  unemployment  benefit  system 
was  projected  at  EUR  4.3  billion  in  2016  against 
EUR  4.4  billion  in  2015,  leading  to  a  further 
increase in the system’s debt to EUR 30 billion in 
2016  and  to  EUR  33.8  billion  in  2017  (Unédic, 
2016).   The  dynamics  of 
the  unemployment 
insurance  deficit  and  debt  reflect  a  number  of 
factors  beyond  cyclical  considerations,  including 
the  design  of  unemployment  benefits  and  job 
instability 
to  widespread  very  short 
employment  spells.  While  the  replacement  rate  is 
comparable to that of countries with similar levels 
of  GDP  per  capita,  unemployment  benefits  are 
capped  at  very  high  levels  (over  EUR  7 000),  the 
minimum contribution period is among the lowest 
(4  months  in  28  months)  and  the  duration  of 
benefits  is  among  the  longest  (24  months  after 
contributing for 24 months). 

linked 

34 

 
                                                           
 
4.3. Labour market, education and social policies 

in 

low  achievers 

year-old 
the  2015 OECD 
Programme  for  International  Student  Assessment 
(PISA)  is  slightly  above  the  EU  average  in  all 
three fields (22 % in science, 21 % in reading and 
23 %  in  mathematics).  Performance  somewhat 
worsened  compared  to  2012.  The  relationship 
between  socioeconomic  background  and  student 
performance remains strong. France shows one of 
the largest gaps in the proportion of low achievers 
in science between the lower and upper quarters on 
the socioeconomic index of the 2015 PISA student 
population  (34.6  pp  compared  to  an  EU  average 
gap of 26.2 pp). There is also a large performance 
gap  between  non-immigrants  and  first-generation 
immigrants.  Second-generation 
immigrants  are 
only partially catching up with non-immigrants.  

(CNESCO,  2016a).  Pupils  with 

There  are  large  performance  gaps  between 
schools  in  France.  School  composition  often 
reflects  the  residential  concentration  of  people 
with  socioeconomic  difficulties  and  migrant 
background. Disadvantaged children are unevenly 
distributed  across 
schools.  Social  diversity 
decreases  further  for  upper  secondary  education 
a 
levels 
disadvantaged background tend to be steered more 
often  towards  initial  vocational  education,  as  a 
remedy  for  school  problems,  without  regard  to 
initial  vocational 
Indeed, 
their  motivation. 
education  pupils  account  for  87 %  of  early  drop 
outs in France in 2013, while accounting for close 
to 40 % in 2015 of all secondary school enrolment 
(CNESCO,  2016c;  DEPP,  2016d).  Also,  teachers 
in  ‘priority  education  networks’  targeting  schools 
in  disadvantaged  areas 
(réseaux  d’éducation 
prioritaire)  tend  to  be  younger,  less  experienced 
and more likely not permanent appointees (OECD, 
2015a).   

through 

implementation 

Reform plans are being gradually implemented 
to  address 
the 
these  challenges 
prevention of poor educational outcomes. Begun 
in 2013, the compulsory education reform seems to 
go in the right direction, but its impact will depend 
on  actual 
(MENESR,  2015; 
CNESCO,  2016a).  Full  implementation  of  the 
2014 priority education plan, further strengthening 
support  teaching  staff  among  other  measures,  is 
planned for 2017 with the creation of nearly 9000 
new teaching posts at early education levels. Also, 
to make the teaching profession more attractive, in 
June 2016 the government announced an overhaul 
of the salaries of teachers and staff to be rolled out 

Active labour market policies 

Increased active labour market policy measures 
low-skilled  young  people  have 
targeting 
low-qualified  youth 
in  reducing 
succeeded 
unemployment  only  slightly.  The unemployment 
rate  for  low-qualified  young  people  decreased 
from 40.3 % to 39.2 % between 2014 and 2015. To 
address  their  difficulties  in  entering  the  labour 
market 
the  number  of  subsidised  contracts 
targeting  low-skilled  young  people  —  emplois 
d’avenir,  contrat  initiative  emploi  (CUI-CIE)  and 
contrat  d’accompagnement  dans  l’emploi  (CUI-
CAE) — has been increased to reach 45 800 in the 
market  sector  (+65 %  between  March  2015  and 
March  2016)  and  remain  stable  at  101  300  in  the 
non-market  sector.  In  the  first  quarter  of  2016, 
29.2 % of all young employed were on subsidised 
contracts,  as  were  51.7 %  of  young  employed 
people  without  qualifications  (DARES,  2016a). 
Although  these  contracts  have  a  positive  short-
term  effect  on  employment,  they  fail  to  foster  
sustainable  inclusion  in  the  labour  market;  only 
40 %  of  young  people  in  the  non-market  sector 
were employed 6 months after exiting a subsidised 
contract  and  66 %  in  the  market  sector,  where 
deadweight  effect  is  more  important  (Cour  des 
Comptes,  2016a).  Also,  some  weaknesses  were 
identified  in  Youth  Guarantee  implementation  in 
terms  of  outreach,  information  and  coordination 
between actors (European Commission, 2016c). 

through 

the  personal 

for  young  unemployed  people 

In  a  flexicurity  approach,  training  rights  and 
activation  measures  have  been  reinforced  for 
the  more  vulnerable.  The  reinforcement  of 
training  rights 
training 
account  for  low-qualified  workers  and  activation 
in 
measures 
precarious situations, with the generalisation of the 
Garantie  Jeunes  scheme,  is  intended  to  support 
personal  transitions  and  economic  adaptations. 
Moreover,  the  personal  activity  account  (compte 
personnel  d’activité,  CPA),  introduced  in  January 
2017,  may 
to 
employment  status,  by  attaching  training  rights 
directly to workers.  

disparities 

related 

reduce 

Education and vocational training 

linked 

France  faces  wide  performance  gaps  in  basic 
socioeconomic 
skills 
background. Pupils with a migrant background 
face additional difficulties. The proportion of 15-

students’ 

to 

35 

 
4.3. Labour market, education and social policies 

The  continuous  VET  system  has  important 
imbalances.  Continuous  vocational  training  is 
facing  challenges  as  shown  in  France’s  weak 
results  in  the  Programme  for  the  International 
Assessment  of  Adult  Competencies  (PIAAC) 
survey,  in  numeracy,  literacy  and  ICT  skills.  The 
continuous VET system is mostly characterised by 
imbalances in access to training depending on the 
labour  market  status (23):  the  unemployed,  low-
qualified,  older  workers  and  small  business 
employees (24)  have  less  chance  of  receiving 
training  while  jobseekers  access  to  training  stood 
at  9.8 %  in  2014.  The  reform  of  companies’ 
contributions  to  VET  financing,  part  of  the  2014 
VET  reform,  in  increasing  coverage  of  SME 
employees and the unemployed, aimed to improve 
access to continuous training. It remains to be seen 
if  this  law  will  have  an  impact  on  both  access  to 
training  and  governance,  together  with  the  new 
coordination bodies created at national (CNEFOP) 
and  regional  level  (CREFOP)  to  develop  shared 
diagnosis on training needs. These issues are even 
more important given the recent measures taken to 
sustain  demand  for  training,  such  as  the  personal 
training  account  scheme  (Compte  personnel  de 
formation,  CPF)  introduced  on  1  January  2015, 
included  in  the  personal  activity  account  (Compte 
personnel  d'activité,  CPA)  set  up  by  the  Labour 
Act  of  8 August  2016 (25),  and  the  plan  500  000 
formations of January 2016 (26).  

Social policies 

France  fares  better  than  the  EU  average  on 
poverty,  social  exclusion  and  inequalities,  with 
the  poverty  rate  steadying  at  around  13.6 %  and 
decreasing  to  17.7 %  for  the  population  at  risk  of 

(23)  Workers  on  temporary  contracts  (CDD)  can  expect  on 
average 8 hours of training per year, whereas workers with 
long-term contracts (CDI) can expect on average 19 hours 
of training per year. 

(24)  Only 20 % of companies with 10 to 19 employees invest in 
training,  whereas  60 %  of  companies  with  between  1 000 
and 1 999 employees invest in training. 

(25)  The Labour Act of 8 August 2016 created the new personal 
activity  account,  including  the  personal  training  account, 
extended  additional  training  rights  to  400  hours  for 
unskilled  employees  (against  150  hours  normally)  and 
unlimited rights for early-school leavers. At the same time, 
it  extended  the  personal  training  account  to  civil  servants 
and independent workers.  

(26)  By  January  2016,  500 000  additional  training  courses  for 
jobseekers were under way, with the aim of doubling their 
number to 1 million, with financing of EUR 1 billion from 
the State and local coordination by the regions. By the end 
of November 2016, 945 000 training courses had been run. 
The plan will be further pursued in the first half of 2017. 

between 2017 and 2020 at a cost of EUR 1 billion. 
Measures  to  improve  school  and  career  guidance 
of  pupils  are  being  generalised,  including  the 
‘Parcours Avenir’. 

2016b). 

Production 

The  initial  system  of  vocational  education  and 
training  (VET)  does  not  lead  to  an  optimal 
integration  of  young  people  in  the  labour 
market. France is one of the few OECD countries 
where  opting  for  VET  does  not  provide  better 
employment  outcomes  than  general  education 
(CNESCO, 
sector 
specialisations  still  offer  better  labour  market 
integration outcomes, while trade & sales and even 
more  secretarial  training  has  a  significantly  lower 
post-diploma  employment  rate,  translating  later 
into a high unemployment rate (30 %). The figures 
above  cast  doubt on  whether  the  existing  national 
and  local  governance  entities  have  been  effective 
in defining a range of education and initial training 
based  on  economic  needs  and  employment 
prospects,  rather  than  favouring  available  training 
resources.  In  this  respect,  the  2014  VET  reform 
establishes  new  national  and  regional-level  VET 
and  employment  coordination  bodies,  while  over 
500  additional  VET  specialties  in  sectors  with 
good employment prospects have been announced 
for the opening of the 2017 school year, along with 
the  creation  of  1 000  specific  teaching  posts. 
However,  given  the  relative  novelty  of  these 
measures and announcements, their impact cannot 
be assessed yet.  

school-based 

Apprenticeship  presents  better  employment 
initial  VET. 
outcomes 
than 
Apprenticeship  offers  better 
labour  market 
integration  perspectives,  but  is  constrained  by  its 
cost  and  its  sensitivity  to  national  and  territorial 
economic  cycles,  which  affect  company  decisions 
to hire apprentices (22). As a result, apprenticeship 
represents  only  one  fourth  of  initial  VET.  The 
apprentice 
introduction  of 
sector 
premium  and 
commitment 
the 
stabilisation  of  apprenticeship  figures.  Entry  into 
apprenticeship  is  also  expected  to  be  eased  by  its 
gradual  opening  to  professional  qualifications. 
Synergies  between  school  and  work-based  VET 
have also been initiated to reduce the drop-out rate.  

low-qualified 
increased  public 
recently 

a 
the 
have 

enabled 

(22)  The cost of an apprentice (all levels) is 2.5 times that of a 
the  production  sector 

school-based  VET  pupil 
(CNEFOP, 2016a; CNESCO, 2016b). 

in 

36 

 
                                                           
                                                           
4.3. Labour market, education and social policies 

shortage  of  affordable  housing,  including  social 
housing,  in  particular  in  growing  urban  areas. 
Problems  related  to  the  lack  of  sufficient  (social) 
housing  (Fondation  Abbé  Pierre,  2016;  INSEE, 
2016),  affects more  socially  disadvantaged people 
and in particular non-EU born. Around 1.7 million 
people  are  on  social  housing  waiting 
lists, 
including  nearly  500 000  people  in  Ile-de-France. 
Homelessness levels are high and continue to rise; 
141 000  homeless  people  were  recorded  in  2012, 
which is a 50 % increase since 2001.  

Measures  were  taken  to  simplify  and  increase 
the  activation  component  of  income  support 
and  its  take-up  at  the  bottom  of  the  wage 
scale (28).  As  part  of  the  implementation  of  the 
multiannual  antipoverty  plan  (adopted  in  January 
2013)  two  wage  support  schemes  (the  revenu  de 
solidarité  active  activité  and  the  prime  pour 
l’emploi) were merged into a single activity bonus 
(the  prime  d’activité)  as  of  1 January  2016.  The 
latter is also open to people under 25 years of age, 
unlike  the  previous  revenu  de  solidarité  active 
activité.  Data  suggest  that  a  50 %  claim  rate  had 
already been reached by the end of the first quarter 
of  2016  (i.e.  2  million  beneficiaries),  with  over 
3.8 million  beneficiaries  recorded  in  September 
2016,  one  sixth  of  them  being  aged  under  25. 
Close  monitoring  of  the  effective  impact  of  the 
measures taken will be important. 

(28)  Complemented  by  a  tax  credit  in  2014  and  by  abolishing 
the  lowest  rate band  in 2015,  it  has been  further  extended 
to benefit 12 million tax units in 2016. 

poverty  or  social  exclusion 
in  2015  against 
respectively  17.3 %  and  23.7 %  for  the  EU.  The 
impact  of  social  transfers  (representing  19.3 %  of 
GDP  in  2014) (27)  on  poverty  reduction  remains 
high,  at  43.1 %  in  2015,  compared  with  the  EU 
average  of  33.5 %.  The  intensity  of  poverty,  as 
calculated by national figures, increased slightly to 
20.1 % in 2014 after falling from a peak of 21.3 % 
in  2012  to  19.8 %  in  2013.  Similarly  to  most 
Member States, the 2020 objective for reducing the 
number  of  people  at  risk  of  poverty  or  social 
exclusion therefore will be very difficult to reach. 
Inequality,  as  measured  by  the  Gini  index  of 
disposable income decreased from 30.8 in 2011 to 
29.2  in  2015.  The  ratio  of  average  income  of  the 
bottom  quintile  to  that  of  the  first  quintile  of 
income distribution decreased from 4.5 in 2012 to 
4.3 in 2015.    

rate 

However,  some  more  vulnerable  groups  are 
among 
more  affected.  The  poverty 
unemployed people increased again in 2015 (from 
31.4 % in 2014 to 37.2 % in 2015, against the EU 
average  of  47.6 %  in  2015),  and  the  increasing 
proportion of part-time workers, particularly those 
who  earn  close  to  the  minimum  wage,  has 
translated into an increased risk of in-work poverty 
since 2010 (from 6.5 % in 2010 to 7.5 % in 2015). 
Although it remains below the EU average (9.5 % 
in  2015),  in-work  poverty  risk  remains  higher  for 
part-time  workers 
in  2015).  The 
(13.2 % 
proportion  of  involuntary  part-time  employment 
—  as  a  percentage  of  total  part-time  employment 
—  has  increased  steadily  in  recent  years  and 
reached 43.7 % in 2015, up from 30.8 % a decade 
ago,  with  women  representing  a  large  majority  of 
involuntary part-timers. Moreover, children, young 
people  and  single-parent  families,  remain  at 
particularly  high  risk  of  poverty  (18.7 %,  17.9 % 
and  36.7 %  respectively  in  2015).  Non-EU  born 
are more affected by poverty and social exclusion 
(33.2 % in 2015) than French native-born (15.2 %) 
and  their  in-work  poverty  rate  (18.5 %)  is  three-
time  higher  than  that  of  native-born  workers 
(6.5 %). 

Low-income  earners’  access 
to  affordable 
housing  remains  a  challenge.  There  is  a  critical 

(27)  This  figure  does  not  include  transfers  to  older  people, 
which  are  treated  as  pensions.  The  impact  of  social 
transfers is calculated as the percentage difference between 
the at-risk-of-poverty rate before and after social transfers. 

37 

 
                                                           
 
 
                                                           
4.3. Labour market, education and social policies 

38 

Box 4.3.1: Selected highlights: recent reforms to promote flexicurity in FranceIn recent years, France has adopted a number of important reforms aimed at improving the functioning of the labour market.  Labour law has been reformed in order to increase hiring on permanent contract, by reducing legal uncertainties in case of individual dismissal (notably defining clear layoff criteria for economic reasons (1)) and by setting indicative floors and ceilings for financial compensation in case of unfair individual dismissal. Furthermore, the functioning of individual work litigation courts (prud'hommes) has been reviewed to reduce the procedural length. (2) In case of collective dismissal, the layoff programme negotiated by social partners (3) now has to be simply validated by the administrative court.  Flexibility has also been strengthened at company level with the set-up of ‘accords de maintien de l’emploi’, which allow the employers to reduce wages and/or increase working hours in case of economic difficulties (4) or even, with some restrictions on wages, in case of market expansion. The possibility to sign agreements at company level derogating from branch level provisions has been reinforced in relation to the working time, including on extra hours premium. Social dialogue has been reformed with the creation of a dedicated fund for a better quality of social dialogue, the grouping of all mandatory consultations of the Work Council into three per year, respectively on the strategy, the economic situation and the social policy of the company (5) and the progressive application of the majority agreement at company level.  In parallel, transitions are being progressively secured. Since 2011 the professional securing contract has introduced more security for employees laid off in companies with less than 1000 employees or in bankrupt companies. The contract supports workers to get back to work by setting up specific accompanying and training measures and grants. The introduction of ‘rechargeable rights’ increases the incentive to return to a new job by preserving previously acquired rights. The life-long learning dimension of flexicurity has been addressed with the adoption in 2014 of the training act, (6) introducing a personal training account providing (7) rights directly attached to any active person in the private sector all along her career. Additional support is provided for low-qualified and early-school leavers through this account and a specific training action (8) plan has been set up for unemployed in order to improve their adaptability, with a focus on long term unemployed.   Building on the personal training account, a personal activity account is operational since January 2017. This account is accessible to all, including civil servants, unemployed and self-employed. It allows them to have access to all the rights acquired throughout their career both in terms of training and hardship (accumulation of rights for retirement). Effective access to training for the low-qualified and the unemployed remains to be further assessed, as well as the impact of increased labour market flexibility on the use of permanent contracts, while the reform of the unemployment benefit system has been delayed and is expected for 2017.                                                             (1) Labour Act of 8 August 2016. (2) Law of 6 August 2015 on economic growth and activity and decree of May 2016. (3) Law of 14 June 2013 on securing employment. (4) Law of 14 June 2013 on securing employment and Law of 6 August 2015 on economic growth and activity. (5) Social dialogue Act of 17 August 2015. (6) Law of 5 March 2014 on vocational training, employment and social democracy. (7) Now merged with the personal activity account. (8) Plan of 500 000 additional trainings to jobseekers of January 2016.  
 
 
 
 
 
 
 
4.4. COMPETITIVENESS 

Export of goods* 

French  export  market  shares  of  goods  have 
stabilised 
in  recent  years.  French  exports 
accelerated  from  2013  to  2015,  while  world  trade 
slowed.  As  a 
result,  export  market  shares 
stabilised.  However,  while  France  recorded  small 
market  share  gains  in  countries  outside  the  EU,  it 
still  faced  losses  in  EU  countries  (Graph 4.4.1). 
France’s initial geographical specialisation has had 
a broadly neutral effect in recent years. 

Graph 4.4.1:  Export market share breakdown for France – 

Goods 

winter  forecast  (ibid.),  export  performance (29)  is 
expected to further deteriorate in 2017, reaching a 
new  historical  low  (Graph 4.4.2).  Exports  of 
refined  petroleum  products  were  hit  by  strikes  in 
the refineries in the second quarter of 2016, while 
delays 
in  Airbus  deliveries  affected  aircraft 
exports,  and  unfavourable  weather  conditions 
weighed  on  agricultural  crops.  However,  other 
temporary  factors  contributed  positively  in  2016, 
such as the delivery of the Harmony of the sea, the 
largest passenger ship in the world, which boosted 
exports of ships and boats. 

Graph 4.4.2:  French export performance – Goods 

Source: COMTRADE, European Commission 

Exports  of  goods  recorded  strong  growth  in 
2015,  mainly  driven  by  transport  equipment. 
Aircraft 
industry  exports  have  posted  strong 
growth  rates  since  2010  and  now  largely  exceed 
their  pre-crisis  levels.  By  contrast,  the  motor 
vehicle industry had suffered dramatically from the 
crisis, and benefited in 2015 from the recovery of 
the  European  market  in  this  sector.  These  two 
sectors, which represent only a sixth of total goods 
exports,  accounted  for  almost  half  of  export 
growth in value in 2015. They are also the sectors 
with 
elasticity 
(Héricourt,  Martin  and  Orefice,  2014)  and  have 
thus gained most from the depreciation of the euro. 

the  highest 

exchange 

rate 

temporary 

In  2016,  exports  of  goods  barely  grew, 
factors  affecting 
hampered  by 
specific  sectors.  Goods  exports  grew  by  1.5 %  in 
volume  in  2016,  after  6.5 %  in  2015.  As  a  result, 
exports  fell  well  short  of  French  export  market 
growth in 2016, leading to a deterioration of export 
the  Commission’s 
performance.  According 

to 

Source: Commission 2017 winter forecast 

Looking beyond year-on-year volatility, French 
exports  of  goods  continue  to  perform  poorly, 
with  the  exception  of  the  aircraft  sector. 
Excluding  the  two  sectors  that  have  contributed 
most to export growth since 2014, namely aircrafts 
and  motor  vehicles,  goods  exports  have  been 
broadly  flat  since  2012,  at  a  level  close  to  their 
pre-crisis  peak 
instance, 
France’s  overall  share  in  the  EU-28’s  increasing 
processed and unprocessed food exports has fallen 
in recent years, both for extra- and intra-EU trade. 
The  increased  reliance  of  export  growth  on  a  few 
sectors  makes  French 
export  performance 
vulnerable  to  specific  developments  in  those 
sectors, as seen in 2016, particularly in the aircraft 
sector whose share of total exports rose from 8.0 % 
in 2007 to 12.7 % in 2015. 

(Graph 4.4.3).  For 

(29)  Export performance is defined as the ratio between French 
exports of goods and services in volume and French export 
markets in volume. 

39 

-14%-12%-10%-8%-6%-4%-2%0%2%4%201020112012201320142015Market share gains within geographical markets - extra-EUMarket share gains within geographical markets - intra-EUInitial geographical specialisation - extra-EUInitial geographical specialisation - intra-EUTotal market share change808590951001059900010203040506070809101112131415161718Export performance in goods1999 = 100forecast 
 
 
 
                                                           
4.4. Competitiveness 

Graph 4.4.3:  Exports of selected sectors (in value) – France 

Graph 4.4.4:  Share of export values per 5 categories of 

quality rank – France (% of total exports) 

Source: Comext 

Quality of exports of goods* 

slightly 

in  recent  years. 

The  average  quality  of  French  exports (30)  has 
deteriorated 
In 
particular,  France’s  quality  rank  has  declined 
markedly  in  the  motor  vehicle  sector,  which 
accounts  for  16 %  of  total  manufacturing  exports 
to  the  EU  and,  to  a  lesser  extent,  in  the  chemical 
sector (13 % of total manufacturing exports to the 
EU), in which France is middle-ranking. 

The share of high and middle quality exports in 
total  goods  exports  has  significantly  decreased, 
while  the  share  of  both  top  and  low  quality 
exports  has  increased.  The  share  of  top  quality 
exports  in  total  exports  is  significantly  larger  in 
France  than  in  Germany,  Italy  and  Spain.  Top 
quality  exports  are  a  specific  feature  of  French 
exports,  linked  to  the  high  performance  of  the 
aircraft  industry  and  luxury  sector.  However, 
France  has  lost  substantial  market  shares  in  high 
and middle quality exports (Graph 4.4.4). This can 
be linked to the deterioration of both cost and non-
cost  competitiveness,  in  particular  compared  to 
Germany which is highly specialised in this quality 
range.  On  the  other  hand,  low  quality  exports  are 
in  more  direct  competition  with  Spain  which 
benefits from substantially lower labour costs. 

index  based  on 

(30)  The quality of exports is defined as the normalized quality 
rank 
in 
Vandenbussche  (2014).  A  quality  rank  of  1  reflects  the 
highest quality in the EU market for a particular 'country of 
origin-product', while 0 is the lowest quality rank. 

the  method  explained 

Source: Comext, Orbis, European Commission 

Exports of services* 

in 

French  exports  are  increasingly  specialised  in 
services. In France, exports of services represented 
almost a third of total exports in 2015, compared to 
17 %  in  Germany.  Among  the  five  major  EU 
economies, only the United Kingdom has a higher 
share  of  services 
total  exports,  at  44 % 
(Graph 4.4.6) (31). In addition, the share of services 
in total exports has steadily increased over the past 
decade,  as  exports  of  services  grew  by  5.9 %  per 
year  on  average  in  value  from  2005  to  2015, 
compared to only 2.7 % for goods. This is also the 
case by volume, excluding a pure price effect. The 
relative  evolution  of  exports  of  services 
is 
particularly  important  in  France  compared  to  the 
other  countries,  except  the  UK.  The  share  of 
services has increased much less in Germany, and 
has even fallen slightly in Italy and Spain. France 
exports primarily technical, trade-related and other 
business  services,  tourism  and  transport  services. 
These  three  sectors  made  up  57 %  of  French 
exports  in  services  in  2015. While  the  UK  is also 
strongly  specialised 
its 
strongest  exporting  sector  is  the  finance  sector 

in  business  services, 

(31)  This  is  true  only  according  to  balance  of  payments 
statistics.  In  the  specific  case  of  France,  there  is  a 
significant  discrepancy  between  balance  of  payments 
(BoP)  and  national  accounts  (NA)  statistics  concerning 
exports. According to BoP data, the services' share of total 
exports  is  32 %,  while  it  is  only  28 %  according  to  NA 
data.  This  share  is  30 %  for  Spain,  regardless  of  the  data 
source. 

40 

6070809010011012013014015016007080910111213141516Air- and spacecraft and related machineryMotor vehiclesOther goodsOne-yearmoving average, 2008 = 1000%10%20%30%40%bottom(0.0 - 0.2)low(0.2 - 0.4)middle(0.4 - 0.6)high(0.6 - 0.8)top quality(0.8 - 1.0)200520102015 
 
                                                           
 
                                                           
4.4. Competitiveness 

Graph 4.4.5:  Exports market shares in value and in volume – France 

Source: Eurostat, IMF 

which  made  up  23 %  of  total  British  exports  of 
services in 2015. 

Graph 4.4.6:  Share of services in total exports in selected EU 

countries 

Source: Eurostat – Balance of payments 

Export  market  shares  in  services  have  been 
more  resilient  than  those  in  goods  since  2008, 
indicating  a  growing  specialisation  of  French 
exports  towards  services.  While  French  export 
market  shares  in  value  have  been  on  a  long-term 
declining  trend  at  a  comparable  pace  for  both 
goods  and  services,  this  decline  has  been  more 
pronounced  for  goods  since  the  economic  crisis. 
The  share  of  France  in  global  exports  of  services 

linked 

to  valuation  effects 

amounted  to  5.1 %  in  2015  (down  from  5.7 %  in 
2008),  2 pps.  above  goods  (3.2 %  in  2015,  down 
from 3.8 % in 1999, Graph 4.4.5, lhs). The decline 
in export market shares in services in 2015 is only 
the  euro 
due 
depreciation.  In  volume,  export  market  shares  in 
services  have  even  been  on  the  rise  since  2008, 
while  export  market  shares 
in  goods  have 
continued declining until 2014. The stabilisation of 
export  market  shares  in  France  over  the  past  few 
years  is  thus  to  a  large  extent  attributable  to  the 
good  performance  of  exports 
services 
(Graph 4.4.5, rhs). 

to 

in 

Unit labour costs and productivity* 

lost 

to  2013,  France 

cost 
From  1999 
competitiveness  compared  to  the  rest  of  the 
euro area, with unit labour costs increasing at a 
faster pace in France in both nominal and real 
terms.  From  1999  to  2008,  French  nominal  unit 
labour  costs  per  head  increased  in  line  with  the 
French  GDP  deflator,  at  2.0 %  per  year  on 
average (32).  The 
cost 
loss 
competitiveness  is  largely  due  to  the  containment 
of  unit  labour  costs  in  the  rest  of  the  euro  area 
(1.7 %  per  year  on  average)  –  in  particular  in 
Germany where nominal unit labour costs per head 
remained almost flat during this period (0.1 % per 
year on average). This resulted in a decline in real 

relative 

of 

(32)  HICP  inflation  grew  by  2.1%  per  year  on  average  during 

the same period. 

41 

0%5%10%15%20%25%30%35%40%45%50%9900010203040506070809101112131415FRDEITESUK50607080901001109900010203040506070809101112131415Export market shares in valueGoodsServicesTotal1999=10050607080901001109900010203040506070809101112131415Export market shares in volumeGoodsServicesTotal1999=100 
 
                                                           
 
4.4. Competitiveness 

Table 4.4.1: 

Labour productivity growth (per person employed) in France and in the rest of the euro area 

Source: Eurostat 

unit labour costs of the rest of the euro area, while 
real  unit  labour  costs  were  stable  in  France 
(Graph 4.4.7). From 2008 to 2013, there has been a 
decoupling  between  the  trend  in  nominal  unit 
labour  costs  and  the  GDP  deflator  in  France. 
Specifically,  unit  labour  costs  rose  by  1.8 %  per 
year  on  average,  while  HICP  inflation  averaged 
1.5 % and the GDP deflator rose by only 0.8 %. In 
the rest of the euro area, unit labour costs grew by 
less  (1.4 %)  and  more  in  line  with  GDP  deflator 
inflation (33).  This 
further 
deterioration 
cost 
competitiveness  during  this  period,  this  time  for 
domestic reasons. 

resulted 
France’s 

in 
relative 

of 

a 

Graph 4.4.7:  Real unit labour costs in selected EA countries 
(deflated by GDP deflator) – whole economy 

Source: Eurostat 

Cost  competitiveness  has  improved  since  2013, 
in  particular  thanks  to  measures  taken  to 
reduce  the  labour  tax  wedge,  but  accumulated 
past  losses  have  still  not  been  recovered.  Over 
the  past  two  years,  unit  labour  costs  per  head 

(33)  Unit labour costs per hour evolved in line with unit labour 
costs  per  head.  From  1999  to  2008,  unit  labour  costs  per 
hour increased by 1.9% on average in France, against 1.6% 
in the euro area and 0.0% in Germany. From 2008 to 2013, 
unit labour costs per hour increased by 1.7% on average in 
France, against 1.5% in the euro area. 

increased by 1.2 % in France, and −0.3 % once the 
Tax  credit  for  competitiveness  and  employment 
(CICE) is taken into account, compared to 1.0 % in 
the euro area as a whole. 

Graph 4.4.8:  Breakdown of real unit labour costs in France – 

whole economy 

(*) Inv. labour productivity: higher productivity growth is 
related to a more negative contribution to real ULC growth. 
Source: Eurostat 

but 

continues, 

Wage  moderation 
low 
productivity  growth  prevents  a  faster  recovery 
of  cost  competitiveness.  Labour  productivity 
growth  has  slowed  since  the  crisis  (Graph 4.4.8). 
This  is  largely  due  to  a  decline  in  TFP  growth, 
despite  a  continued  increase  in  capital  intensity 
(see Section 1). While averaging 1.0 % from 2000 
to  2008,  labour  productivity  growth  was  only 
0.3 %  per  year  from  2008  to  2015.  It  recovered 
somewhat  in  2015  (+0.8 %)  but  remained  below 
both  pre-crisis  growth  rates  and  productivity 
growth  in  the  rest  of  the  euro  area  (Table 4.4.1). 
Productivity  developments  have  been  impacted  in 
foster  higher 
recent  years  by  measures 
for 
employment  growth 
competitiveness 
the 
Responsibility  and  solidarity  pact,  and  the  Hiring 
subsidy) but these measures cannot explain the full 
extent of the productivity slowdown since 2008. 

employment, 

(the  Tax 

credit 

and 

to 

42 

90929496981001021041069900010203040506070809101112131415FRFR (incl. CICE)DEITESEA191999=100-12%-8%-4%0%4%8%12%020304050607080910111213141516GDP deflatorNom. comp. per employeeInv. labour productivityReal ULC3 years % change95-0000-0505-101112131415France1.31.10.41.3-0.10.30.20.8Rest of the EA1.30.60.41.4-0.60.30.71.1 
 
                                                           
 
 
 
 
 
Turning to a sectoral analysis, unit labour costs 
have increased at a slower pace than in the euro 
area since 2008 in industry, but have risen more 
substantially  in  the  construction  sector.  This  is 
due to fall in productivity in the construction sector 
since 2008, which may be one of the reasons why 
real estate prices are particularly high in France. In 
agriculture,  productivity  grew  less  in  France  than 
in  the  EU-15,  as  in  the  last  10  years  capital  and 
intermediate  consumption  productivity  fell.  By 
contrast, unit labour costs grew slightly less than in 
the euro area in both industry and market services, 
in particular compared to Germany and Italy while 
Spain  experienced  a  decrease 
(Graph 4.4.9). 
However,  in  levels,  while  labour  costs  are  now 
lower in France than in Germany in industry, they 
remain  substantially  higher  in  market  services,  in 
particular in transport services. 

Graph 4.4.9:  Sectoral breakdown of unit labour costs 
(average annual growth rate 2008-2015) 

4.4. Competitiveness 

the  composition of  investment,  France  is  on  a  par 
with  the  rest  of  the  euro  area  when  it  comes  to 
productive  investment,  which  broadly  involves 
spending on machinery, equipment and intellectual 
property  assets  (Graph 4.4.10,  upper  lhs) (34).  At 
the same time, France outperforms Germany, Italy, 
Spain and the euro area as a whole when it comes 
in  construction 
to  non-productive 
(Graph 4.4.10, upper rhs). 

investment 

equipment 

information 

The  relatively  low  level  of  machinery  and 
equipment  investment  is  more  than  offset  by  a 
markedly high level of investment in intellectual 
property  assets.  While  France  can  be  compared 
with  the  rest  euro  area  as  regards  productive 
investment,  the  part  of  it  allocated  to  machinery 
and 
(including 
and 
communication  technologies)  is  relatively  low 
(around 20% lower than the euro area average for 
the last twenty years, Graph4.4.10, lower lhs). This 
phenomenon is partly explained by the productive 
structure of the French economy and, in particular, 
by the strong weight of services. At the same time, 
French  productive 
intellectual 
property  assets  has  been  persistently  high 
rendering France one of the best performers in this 
area.  In  2015,  investment  in  intellectual  property 
represented  5.8 %  of  value  added  in  France,  as 
compared  to  4.3 %  in  the  euro  area  and  4 %  in 
Germany (Graph4.4.10, lower rhs). 

investment 

in 

Investment  patterns  have  implications  for  the 
competitiveness  of  French  firms.  Although 
barriers  to  investment  are  overall  moderate  (Box 
4.4.1), investment is concentrated around a limited 
number  of  larger  firms  (75%  of  total  investments 
was undertaken by 1% of firms in 2012) implying 
a  positive  link  between  the  firm  size  and  the 
capacity  to  invest.  Investment  in  research  and 
development  in  manufacturing  is  concentrated  in 
subsectors  of  declining  economic  importance  as 
their  value  added,  which  has 
measured  by 
implications  for  the  long-term  growth  potential  of 
the  whole  economy  (Section  4.5  on  innovation). 
This is the case in particular for the R&D intensive 
sectors of motor vehicles, computer, electronic and 
optical products, and pharmaceuticals whose share 

including  robots  and  equipment 

(34)  Productive investment is investment directed to machinery 
and  equipment, 
in 
information  and  communication  technologies.  It  also 
involves  intellectual  property  assets,  including  R&D  and 
other  intangible  assets,  while  it  excludes  investment  for 
construction purposes (De Galhau Report, 2015). 

(*) Inv. labour productivity: higher productivity growth is 
related to a more negative contribution to ULC growth. 
Source: Eurostat 

Investment* 

Investment  in  France  has weathered  the  global 
financial  crisis  markedly  well.  Since  2008, 
investment  has  been  broadly  stable  and  currently 
stands  close  to  its  pre-crisis  level,  as  opposed  to 
the  deep  downward  adjustment  observed  in  other 
large  economies,  including  Spain,  Italy  and  the 
euro  area  as  a  whole.  This  robust  investment 
performance  has  been  supported  by  both  private 
and public investment that amounted to about 18% 
and 3.5% of GDP respectively in 2015. Looking at 

43 

-4%-3%-2%-1%0%1%2%3%4%IndustryConstructionMarket servicesTotalIndustryConstructionMarket servicesTotalIndustryConstructionMarket servicesTotalIndustryConstructionMarket servicesTotalIndustryConstructionMarket servicesTotalFranceGermanyItalySpainEuro areaInv. labour productivityComp. per empl.Unit labour costs 
 
                                                           
4.4. Competitiveness 

Graph 4.4.10: Investment composition (% of value added) – whole economy 

Source: Eurostat 

in  the  total  value  added  of  the  economy  shows  a 
declining trend (European Commission, 2016c). 

to the 2016 European Commission Small Business 
Act report (European Commission, 2016g). 

While corporate investment is high, integration 
of  digital  technologies  by  businesses  remains 
low.  France  ranks  18th  among  EU  Member  States 
and is positioned below the EU average as regards 
the  degree  of  business  digitisation  and  firms’  use 
the 
of  e-commerce  activities,  according 
European  Commission  Digital  Economy  and 
Society  Index.  Although 
the  share  of  ICT 
specialists  in  total  employment  in  France  is 
comparable to the EU average (3.6% in 2015), this 
share  is  smaller  in  French  SMEs  compared  to  the 
EU average (14.5% as opposed to 20%), according 

to 

A  series  of  policy  measures  have  been  adopted 
to  support  productive  investment  by  firms. 
During  the  last  years  the  authorities  have  taken 
action to improve the business environment and to 
address  the  regulatory  bottlenecks  that  hinder 
investment  decisions  in  France  (Box  4.4.1).  In 
addition, 
to 
facilitate  financing  for  investors  have  been  put  in 
place  since  2015  in  the  context  of  the  French 
Investment  Plan.  The 
capital 
depreciation targeting equipment investment in the 
manufacturing 
(over-
amortisation  scheme)  has  attempted  to  boost  this 

incentives  and  measures 

exceptional 

particular 

sector 

fiscal 

in 

44 

7.08.09.010.011.012.013.09597990103050709111315Productive investmentEAGermanySpainFranceItaly0.02.04.06.08.010.012.09597990103050709111315Construction investment excl. dwellingsEAGermanySpainFranceItaly4.05.06.07.08.09.010.09597990103050709111315Machinery and equipmentEAGermanySpainFranceItaly1.02.03.04.05.06.09597990103050709111315Intellectual property productsEAGermanySpainFranceItaly 
 
4.4. Competitiveness 

tangible  and 

particular type of investment. This fiscal incentive 
has  already  shown  some  positive  results  and  its 
validity  has  been  extended  until  mid-April  2017. 
Meanwhile, the co-financing capacity of the public 
investment  bank  for 
intangible 
investment  projects  has  been  strengthened  with  a 
view  to  supporting  the  modernisation  of  French 
firms. Finally, access to equity for the financing of 
longer-term  projects  has  been  eased 
through 
measures to better link savings collected by private 
funds  (e.g.  pension  or  life  insurance  funds)  with 
the capital market. 

Business environment* 

performance, 

improved 
its 

Although  France  has 
its  overall 
business 
regulatory 
environment  continues  to  be  middle-ranking. 
According to the distance-to-frontier criterion used 
in World Bank surveys (35), since 2010 France has 
closed part  of the  gap with  the best  performers  in 
business  regulations.  The  World  Bank’s  2017 
Doing  Business  survey  ranks  France  29th  out  of 
190  economies  assessed,  one  position  down 
compared  to  last  year.  France  is  also  15th  among 
the  EU  Member  States.  The  2016-2017  Global 
Competitiveness  Report  by  the  World  Economic 
Forum  (WEF)  ranks  France  21st  out  of  138 
countries  assessed,  one  position  up  compared  to 
last 
the 
macroeconomic  environment  and  building  permit 
procedures. According to the WEF, the three most 
problematic  factors  for  doing  business  in  France 
labour 
remain,  as 
regulations, 
tax 
regulations. France is also in 115th place as regards 
the  burden  of  government  regulation.  Some  89 % 
of  the  French  SMEs  responding  to  a  2016 
Commission  Survey  find 
that  complexity  of 
administrative  procedures  is  a  problem  for  doing 
business  in  France  (EU  average:  62 %)  and  this 
score  has  fallen  by  six  percentage  points  since 
2013 (36). 

last  year, 
the  high 

tax  rates  and 

improvements 

restrictive 

given 

year, 

the 

the 

in 

Registering property, getting credit and paying 
taxes is more difficult or costly for businesses in 

(35)  The  distance  to  frontier  (DTF)  score  helps  assess  the 
absolute level of regulatory performance of a country over 
time with higher values indicating a better performance. It 
measures  the  distance  of  each  economy  to  the  best 
performance  observed  on  each  of  the  indicators  across  all 
economies in the Doing Business sample. 

(36)  European Commission, 2016g. 

France than in most other developed economies. 
France  fell  9  places  compared  to  last  year  for 
registering  property,  by 
the  World  Bank’s 
assessment.  While  economies  worldwide  have 
been making it easier for entrepreneurs to register 
and  transfer  property,  e.g.  by  introducing  time 
limits for procedures and by setting low fixed fees, 
transferring  property  more 
France  has  made 
expensive  by  increasing  the  property  transfer  tax 
rate  and  by  introducing  an  additional  tax  on 
businesses in Paris. Registering property in France 
takes  64  days  and  costs  7.3 %  of  the  property 
value. As regards access to credit, according to the 
World  Bank,  the  effectiveness  of  collateral  and 
bankruptcy laws is relatively low, while weak legal 
rights for borrowers and lenders together with poor 
sharing of credit information make access to credit 
more  difficult 
for  businesses.  Nevertheless, 
according  to  Commission  surveys,  French  SMEs’ 
access 
the  EU 
in 
average (37).  On  the  positive  side,  France  has 
improved  its  ranking  by  10  places  as  regards 
dealing with construction permits, by reducing the 
cost  of  obtaining  a  permit,  although  the  time 
(183  days 
relatively 
needed 
compared  to  around  60  in  the  UK  and  90  in 
Germany).  France  also  appears  first 
the 
worldwide classification as regards ease of trading 
a shipment of goods across borders. 

to  finance 

line  with 

remains 

long 

in 

is 

Although  trading  across  borders  is  relatively 
easy  and  cheap,  French  SMEs  participate  less 
than  other  European  SMEs  in  the  EU’s  Single 
Market (38).  Despite  the  low  cost  and  short  time 
needed in France to trade a shipment of goods, the 
percentage  of  French  SMEs  exporting  within  the 
EU (7.8 %) is relatively low and largely focuses on 
French-speaking  countries  such  as  Belgium  and 
Switzerland  (Douanes,  2015).  This  trend  can  be 
explained  by  a  number  of  factors,  including  the 
lesser  need  to  export  given  the  large  domestic 
the  relatively  smaller  proportion  of 
market, 
medium-sized firms, language and cultural factors, 
and  the  regulatory  environment  for  exporting 
firms. 

(37)  European Commission, 2016g. 
(38)  European Commission, 2016g. 

45 

 
                                                           
                                                           
4.4. Competitiveness 

46 

 Box 4.4.1: Investment challenges and reforms in FranceSection 1. Macroeconomic perspective Total investment in France (measured as gross fixed capital formation) proved to be fairly resilient to the global financial crisis. Construction investment has been maintained at relatively high levels, standing at 11.6% of GDP in 2015, above the euro area average. Equipment investment is slowly gaining ground supported by fiscal incentives for amortisation, while investment in machinery and metal products has remained broadly stable following the crisis. Favourable financing conditions overall and improved profit margins continue to support investment by corporates despite their high indebtedness. All investment components are expected to contribute in 2017 to the increase in the share of investment in GDP, with a slightly stronger role played by investment in equipment.  Section 2. Assessment of barriers to investment and ongoing reforms    Barriers to private investment in France are moderate overall (European Commission, 2015b). Some progress has been made in reducing the regulatory and administrative burden on firms through continued implementation of the simplification programme. Efforts to streamline employment protection legislation and to review wages and the wage setting framework have been stepped up, notably through the 2016 labour market reform. France has also made some progress in making taxation more business-friendly, by further reducing the labour tax wedge and by allowing for a gradual reduction in corporate income taxes. Efforts to remove barriers to activity in the services sectors have resumed. However, there has been limited progress overall in improving the financing of R&D&I, supporting the digitalisation of the economy and improving the regulatory framework of the energy sector. Main barriers to investment and priority actions underway 1. Among the main barriers to private investment, the regulatory environment remains a key aspect. Despite ongoing simplification efforts, firms are faced with a relatively heavy and complex regulatory framework while regulatory instability weighs on business perception (see Section 4.4). Regulatory bottlenecks in some network industries, notably in the energy and transport sectors, discourage investment in those sectors. Infrastructure investment faces administrative barriers such as lengthy authorisation procedures. The government has attempted to address these weaknesses, notably through the simplification programme. Among other things, the programme has eased authorisation requirements and building permits for renewable energy projects and for the deployment of broadband networks. 2. The level and complexity of the taxation system affects investment decisions. While efforts are being made to reduce the labour tax wedge and corporate income taxation, other taxes on production continue to increase, and the tax system remains complex (see section 4.1).  Regulatory/ administrative burdenCSRTaxationCSRPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&ICSRInsolvency frameworkBusiness services / Regulated professionsCSRCompetition and regulatory frameworkRetailEPL & framework for labour contracts CSRConstructionWages & wage settingCSRDigital Economy / TelecomCSREducation EnergyTransportLegendNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration/ Business environmentLabour market/ EducationSector specific regulationFinancial Sector / TaxationR&D&I 
 
 
 
 
 
4.4. Competitiveness 

is  ongoing.  A  new  batch  of  48  measures  was 
announced on 24 October 2016, bringing the total 
number  of  business-oriented  measures  close  to 
463.  Although  the  programme  is  progressing  as 
planned,  implementation  is  uneven  with  262 
business-oriented  measures  (63 %)  currently  in 
effect  and  a  significant  amount  of  measures 
adopted  before  2016  not  yet  implemented (43). 
Moreover,  the  programme  relies  on  a  small 
number  of  measures  for  most  of  its  effectiveness. 
While  the  savings  for  businesses  from  the  262 
measures  implemented  so  far  are  estimated  at 
around  EUR  5  billion  a  year (44),  nearly  EUR  3 
billion  of  this  should  stem  from  simplifying 
declaration procedures linked to salaries and other 
social  data  on  employees  (the  declaration  sociale 
nominative).  

New measures aim to support business creation 
and  entrepreneurship.  Among  other  things,  the 
law on transparency, anti-corruption and economic 
modernisation of 8 November 2016 eased training 
requirements  prior  to  starting  a  business  and 
removed  the  requirement  for  micro-entrepreneurs 
to  open  a  second bank  account  at  least  during  the 
first year of business. The same law made it easier 
for  growing  small  businesses  to  switch  from  sole 
trader  status  to  another  status,  notably  limited 
liability  sole  proprietorship  status  or  single-
member private company status. By contrast, since 
the  end  of  2015,  France  has  not  taken  new 
initiatives  to  soften  the  impact  of  size-related 
requirements  on  companies'  growth,  while  the 
effectiveness  of  the  reforms  that  were  adopted  in 
2015,  notably  the  Social  Dialogue  law  and  the 
2016  budget  law,  may  be  hampered  by  their 
limited  scope  and  the  temporary  nature  of  some 
measures. 

(43)  On  7  November  2016,  France  indicated  that  89  measures 
adopted  before  2016  were  not  in  force  yet.  According  to 
our  estimates,  this  represents  nearly  one  third  of  the 
measures adopted before 2016. 

(44)  Study  carried  out  by  Ernst  and  Young  on  the  basis  of  the 

French government's impact assessment analysis. 

still 

that 

Regulatory instability remains high and weighs 
on  business  perceptions.  Some  89 %  of  the 
French  SMEs 
fast-changing 
find 
legislation  is  a  problem  for  doing  business  in 
France  (EU  average:  64 %),  in  spite  of  the 
adoption  of  the  ‘regulation  freeze’  principle  in 
2013  according  to  which  the  introduction  of  any 
new  rule  should  be  followed  by  the  removal  or 
simplification  of  another  rule (39).  French  firms 
find  it  crucial  that  the  government  focuses  on  a 
smaller  number  of  changes,  i.e.  on  those  that 
indeed bring major simplifications, including at the 
level  of  state  agencies  and  at  local  and  regional 
levels (40). Impact assessments are a constitutional 
requirement 
laws  and  different 
requirements apply to decrees or by-laws. A 2015 
(41)  has  provided  guidance 
the 
circular 
ministries  on  how  to  assess  whether  a  regulation 
needs  to  be  subject  to  an  impact  assessment  and 
has  set  out  the  procedure  to  determine  if  the 
regulation must be subject to a SME panel.  

for  bill  of 

to 

to  affect 

Threshold  effects  continue 
the 
evolution  of  firms  with  implications  for  their 
economic  and  market  performance.  Increased 
social  and  fiscal  obligations  applicable  to  firms 
above  a  certain  number  of  employees  may 
discourage  them  from  expanding  to  a  size  that 
would allow them to export and innovate (Section 
4.5 on innovation). These threshold effects can, in 
turn,  affect  firms’  productivity,  competitiveness 
and 
to 
internationalisation.  Indeed,  according 
empirical  evidence,  the  10  and  50  employee 
thresholds 
for 
employers (42),  while  the  French  economy  is 
characterized  by  a  disproportionally  low  share  of 
companies  above  these  thresholds  implying  a  link 
(European 
between 
Commission, 2016c). 

two  phenomena 

particularly 

costly 

these 

are 

red 

tape 

The government has taken systematic action to 
businesses.  The 
reduce 
simplification  programme,  started  in  2013  to 
simplify 
and 
accounting rules (the ‘choc de simplification’) and 

administrative, 

firms' 

fiscal 

for 

(39)  Under the Order of 17 July 2013 relating to the regulation 
chill  (Circulaire  du  17  juillet  2013  relative  à  la  mise  en 
oeuvre du gel de la réglementation). 

(40)  European Commission, 2016g. 
(41)  Circular of the Prime minister of 12 October 2015. 
(42)  The  50  employee  threshold  is  estimated  to  represent  an 
aggregate  cost  of  between  0.5 %  and  4.5 %  of  GDP 
depending  on  the  degree  of  downward  wage  rigidity 
(Garicano et al., 2016). 

47 

 
                                                           
 
 
                                                           
4.5. SECTORAL POLICIES 

Innovation 

to 

The French national innovation system does not 
perform as well as Europe's innovation leaders. 
the  2016  European  Innovation 
According 
Scoreboard  (EIS),  France  ranks  11th  in  the  EU, 
and its performance has remained stable over time 
compared  to  the  best  performers:  its  combined 
performance  in  the  scoreboard  stood  at  86 %  of 
that of  the  innovation  leaders (45)  in 2015,  against 
85 %  in  2008.  France's  strengths  are  in  some 
enabling factors of innovation, such as the quality 
and  openness  of  research  systems (46)  and  skilled 
human  resources (47).  Factors  linked  to  company 
activities  and  outputs  show  a  contrasting  picture.  
SMEs  are  rather  good  at  introducing  innovations. 
However,  France  ranks below  the  EU  average  for 
intellectual  assets,  especially 
trademarks  and 
designs,  despite  high  investment  in  this  area 
(Subsection  investment,  Section  4.4).  Finally,  the 
performance is just above EU average for linkages 
(i.e.  cooperation  between  actors  in  the  innovation 
system) (Graph 4.5.1). 

Private  investment  in  R&D  is  just  above  EU 
average. At 1.5 % of GDP in 2015, France ranked 
8th in the EU as regards private R&D spending, an 
intermediate position between the EU average (1.3 
%), 
(1.8%). 
innovation 
Furthermore,  private  R&D  is  concentrated  in 
sectors  of  declining  economic  importance  as 
measured  by 
(European 
Commission, 2016c). 

their  value  added 

leaders 

and 

the 

In  addition,  private  R&D  comes  at  a  high  cost 
to public finances. France ranked 2nd in the EU in 
2015 in terms of public funding of business R&D 
the 
(Graph  4.5.2).  The  discrepancy  between 
amount  of  public  support,  the  output  in  terms  of 
private investment and its intermediate innovation 
performance  raises  questions  about  the  efficiency 
of  public  support  schemes.  In  particular,  the 
research  and  innovation  tax  credit  (CIR),  which 
amounted to EUR 5.1 billion of foregone revenue 
in 2015 (0.3 % of GDP, and roughly three quarters 
of public support  for private R&D) has  a positive 
impact on corporate R&D, but its impact in terms 

(45)  Sweden, Denmark, Finland, Germany and the Netherlands 
make  up  the  group  of  innovation  leaders  in  the  European 
Innovation Scoreboard. 

(46)  Measured by a high level of non-EU doctorate students, or 
a high number of international scientific co-publications 
(47)  Measured  by  the  high  share  of  the  population  with  upper 
secondary level education or completed tertiary education 

of innovation output has yet to be proven. Its real 
impact  may  be  to  help  firms  that  invest  in  R&D 
survive  better  than  those  that  do  not  (OECD, 
2014b). 

Graph 4.5.1:  Performance of France's innovation system - 
distance to EU innovation leaders and to EU 
average 

(1) a score of 0 indicates the lowest performance among all 
countries in the sample, whereas 1 indicates the frontier of 
best practice. 
Source: European Innovation Scoreboard (2016) 

There  is  an  increasing  dispersion  of  public 
resources  supporting  innovation.  Overall  public 
support  for  innovation  doubled  over  15  years  to 
0.5  %  of GDP  in  2014,  and the  number  of  public 
schemes  supporting  innovation  has  followed  a 
similar trend, increasing from 30 in 2000 to 62 in 
2015 (Pisani-Ferry, J. et al., 2016). Over the same 
period,  the  CIR  was  multiplied  by  more  than  9, 
suggesting  an  important  dispersion  of  remaining 
resources  for  other  public  support  schemes. 
Regions also promote their own initiatives, coming 
on top of the state-supported ones.  

for 

are 

challenging 

The  rising  number  of  publicly-supported 
structures 
overall 
consistency and coordination. Many structures to 
support  innovation  policy  have  been  created  in 
recent  years.  To  the  pre-existing  competitiveness 
clusters  (pôles  de  compétitivité),  and  Carnot 
for 
Institutes, 
the  Future 
programme 
d'Investissements 
d'Avenir) has added the societies for technological 
transfers  (SATT)  and  institutes  for  technological 
research  (IRT).  While  these  different  structures 
each  have  their  own  specificities,  they  contribute 

Investment 
(Programme 

the 

48 

0.00.20.40.60.8HumanresourcesResearchsystemsFinanceandsupportLinkages&entrepreneurshipFirminvestmentsIntellectualassetsInnovatorsEconomiceffectsFranceEUInnovation leaders 
 
                                                           
 
4.5. Sectoral policies 

the  EU).  However,  it  might  be  too  scattered  in 
small  entities  to  have  a  huge  economic  impact: 
although Paris counted more start-ups than London 
or Berlin in 2015 (Vilard, 2015), France only had 3 
'unicorns',  valued  at  EUR  6.7  bn,  whereas 
Germany had 4 and the UK 17, valued at EUR 18 
and  EUR  40.4  bn  respectively  (GP  Bullhound, 
2015).  While  France  has  put  in  place  many 
measures  targeted  at  small  innovative  businesses 
(such  as  the  tax  credit  for  innovation),  sometimes 
focussed  on  young  innovative  ones  (such  as  the 
Young  Innovative  Enterprises  tax  scheme),  the 
growth of small firms may still be hampered by the 
general  business  environment 
(section  5.4). 
Finally,  financial  capital  resources  to  support 
scaling-up  may  not  be  available  in  sufficient 
quantity: venture capital as a share of GDP is twice 
lower  than  in  the  UK  or  Sweden  (Ausilloux  V.; 
Gouardo C., 2017). 

Competition in service markets*  

to 

and 

and 

the  same  sectors 

food 
engineering 

Several  service  sectors  of  major  economic 
importance  in  France  are  characterised by  low 
competition  compared  to  other  service  sectors 
in  France  and 
in 
neighbouring countries. This is the case for retail, 
services,  health, 
accommodation 
activities, 
architectural 
administrative  and  service  support  activities,  and 
real 
cross-country 
Commission  study  that  compared  the  market 
performance of service sectors in France with that 
of  other  peer  economies  (DE,  IT,  ES,  UK) (49). 
Competition  in  these  sectors,  as  measured  by 
trends  in  market  concentration  and  profit  margins 
(mark-ups),  tends  to  be  lower  than  the  average 

according 

estate, 

to 

a 

(49)  European Commission (2017), forthcoming. This two-step 
screening  analysis  aims  at,  first,  assessing  the  market 
performance  of  sectors  within  France  taking  into  account 
their  economic  importance,  and,  second,  at  comparing  the 
performance  of  the  sectors  identified  with  that  of  its 
neighbours.  The  first  step  is  based  on  the  methodology 
approved  and  used  in  the  2009  Product  Market  Review. 
Market performance is captured by the level of competition 
(market  share  of  the  four  largest  firms,  total  number  of 
firms,  mark-ups),  integration  (trade  openness  and  number 
of  foreign  affiliates  over  total  number  of  firms),  and 
innovation (labour quality, ICT contribution to value added 
growth  and 
labour  productivity  growth).  Economic 
importance  is  proxied  by  value  added,  household  final 
consumption  and  investment  shares.  The  analysis  covers 
most  of  the  French  services  sectors  for  the  period  2010-
2014  (given  data  availability  constraints)  and  combines 
different  databases  (Eurostat,  EU  KLEMS,  SPI,  Orbis, 
World Input Output database). 

to  blurring  the  readability  of  the  system  for  firms 
and  overall  coordination  is  a  challenge  (Ekeland 
M.,  Landier  and  Tirole,  2016).  Public  support 
schemes and structures are regularly evaluated but 
it  is  not  clear  how  those  evaluations  are  used  to 
improve policies, at systemic level in particular. 

Graph 4.5.2:  Efficiency of public funding of private R&D 

Source: OECD, R&D Tax Incentive Indicators and Main 
Science and Technology Indicators 

Cooperation  and  transfers  of  competences  and 
results  between  public  research  and  companies 
is  suboptimal,  and  weighs  on  the  economic 
output  of  the  innovation  system.  France  lags 
behind  innovation  leaders  in  terms  of  public-
private  scientific  co-publications  –  around  40  per 
million  inhabitants  against  over  50  in  Germany 
and  above  60  in  the  Nordic  countries  (European 
Commission,  2016d).  On  the  other  hand,  private 
funding of public R&D is also low by international 
comparison  (Coordination 
interministérielle  de 
l'innovation  et  du  transfert,  2016).  Generally 
speaking,  universities  and  other  public  research 
organisations  are  weakly 
the 
innovation ecosystem. 

involved 

in 

Many  innovative  small  firms  are  created  in 
France,  but  they  have  difficulties  growing.  The 
innovative landscape is dynamic, as attested by the 
high  employment  in  fast-growing  firms  in  the 
innovative  sectors (48)  (22 %,  third  highest  rate  in 

(48)  Innovative  sectors  are  defined  as  those  having  high 
knowledge  intensity  -  share  of  employment  with  higher 
education  degree  larger  than  33%  -  and  innovation 
intensity. 

49 

BEFRIEHUATSIUKNLCZPTSEDKELESDEFIEEITPLROSKLTLVBGCYHRMTEU0.0%0.5%1.0%1.5%2.0%2.5%0.0%0.1%0.2%0.3%0.4%0.5%Total private  R&D expenditure (% of GDP, 2015)Government funding of business R&D, % of GDP (2014 or latest available) 
 
                                                           
                                                           
4.5. Sectoral policies 

level  in  Germany,  Italy,  Spain  and  the  UK. 
(Graph 4.5.3). 

Graph 4.5.3:  Competition per service sector and country 

(1) The vertical axis denotes competition levels. Data reflect 
2010-2014 averages. 
Source: European Commission 

The  relatively  low  level  of  competition  of 
French services is attributed to different sector-
specific  factors.  In  the  sector  of  retail  and,  to  a 
lesser  extent,  in  architectural  and  engineering 
activities, newly-established companies and SMEs 
appear  to  have  difficulty  growing.  This  is  shown 
by  the  lower  survival  rates  compared  to  the 
neighbouring  countries  (while  the  birth  and  churn 
rates  are  relatively  higher),  and  the  significantly 
wider gap between SMEs and larger firms in terms 
of  labour  productivity  growth.  In  health  and  in 
accommodation and food services, barriers to entry 
appear  to  play  a  role  given  the  lower  churn  rates 
and higher survival rates of French firms. Finally, 
although  legal  and  accounting  services  are  more 
dynamic  overall  in  France  compared  to  Italy, 
Germany  and  the  UK,  mark-ups  are  higher  and 
labour productivity growth for small firms is lower 
in  France,  implying  the  need  to  improve  the 
market  performance  of  these  business  services, 
notably  given  their  stronger  linkages  with  other 
economic sectors in France.  

and 

lawyers 

architects) 

agents, 
(European 
Commission,  2017b),  for  all  professions,  market 
competition  as  proxied  by  the  business  churn  (or 
turnover) rate is significantly lower in France than 
the  EU  average  (50).  With  the  exception  of  the 
construction  and  travel  agency  sectors,  business 
churn rates in these regulated professions are also 
the  overall  French 
to 
low  when  compared 
economy. According to the same study, regulatory 
restrictions on real estate agents, tourist guides and 
accountants  remain  higher  in  France  than  in  the 
rest  of  the  EU.  By  contrast,  restrictions  are  lower 
than  the  EU  average  for  civil  engineers,  patent 
agents and lawyers, while restrictions on architects 
are close to the EU average. 

Graph 4.5.4:  Regulatory restrictions, France and EU 

(1) For the profession of civil engineer the indicator for 
France measures the restrictiveness to carry the protected 
title 
Source: European Commission 

legal  professions  are  being 
A  number  of 
reformed.  The  Growth,  Activity  and  Equal 
Economic Opportunities Act (the ‘Macron law’) of 
6 August 2015 aimed to improve competition in a 
number of services sectors with a particular focus 
on  the  legal  professions.  Among  other  things,  the 
law  lifted  restrictions  applied  to  legal  corporate 
forms 
legal 
professions (51).  It  also  loosened  ownership  rules 
and joint practices for certain legal professions but 
also for accountants, architects and surveyors. For 
notaries,  the  law  reviewed  tariffs  and  established 
247  free  set-up  zones,  which  could  allow  1 650 
additional notaries to set-up offices during the next 

substantial  number  of 

for  a 

Market  competition  in  regulated  professions 
tends  to  be  lower  in  France  than  in  the  EU 
generally. According to a Commission assessment 
which  covered  seven  regulated  professions  across 
all  28  EU  Member  States  (real  estate  agents, 
tourist  guides,  accountants,  civil  engineers,  patent 

(50)  The  business  churn  rate  is  the  ratio  of  the  sum  of  newly 
established  and  closed  enterprises  to  the  total  number  of 
enterprises.    There  are  no  data  available  for  patent  agent 
related activities. 

(51)  Lawyers, lawyers before the supreme courts, notaries, court 
bailiffs,  legal  auctioneers,  insolvency  practitioners,  and 
court appointed receivers. 

50 

-2-1.5-1-0.500.511.5DEESFRITUK01234AccountantArchitectCivil engineerLawyerPatent agentReal estate agentTourist guideEUFR 
 
 
                                                           
4.5. Sectoral policies 

award  public  service  contracts  on  a  competitive 
basis for certain regional lines or sub-networks as 
from  2019.  On  the  other  hand,  there  is  no 
indication  that  France  plans  to  review  the  legal 
monopoly of the SNCF for regional passenger rail 
transport before the end of the transition period in 
2023. 

rules 

The taxi and private hire vehicle sectors are still 
characterised  by  restrictions.  Only  a  small 
number of new licences for taxis are issued every 
about  10  years,  while  the  private  hire  vehicle 
sector, which pertains to the market of pre-booked 
rides,  has  grown  rapidly  since  the  relaxation  of 
market  entry 
in  2009.  Nevertheless, 
following the adoption of sectorial legislation over 
the  last  three  years,  the  operation  of  private  hire 
vehicles  is  still  subject  to  restrictions,  such  as  the 
obligation to return to business premises after each 
ride unless the next ride is already booked. Among 
other things and in addition to the Thévenoud law 
of 2014 (54), a law affecting taxis and private hire 
vehicles was adopted on 29 December 2016 (55). It 
includes a revision of certain provisions applicable 
to  these  two  sectors  that  aims  to  make  the  use  of 
digital platforms more widespread, as well as some 
modifications 
the  provision  of 
transport services. While the impact of the law will 
also  depend  on  its  implementation,  it  imposes 
some  requirements  which  may  limit  the  provision 
of 
transport 
services. 

intermediation  and 

concerning 

reservation 

France is engaged in establishing the regulatory 
framework for collaborative economy activities 
introducing new requirements for collaborative 
platforms and related service providers. French 
use 
particularly 
consumers 
services. (56)  These 
collaborative 
activities  may  have  a  significant  potential  for 
growth  and  innovation.(57)  France  is  a  leader  as 
regards  start-up  creation  with  more  than  50 
collaborative  economy  organisations  currently 

economy 

keen 

are 

to 

(54)  Loi n° 2014-1104 du 1er octobre 2014 relative aux taxis et 

aux voitures de transport avec chauffeur. 

(55)  Loi  relative  à  la  régulation,  à  la  responsabilisation  et  à  la 
simplification dans le secteur du transport public particulier 
de personnes (Loi Grandguillaume). 

56)  Eurobarometer 2016. 
(57)  Together with the  US, France  is one of the world leaders, 
in  terms  of  size  and  variety  of  collaborative  economy 
activities (Pipame, 2015, p. 16). 

two years, although a decree adopted in November 
2016  allowed  established  notaries  operating  in 
professional  civil  partnerships  from  now  on  to 
open  several  offices.  (52)  Some  of  the  1  650 
openings  may  be  therefore  occupied  by  existing 
notaries. 

in  the 
Access  to  professions  and  services 
healthcare  sector  is  not  optimal.  While  the 
Healthcare  Act  of  26  January  2016  (Loi  Santé) 
allowed inter alia for an extension of the remit of 
certain professions that are restricted by law (such 
as midwives, and medical and dental assistants), it 
created  or  extended  reserved  activities  for  others 
(such  as  orthoptists  and  opticians).  The  overall 
impact of the law on health professions is therefore 
to  be  seen.  The  regulatory  framework  for  home-
care services was also reformed through the law of 
28  December  2015  on 
the  ageing  society. 
However,  the  role  of  local  authorities  will  be 
crucial to ensuring full implementation of the new 
common 
to  prevent  any 
in  order 
discrimination  between  existing  and  newly 
authorised  providers.  Meanwhile,  the  quota  on 
medical  students  (the  so-called  numerus  clausus) 
has  been  increased  by  11 %  for  2017,  with  478 
additional  places,  131  of  them  targeting  regions 
where there are fewer doctors. 

regime 

A  number  of  passenger  transport  services  are 
currently  being  reformed.  The  Macron  law 
established  a  regulator  for  all  land  transport 
(ARAFER)  and  opened  intercity  domestic  coach 
services to competition, which, combined with car-
sharing  services,  has  increased  the  range  of  long-
distance transport services in France. According to 
ARAFER,  as  of  30  September  2016,  2050  direct 
jobs  had  been  created  and  about  5.3  million 
passengers had been transported since the opening 
of the market in August 2015 (53). There are about 
1 310 commercial routes serving 208 French towns 
outside  of  a  public  initiative.  The  new  Public 
Service  Obligation  Regulation  under  the  fourth 
European  railway  package  is  expected  to  increase 
competition  in  the  domestic  rail  passenger market 
the  quality  of  services.  The 
and 
government  and  the  association of  French regions 
are  considering  setting  up  a  legal  framework  (loi 
d'expérimentation)  to  allow  regional  authorities  to 

improve 

(52)  Decree 2016-1509 of 9 November 2016. 
(53)  ARAFER,  Analyse  du  marché  libéralisé  des  services 

interurbains par autocar, Bilan du 3e trimestre 2016 

51 

 
                                                           
                                                           
4.5. Sectoral policies 

the  regulatory  and 

France  is  making  efforts  to  develop  a  more 
integrated  framework  for  addressing  the  2020 
climate  and  energy  targets  and  other  longer-
term  objectives.  The  renewable  energy  share  in 
2014 (14.3 %) is in line with the interim trajectory 
of 14.1% for 2013/2014, but well below the 2014 
target  of  16 %  set  by 
the  French  National 
Renewable  Energy  Plan  Regarding  energy 
efficiency, 
tax  measures 
adopted  in  2014  have  not  yet  showed  results. 
Energy  intensity  in  the  transport,  industry  and 
buildings  sectors  in  France  is  below  the  EU 
average  and  has  been  decreasing  (-0.7 %/year) 
over  the  last  10  years,  although  it  remains  above 
the levels of Germany, Italy and the UK. However, 
France would need to reduce its primary and final 
energy consumption further  to  reach  its  ambitious 
indicative  national  2020 
targets.  Moreover, 
following  the  adoption  of  the  Energy  Transition 
Act on 17 August 2015, additional measures would 
allow  for  more  energy  savings  (e.g.  in  buildings) 
and  support  investment  in  renewable  energy  in 
France  partly  with  a  view  to  the  objective  of  
reducing  nuclear  electricity's  share  to  50 %  by 
2025.  As  regards  greenhouse  gas  emissions, 
France  shows  good  results  in  terms  of  emission 
reductions  in  power  generation,  but  results  have 
not  yet  materialised 
in  agriculture,  which 
represents  the  second  largest  source  of  emissions, 
but also in industry and transport. 

Regional cooperation and interconnections have 
improved.  Overall,  France  is  well  interconnected 
with  its  neighbours.  At  10.4 %  in  2015,  the 
interconnection  capacity  for  electricity  stands 
above  the  Energy  Union  2020  target  (10 %).  In 
gas,  output  capacity  has  doubled  and  entry 
capacity has increased by 50 % in the last 10 years. 
The  upcoming  liquefied  natural  gas  terminal  in 
Dunkirk  will  also  improve  gas  interconnection 
with Belgium.  

founded in France (58).At the same time, France is 
engaged  in  establishing  a  specific  regulatory 
framework  for  collaborative  platforms  and  related 
service  providers. (59)  The  rules  proposed  often 
liability  of 
increase 
and 
collaborative  economy  actors, 
in  particular 
collaborative platforms, with regard to the services 
offered by related providers. 

the  obligations 

Energy policy 

Energy  sector  reforms  have  aimed  to  liberalise 
wholesale  and  retail  markets.  By  progressively 
phasing  out  regulated  prices  for  final  consumers, 
France  can  help  decrease  market  concentration, 
encourage  competition  in  the  energy  sector  and 
provide incentives to private consumers in terms of 
energy  efficiency.  In  recent  years,  France  has 
progressively phased out regulated prices for large 
commercial  customers.  Gas  prices  increased  by 
4 % and stood 2 % above the EU average in 2015. 
Electricity wholesale prices in France remain well 
below the EU average thanks to the low marginal 
costs of nuclear power generation (4 % below the 
EU  average  in  2015),  although  since  2008  this 
price differential has narrowed substantially. These 
prices remain higher than in Germany (by 22% in 
2015).  Meanwhile,  real  unit  energy  costs  have 
increased and are higher in France than in the EU, 
reflecting not only the French industry mix and the 
increase  in  real  energy  prices  observed  over  the 
past  10  years  but  also  the  slow  improvements  in 
energy  intensity  in  the  manufacturing  sector. 
Undertaking  new  investments  in  generation  on  a 
pure  market  basis  is  a  challenge  in  the  current 
investment  climate  of  low  wholesale  electricity 
prices and energy demand. 

(58)  Pricewaterhouse  Coopers  for  the  European  Commission 

(2016), p. 8. 

information 

requirements  on 

(59)  The  2016  budget  law  and  the  related  rectifying  law 
intermediary 
imposed 
platforms  vis-à-vis  services  providers  concerning  their 
social  and  fiscal  obligations,  and  vis-à-vis  the  fiscal 
administration  concerning  the  amount  of  revenues  paid  to 
the  service  providers;  the  ‘El-Khomri’  law  provided  for 
certain  rights  for  platform  workers,  for  instance  regarding 
work  accidents;  the  "loi  Lemaire"  regulated  specific 
aspects  of  the  collaborative  economy,  in  particular  in  the 
accommodation sector; the 2017 draft law on financing of 
social welfare obliged persons who are active in short-term 
rental activities to declare themselves as self-employed and 
hence pay social security contributions once they reach an 
annual  turnover  threshold.  These  measures  add  to  the 
reform of taxis and vehicles with drivers. 

52 

 
                                                           
 
 
 
 
 
4.5. Sectoral policies 

53 

Box 4.5.1: Indebtedness of the State-owned network industries and implications for investmentThe reported net debts of some State-owned energy companies and of the railway network operator are reaching high levels (1). The net debt of the railway infrastructure manager (SNCF Réseau) rose to EUR 39 billion by the end of 2015, more than doubling since the first railway reform in France in 1997, due mainly to significant investment in high-speed lines and maintenance, and to operational inefficiencies. At EUR 37 billion, the net debt of the French electric utility company EdF has also increased by a factor of 2.3 since 2007, in particular to support strong cross-border expansion of the company’s activity, but also to support an ambitious investment programme and a sustained dividend policy. The net debt of AREVA, the French nuclear energy company, was EUR 6.3 billion at the end of 2015. This indebtedness comes at a time of challenging market developments and greater need for productive investment. The average age of the railway network is about 32 years in France against 17 in Germany. The speed limit had to be reduced in 2015 for 600 km of railways due to safety reasons, bringing the total distance of the network subject to speed limits due to ageing to 4 000 km. EdF is confronted with structural changes in electricity markets, especially with a sharp fall in wholesale electricity prices in the past 5 years in Europe. AREVA is facing a market downturn following the Fukushima nuclear accident and a series of investment decisions with negative legal and economic implications. Coupled with the companies’ high indebtedness, these adverse market developments accentuate the constraints on investment in maintenance and growth.   The financial situation of these state-owned companies represents a challenge for financing the necessary investments. EdF is expected to invest about EUR 10-15 billion per year for the next 10 years mostly across the EU to maintain, modernise and develop the company’s productive assets. In the case of the SNCF Réseau, investment needs are projected at EUR 4-5 billion per year over the same period and broadly involve projects to renovate and expand the existing railway network. Investment in AREVA’s new core business on nuclear fuel cycle has fallen from an annual average of EUR 1.3 billion in the period 2012-2014 to EUR 0.6 billion in 2015, reflecting the company’s ongoing restructuring. Investment is expected to remain broadly at current levels for 2017-2020. Without healthy balance sheets these investment needs will not be met or will face delays with consequences for other sectors of the economy. The French State is responding with a mix of capital increases and structural reforms, but the plans are subject to uncertainties and delays. The key measures of the 2014 railway sector reform, in particular, to manage SNCF Réseau's indebtedness are being finalised. The multi-annual performance contract with the State was approved on 20 December 2016 by its Board of Directors, while ARAFER, the French transport regulator issued its opinion on the implementing decree for the investment prudential rule on 7 December 2016. The State’s contribution to strengthening EdF will involve subscribing up to EUR 3 billion in a EUR 4 billion capital increase decided by EdF and the agreement to receive dividends for the fiscal years 2016 and 2017 in shares. Pushed by an unsustainable balance sheet and increasing global competition, AREVA has started a complete restructuring of its activities. The restructuring plan, formally investigated and cleared by the Commission under EU State aid rules, is a complex financing and industrial operation. Among other things, it aims at refocusing the company’s core business on the nuclear fuel cycle by transferring these activities to the New AREVA Holding (NewCo).                                                            (1) The net debt (or net financial debt) corresponds to the liabilities and debts of a company minus its cash and other similar liquid assets.  
 
 
 
 
 
ANNEX A 

Overview Table 

Commitments 

2016 Country-specific recommendations (CSRs) 

CSR 1: Ensure a durable correction of the excessive 
deficit  by  2017  by  taking  the  required  structural 
measures  and  by  using  all  windfall  gains  for  deficit 
and  debt  reduction.  Specify  the  expenditure  cuts 
planned  for  the  coming  years  and  step  up  efforts  to 
increase  the  amount  of  savings  generated  by  the 
spending  reviews,  including  on  local  government 
spending, by the end of 2016. Reinforce independent 
public  policy  evaluations 
identify 
efficiency  gains  across  all  sub-sectors  of  general 
government. 

in  order 

to 

and  debt 

  Ensure  a  durable  correction  of  the  excessive 
deficit  by  2017  by  taking  the  required  structural 
measures  and  by  using  all  windfall  gains  for 
deficit 
the 
expenditure  cuts  planned  for  the  coming  years 
and  step  up  efforts  to  increase  the  amount  of 
savings  generated  by 
the  spending  reviews, 
including  on  local  government  spending,  by  the 
end of 2016. 

reduction.  Specify 

Summary assessment (60) 

limited  progress 

France  has  made 
in 
addressing  CSR  1  (this  overall  assessment  of 
CSR  1  does  not  include  an  assessment  of 
compliance  with  the  Stability  and  Growth 
Pact): 

  The  compliance  assessment  with 

the 
Stability and Growth Pact will be included 
in spring when final data for 2016 will be 
available. 

  Reinforce  independent  public  policy  evaluations 
in order to identify efficiency gains across all sub-
sectors of general government. 

  Limited  progress  has  been  made 

in 
reinforcing  the  identification  of  savings 
and  efficiency  gains  generated  by  the 
spending 
reviews  and  public  policy 
evaluations.  The  savings  made  following 

(60)  The following categories are used to assess progress in implementing the 2016 country-specific recommendations: 
No progress: The Member State has not credibly announced or adopted any measure to address the CSR. Below a number of non-
exhaustive  typical  situations  that  could  be  covered  under  this,  to  be  interpreted  on  a  case  by  case  basis  taking  into  account 
country-specific conditions: 

•  no  legal,  administrative,  or  budgetary  measure  has  been  announced  in  the  National  Reform  Programme  or  in  other  official 
communication  to  the  national  Parliament  /  relevant  parliamentary  committees,  the  European  Commission,  or  announced  in 
public (e.g. in a press statement, information on government's website); 
• no non-legislative act has been presented by the governing or legislator body; 
•  the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study  group  to 
analyse possible measures that would need to be taken (unless the CSR explicitly asks for orientations or exploratory actions), 
while clearly-specified measure(s) to address the CSR has not been proposed. 

Limited progress: The Member State has: 
• announced certain measures but these only address the CSR to a limited extent; 
and/or 
• presented legislative acts in the governing or legislator body but these have  not been adopted yet and substantial non-legislative 

further work is needed before the CSR will be implemented; 

• presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the CSR. 
Some progress: The Member State has adopted measures that partly address the CSR; 
and/or 
the Member State has adopted measures that address the CSR, but a fair amount of work is still needed to fully address the CSR as 
only  a  few  of  the  adopted  measures  have  been  implemented.  For  instance:  adopted  by  national  parliament;  by  ministerial 
decision; but no implementing decisions are in place. 

Substantial progress: The Member State has adopted measures that go a long way in addressing the CSR and most of which have 

been implemented. 

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

54 

 
 
 
 
 
 
 
 
 
 
                                                           
A. Overview Table 

the spending reviews in the PLF 2017 total 
EUR  400  million,  which  is    a  small 
the 
amount  given 
structural  efforts 
the  second  wave  of 
required.  Also, 
spending  reviews  has  not  resulted  in  any 
proposed  savings.  A  number  of  further 
public  policy  evaluations  were  launched 
and a meta-evaluation is ongoing. 

France  has  made  substantial  progress  in 
addressing CSR 2: 

under 

solidarity 

  Substantial  progress  has  been  made  in 
ensuring  that  labour  cost  reductions  are 
sustained.  The  second phase of reductions 
in employers’ social security contributions 
planned 
and 
the 
responsibility  pact  started  in  April  2016, 
after the first phase introduced in 2015. In 
addition, the government has increased the 
tax 
and 
employment (CICE) from 6 % to 7 %. The 
programme 
2016 
announced 
the  CICE  would  be 
transformed  into  permanent  reductions  in 
employers’ social security contributions by 
2018,  but  no  details  are  available  at  the 
moment. 

national 
that 

competitiveness 

reform 

credit 

for 

job 

  Some progress has been made in ensuring 
that  changes  in  the  minimum  wage  are 
consistent  with 
and 
competitiveness.  The  minimum  wage 
followed  its  indexation  rule,  leading  to  a 
0.6 %  increase  on  1  January  2016.  No 
intent to review the indexation mechanism 
has been expressed by the government. 

creation 

  Substantial  progress  has  been  made  in 
reforming  the  labour  law.  The  El  Khomri 
law  on 
labour,  social  dialogue  and 
professional pathways was adopted in July 
2016. However, its final effect will depend 
on  its  full  implementation  and  on  social 
partners taking ownership of the flexibility 
the  law  offers.  The  reform  of  Labour 

CSR  2:  Ensure  that  the  labour  cost  reductions  are 
sustained  and  that  minimum  wage  developments  are 
consistent  with  job  creation  and  competitiveness. 
Reform the labour law to provide more incentives for 
employers to hire on open-ended contracts. 

  Ensure 

that 

the 

labour  cost  reductions  are 

sustained 

  and 

that  minimum  wage  developments  are 

consistent with job creation and competitiveness. 

  Reform the labour law to provide more incentives 
for employers to hire on open-ended contracts. 

55 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

Courts introduced by the 2015 Macron law 
was  completed  with 
in 
November 2016, of a decree reviewing the 
unjustified 
ceilings 
indicative 
individual dismissals. 

the  adoption, 

for 

France  has  made 
addressing CSR 3: 

limited  progress 

in 

  Some  progress  has  been  made 

the 

reform 

in 
improving the links between the education 
sector  and 
labour  market.  The 
implementation  of  the  2014  vocational 
training 
ongoing.  
Apprenticeship  figures  stopped  decreasing 
in  2015.  The  El  Khomri  labour  law 
introduces a new personal activity account 
(CPA), entering into force in January 2017. 
It mostly reinforces training rights for non-
qualified active workers. 

is 

CSR  3:  Improve  the  links  between  the  education 
sector  and  the  labour  market,  in  particular  by 
reforming  apprenticeships  and  vocational  training, 
with  emphasis  on  the  low-skilled.  By  the  end  of 
2016,  take  action  to  reform  the  unemployment 
benefit  system  in  order  to  bring  the  system  back  to 
to  provide  more 
budgetary  sustainability  and 
incentives to return to work. 

 

Improve  the  links  between  the  education  sector 
and the labour market, in particular by reforming 
apprenticeships  and  vocational  training,  with 
emphasis on the low-skilled. 

  By  the  end  of  2016,  take  action  to  reform  the 
unemployment  benefit  system  in  order  to  bring 
the system back to budgetary sustainability and to 
provide more incentives to return to work. 

CSR  4:  Remove  barriers  to  activity  in  the  services 
sector, in particular in business services and regulated 
professions.  Take  steps  to  simplify  and  improve  the 
efficiency  of  innovation  policy  schemes.  By  the  end 
of  2016,  further  reform  the  size-related  criteria  in 
regulations  that  impede  companies’  growth  and 
continue to simplify companies’ administrative, fiscal 
and  accounting  rules  by  pursuing  the  simplification 
programme. 

failed 

  No  progress  has  been  made  in  reforming 
the  unemployment  benefit  system.  Social 
partners 
to  agree  on  a  new 
unemployment  benefit  convention  in  July, 
leading to an extension of the current 2014 
convention.  The  timeline  for  adopting  a 
reform  of 
the  unemployment  benefit 
system is not clear yet. 

  France  has  made  some  progress 

in 

addressing CSR 4: 

  Remove barriers to activity in the services sector, 
in  particular  in  business  services  and  regulated 

  Some  progress  has  been  made  regarding 
the  removal  of  barriers  to  activity  in  the 
through  sectoral 
regulated  professions 

56 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
professions. 

  Take steps to simplify and improve the efficiency 

of innovation policy schemes. 

A. Overview Table 

the 

services), 

secondary 

legislation  needed 

legislation, notably the Loi Macron and the 
Loi  Santé.  France  has  adopted  almost  all 
the 
to 
implement  provisions  on  liberalisation  of 
professions 
that  were  not  directly 
applicable.  In  other  fields  where  reforms 
of the service sector were adopted in 2015 
legal 
(e.g.  home-care 
framework  was  completed  in  2016  and 
awaits implementation by local authorities. 
However,  the  ambition  of  measures  to 
regulated 
increase 
initially 
professions 
announced,  mainly  because  of 
the 
implementation  measures  (for  instance,  as 
regards  notaries).  Some  steps  have  also 
been  taken  to  introduce  competition  in 
regional 
for 
services 
transport 
passengers on an experimental basis. 

competition 
lower 

in 
than 

rail 

is 

  Limited  progress  has  been  made 

to 

clear  action 

to 
simplify  and  improve  the  efficiency  of 
innovation  policy  schemes.  While  no 
recent measures have been adopted in this 
area, 
systematically 
evaluate 
innovation  policy  has  been 
promoted in recent year(s), in particular by 
the  National  Commission 
the 
Evaluation of Innovation Policies  together 
with  France  Stratégie.  These  efforts 
individual 
include 
schemes  (e.g. 
the 
efficiency  of  the  innovation  policy  as  a 
whole.  How  these  evaluations  will  be 
translated into policy practice is still to be 
seen. 

the  CIR),  and  of 

the  evaluation  of 

for 

  By  the  end  of  2016,  further  reform  the  size-
impede 

regulations 

that 

in 

related  criteria 
companies' growth 

  and 

continue 

companies' 
administrative,  fiscal  and  accounting  rules  by 
pursuing the simplification programme. 

simplify 

to 

57 

  No  progress  to  reform  the  size-related 
criteria  in  social  and  tax  legislation  has 
been made, as no new measures have been 
adopted in this area since the end of 2015. 

  Some progress has been made to simplify 
fiscal  and 
companies’  administrative, 
accounting 
simplification 
programme  is  ongoing  and  encompasses 

rules.  The 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

new  measures,  but  its  implementation  is 
slow.  The  ‘Sapin  II  law’  makes  it  easier 
for certain small companies to switch legal 
status, while it facilitates business creation 
by  easing  training  requirements  prior  to 
starting  a  business  and  by  removing  the 
requirement  for  micro-entrepreneurs 
to 
open a second bank account at least during 
the first year of business. 

France  has  made 
addressing CSR 5: 

limited  progress 

in 

  Limited  progress  has  been  made 

in 
reducing  taxes  on  production  and  the 
corporate  income.  The  last  tranche  of  the 
turnover tax (C3S) has not been abolished 
and still weighs on 20 000 businesses. The 
statutory rate of corporate income tax will 
only be reduced to 28 % in 2017 for SMEs 
up to EUR 75 000 of profits. The objective 
of setting this rate at 28 % across the board 
by  2020  still  stands.  No  progress  on 
broadening  the  tax  base  on  consumption, 
as  the  2017  finance  law  does  not  remove 
or limit the use of reduced rates on VAT. 

tax 
reform 
tax  has  been 

  Some  progress  has  been  made 
the 
tax 

in 
system.  The 
modernising 
for  personal 
withholding 
income 
adopted  by 
Parliament and will be introduced by 2018. 
However, tax expenditures keep increasing 
in number and in value and have exceeded 
the  2014-2019 
the 
in 
In 
framework. 
multiannual  budgetary 
2017,  14  new  tax  expenditures  will  be 
introduced  while  only  4  are 
to  be 
suppressed  and  5  come  to  an  end.  The 
removal  of  taxes  yielding  little  or  no 
revenue is progressing at a very slow pace.  

ceiling 

set 

the  corporate 

CSR 5: Take action to reduce the taxes on production 
and 
income  statutory  rate  while 
broadening the tax base on consumption, in particular 
as 
tax 
expenditures,  remove  taxes  that  are  yielding  little  or 
no  revenue  and  adopt  the  withholding  personal 
income tax reform by the end of 2016. 

regards  VAT.  Remove 

inefficient 

  Take action to reduce the taxes on production and 
the  corporate 
rate  while 
broadening  the  tax  base  on  consumption,  in 
particular as regards VAT. 

income  statutory 

  Remove  inefficient  tax  expenditures,  remove 
taxes  that  are  yielding  little  or  no  revenue  and 
adopt the withholding personal income tax reform 
by the end of 2016. 

58 

 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

Europe 2020 (national targets and progress) 

Employment rate (20-64): 

75 %. 

R&D: 

3.0 % of GDP. 

Greenhouse gas emissions: 

-14 %, compared to 2005 emissions in the sectors not 
covered by the Emissions Trading Scheme (ETS). 

Renewable energy: 

23 %, with a share of renewable energy in all modes 
of transport equal to 10 %. 

59 

The employment rate for workers aged 20-64 
was 69.5 % in 2015, a 0.2 pps. rise since 2014. 
This  rise  continued  in  the  first  half  of  2016, 
with 
in 
rate 
metropolitan France in the second quarter.  

employment 

70.5 % 

a 

this 

Signs  of  improvement  in  job  creation  have 
been  seen  since  the  second  half  of  2015. 
Should 
they  could 
trend  accelerate 
contribute  to  strengthening  the  employment 
rate. However, the 75 % target remains out of 
reach  at  this  stage  and  could  require  further 
job-rich economic impetus. 

Although  there  has  been  some  progress  in 
recent years, France is not on track to meet its 
target of spending 3% GDP on R&D by 2020. 

R&D intensity in 2015 was at 2.23 %, up from 
2.02  %  in  2007,  with  an  average  annual 
growth rate of 1.6 % in the period 2007-2015.  

-  Public  R&D  intensity  has  been  fairly  stable 
over  time,  slightly  decreasing  to  0.74%  GDP 
in 2015 from 0.77% in 2010. 

-  Private  R&D  intensity  has  seen  a  slow  but 
steady  increase  since  2008,  and  it  stood  at 
1.45 % GDP in 2015. 

Based  on  the  latest  national  projections  and 
taking  into  account  existing  measures,  non-
ETS  emissions  will  fall  by  18 %  between 
2005  and  2020.  The  -14 %  target  is  thus 
expected  to  be  met,  by  a  margin  of  less  than 
five percentage points. 

The preliminary estimates show the change in 
non-ETS  greenhouse  gas  emissions  between 
2005 and 2014 was -17 %. The 2014 target for 
non-ETS emissions was achieved. 

With  a  renewable  energy  share  of  14.3  %  in 
2014,  which  is  slightly  above  its  indicative 
interim target of 14.1 % for 2013/2014, France 
could reach its target for 2020 provided it taps 
into its renewable energy potential.  

However, the renewable energy share remains 
below  the  16%  target  set  in  its  National 

 
A. Overview Table 

Renewable Energy Plan. Increased efforts are 
therefore  needed,  in  particular  in  the  heating 
and  cooling 
in  electricity. 
sector  and 
Renewable  energy  developments  will  also 
need  to  be  significant  in  the  medium  term  to 
comply  with  the  ambitious  objectives  of  the 
Energy Transition Act.  

primary 

increased 

in  2015.  Final 

France 
energy 
its 
consumption  from  234.76  Mtoe  in  2014  to 
239.45  Mtoe 
energy 
consumption also increased from 140.51 Mtoe 
in  2014  to  144.3  Mtoe  in  2015.  Although 
France  has  reduced  the  gap  towards  its 
indicative national 2020 targets, it would need 
to  reduce 
its  primary  and  final  energy 
consumption  further  in  order  to  reach  these 
targets.  

The French early school leaving rate increased 
slightly from 9.0 % in 2014 to 9.2 % in 2015, 
remaining under the Europe 2020 target. 

Despite an early school leaving rate below the 
EU  average,  significant  regional  disparities 
remain. There are still too many young people, 
mainly  among 
immigrant 
background, who leave education with at most 
a  lower  secondary  level  diploma,  while  the 
labour  market  prospects  of  this  group  have 
significantly deteriorated. 

those  with  an 

The  French  tertiary  education  attainment  rate 
for  the  population  aged 30-34  years  was 45% 
in  2015  with  women  outperforming  men 
(49.6 % against 40.3 %).  

The  percentage  of  the  total  population  at  risk 
of poverty or social exclusion fell significantly 
decrease between 2014 and 2015, from 18.5 % 
to  17.7 %,  which  also  led  to  a  fall  in  the 
number  of  people  at  risk  of  poverty  or  social 
exclusion  standing  to  11 045,  just  below  the 
2008 reference figure. 

As  for  other  Member  States, 
objective still remains out of reach. 

the  2020 

Energy efficiency: 

219.9  Mtoe  in  primary  energy  consumption  and 
131.4 Mtoe in final energy consumption.  

Early school leaving: 

9.5 %. 

Tertiary education: 

50 % of the population aged 17-33 years old. 

Target  for  reducing  the  number  of  people  at  risk  of 
poverty or social exclusion: 

- 1 900 000 in cumulative terms since 2008. 

60 

 
 
ANNEX B 

MIP Scoreboard 

Table B.1: 

The MIP scoreboard for France 

(1) Figures highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism 
Report. For REER and ULC, the first threshold applies to euro area Member States. 
Flags: b: break in time series. p: provisional. 
Source: European Commission 

61 

Thresholds201020112012201320142015Current account balance, (% of GDP) 3 year average-4%/6%-0.9-0.9-1.0-1.0-1.1-0.7-35%-9.3-8.7-12.8-16.6-16.9-16.4Real effective exchange rate - 42 trading partners, HICP deflator3 years % change±5% & ±11% -2.2-4.4-7.8-2.3-1.3-2.7Export market share - % of world exports5 years % change-6%-17.2-15.1-18.0-14.3-14.1-5.4Nominal unit labour cost index (2010=100)3 years % change9% & 12% 7.55.54.44.64.6p2.5p6%3.63.9-1.9-2.6-1.7-1.314%4.66.44.42.13.04.4133%131.8135.3138.5137.7142.4144.360%81.685.289.592.395.396.2Unemployment rate3 year average10%8.69.29.49.810.110.316.5%3.36.71.20.44.21.8-0.2%0.60.20.40.81.30.80.5%0.51.00.70.50.60.62%3.83.70.81.61.60.3External imbalances and competitivenessNet international investment position (% of GDP)Internal imbalancesDeflated house prices (% y-o-y change)Private sector credit flow as % of GDP, consolidatedPrivate sector debt as % of GDP, consolidatedGeneral government sector debt as % of GDPTotal financial sector liabilities (% y-o-y change)New employment indicatorsActivity rate - % of total population aged 15-64 (3 years change in p.p)Long-term unemployment rate - % of active population aged 15-74 (3 years change in p.p)Youth unemployment rate - % of active population aged 15-24 (3 years change in p.p) 
 
 
 
 
 
ANNEX C 

Standard Tables 

Table C.1: 

Financial market indicators 

(1) Latest data Q2 2016. 
(2) Quarterly values are not annualised. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

62 

201120122013201420152016Total assets of the banking sector (% of GDP)407.8387.0372.6382.1373.7390.5Share of assets of the five largest banks (% of total assets)48.344.646.747.647.2-Foreign ownership of banking system (% of total assets)9.610.48.38.57.4-Financial soundness indicators:1)              - non-performing loans (% of total loans)4.64.54.63.63.53.4              - capital adequacy ratio (%)12.214.015.015.216.416.7              - return on equity (%)2)5.63.46.04.46.83.7Bank loans to the private sector (year-on-year % change)2.42.00.90.52.04.7Lending for house purchase (year-on-year % change)6.12.83.6-2.83.24.6Loan to deposit ratio113.4111.2107.8106.7102.7104.2Central Bank liquidity as % of liabilities4.44.62.82.32.31.8Private debt (% of GDP)135.3138.5137.7142.4144.3-Gross external debt (% of GDP)1) - public50.554.657.262.760.862.7    - private52.651.749.753.054.655.2Long-term interest rate spread versus Bund (basis points)*71.2104.263.450.334.736.5Credit default swap spreads for sovereign securities (5-year)*94.985.738.931.024.422.7 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Labour market and social indicators 

(1) The unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within 2 weeks. 
(2) Long-term unemployed are people who have been unemployed for at least 12 months. 
(3) Not in education employment or training. 
(4) Average of first three quarters of 2016. Data for total unemployment and youth unemployment rates are seasonally 
adjusted. 
Source: European Commission (EU Labour Force Survey) 

63 

201120122013201420152016 4Employment rate(% of population aged 20-64)69.269.469.569.369.570.0Employment growth (% change from previous year)0.80.30.30.50.50.7Employment rate of women(% of female population aged 20-64)64.765.165.565.666.066.4Employment rate of men (% of male population aged 20-64)74.073.973.773.273.273.8Employment rate of older workers (% of population aged 55-64)41.444.545.646.948.749.7Part-time employment (% of total employment, aged 15-64):::18.618.418.3Fixed-term employment (% of employees with a fixed term contract, aged 15-64)15.315.215.315.316.016.2Transitions from temporary to permanent employment11.610.911.17.910.9:Unemployment rate1 (% active population, age group 15-74)9.29.810.310.310.410.1Long-term unemployment rate2 (% of labour force)3.63.74.04.24.34.3Youth unemployment rate (% active population aged 15-24)22.724.424.924.224.724.9Youth NEET3 rate (% of population aged 15-24)12.312.511.211.412.0:Early leavers from education and training (% of pop. aged 18-24 with at most lower sec. educ. and not in further education or training)12.311.89.79.09.2:Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)43.143.344.043.745.0:Formal childcare (30 hours or over; % of population aged less than 3 years)26.023.026.026.0:: 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market indicators (cont.) 

(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty and/or suffering from severe 
material deprivation and/or living in households with zero or very low work intensity. 
(2) At-risk-of-poverty rate: proportion of people with an equivalised disposable income below 60 % of the national equivalised 
median income. 
(3) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone. 
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months. 
(5) For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices (HICP) = 100 in 2006 
(2007 survey refers to 2006 incomes) 
Source: For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC 

64 

Expenditure on social protection benefits (% of GDP)201020112012201320142015Sickness/healthcare8.98.89.09.09.2:Disability2.02.02.12.12.1:Old age and survivors13.914.014.314.514.6:Family/children2.52.52.52.52.5:Unemployment1.91.92.02.02.0:Housing0.80.80.80.80.8:Social exclusion n.e.c.0.90.90.90.90.9:Total30.930.831.531.932.2:of which: means-tested benefits3.63.53.63.73.7:Social inclusion indicators201020112012201320142015People at risk of poverty or social exclusion1 (% of total population)19.219.319.118.118.517.7Children at risk of poverty or social exclusion  (% of people aged 0-17)22.923.023.220.821.621.2At-risk-of-poverty  rate2 (% of total population)13.314.014.113.713.313.6Severe material deprivation rate3  (% of total population)5.85.25.34.94.84.5Proportion of people living in low work intensity households4 (% of people aged 0-59)9.99.48.48.19.68.6In-work at-risk-of-poverty rate (% of persons employed)6.57.68.07.88.07.5Impact of social transfers (excluding pensions) on reducing poverty46.643.340.843.944.643.1Poverty thresholds, expressed in national currency at constant prices5114141123811321112481128311330Gross disposable income (households; growth %)2.42.00.60.40.81.5Inequality of income distribution (S80/S20 income quintile share ratio)4.44.64.54.54.34.3GINI coefficient before taxes and transfers48.649.449.249.048.4:GINI coefficient after taxes and transfers29.830.830.530.129.2: 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.4: 

Product market performance and policy indicators 

1 The methodologies, including the assumptions, for this indicator are shown in detail at: 
http://www.doingbusiness.org/methodology.        
2 Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if received 
most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the application is 
still pending or if the outcome is not known.       
3 Percentage population aged 15-64 having completed tertiary education.       
4 Percentage population aged 20-24 having attained at least upper secondary education.       
5 Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail at: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
6 Aggregate OECD indicators of regulation in energy, transport and communications. 
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

65 

Performance indicators201020112012201320142015Labour productivity (real, per person employed, year-on-year % change)Labour productivity in industry4.273.021.472.870.453.08Labour productivity in construction-1.46-1.94-4.752.29-0.93-0.97Labour productivity in market services1.481.680.191.130.940.21Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in industry-0.93-0.821.11-0.310.68-2.09ULC in construction2.393.995.850.911.080.21ULC in market services0.63-0.271.750.870.450.50Business environment201020112012201320142015Time needed to enforce contracts1 (days)390.0390.0390.0395.0395.0395.0Time needed to start a business1 (days)6.56.56.56.54.54.0Outcome of applications by SMEs for bank loans20.540.460.590.600.530.51Research and innovation201020112012201320142015R&D intensity2.182.192.232.242.242.23Total public expenditure on education as % of GDP, for all levels of education combined5.865.685.68nananaNumber of science & technology people employed as % of total employment434647474949Population having completed tertiary education3262728293030Young people with upper secondary education4838484868887Trade balance of high technology products as % of GDP0.600.420.680.760.800.95Product and service markets and competition200320082013OECD product market regulation (PMR)5, overallna1.521.47OECD PMR5, retail3.763.802.64OECD PMR5, professional services2.202.452.34OECD PMR5, network industries63.372.772.51 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.5:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2005 prices) 
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR) 
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR) 
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR) 
          Waste intensity: waste (in kg) divided by GDP (in EUR) 
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP 
Weighting of energy in HICP: the proportion of ‘energy’ items in the consumption basket used for the construction of the HICP 
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change) 
Real unit energy cost: real energy costs as a percentage of total value added for the economy 
Environmental taxes over labour taxes and GDP: from European Commission’s database, ‘Taxation trends in the European 
Union’ 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR)  
Real unit energy costs for manufacturing industry excluding refining: real costs as a percentage of value added for 
manufacturing sectors 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP 
Electricity and gas prices for medium-sized industrial users: consumption band 500-20 00MWh and 10 000-100 000 GJ; figures 
excl. VAT. 
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste 
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP 
Proportion of greenhouse gas (GHG) emissions covered by EU Emissions Trading System (ETS) (excluding aviation): based on 
greenhouse gas emissions (excl land use, land use change and forestry) as reported by Member States to the European 
Environment Agency 
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2005 EUR) 
Transport carbon intensity: greenhouse gas emissions in transport activity divided by gross value added of the transport sector 
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels 
Aggregated supplier concentration index: covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk. 
Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies 
and solid fuels 
* European Commission and European Environment Agency 
Source: European Commission (Eurostat) unless indicated otherwise 

66 

Green growth performance201020112012201320142015MacroeconomicEnergy intensity kgoe / €0.130.130.130.130.120.12Carbon intensity kg / €0.280.260.260.260.24-Resource intensity (reciprocal of resource productivity)kg / €0.430.430.420.410.400.39Waste intensity kg / €0.19-0.18-0.17-Energy balance of trade % GDP-2.4-3.0-3.3-3.1-2.5-Weighting of energy in HICP%8.219.299.939.459.859.41Difference between energy price change and inflation %4.98.03.32.91.3-0.7Real unit of energy cost% of value added9.610.811.210.910.9-Ratio of environmental taxes to labour taxesratio0.080.080.080.080.08-Environmental taxes% GDP1.91.92.02.02.0-Sectoral Industry energy intensity kgoe / € 0.120.110.110.120.110.11Real unit energy cost for manufacturing industry excl. refining% of value added14.316.316.315.916.0-Share of energy-intensive industries in the economy% GDP6.696.746.796.956.906.99Electricity prices for medium-sized industrial users€ / kWh0.070.080.090.090.100.10Gas prices for medium-sized industrial users€ / kWh0.030.040.040.040.040.04Public R&D for energy % GDP0.050.050.050.050.040.05Public R&D for environmental protection% GDP0.020.010.010.010.010.02Municipal waste recycling rate%34.936.937.838.639.239.5Share of GHG emissions covered by ETS*%25.124.323.723.822.121.2Transport energy intensitykgoe / €0.630.610.600.610.620.62Transport carbon intensitykg / €1.701.661.611.641.65-Security of energy supplyEnergy import dependency%49.048.848.348.146.146.0Aggregated supplier concentration indexHHI7.87.47.98.69.0-Diversification of energy mixHHI0.300.320.310.300.33- 
 
 
 
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