Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of France and delivering a Council opinion on the 2017 Stability Programme of France
Date: 2017-05-22
Institutions: European Commission, Secretariat-General
Subjects: France, budget deficit, economic policy, economic reform, employment policy, fiscal policy, investment, migration policy, service, stability programme

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   EUROPEAN COMMISSION  Brussels, 22.5.2017  COM(2017) 509 final   Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of France  and delivering a Council opinion on the 2017 Stability Programme of France  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2017 National Reform Programme of France 

and delivering a Council opinion on the 2017 Stability Programme of France 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies,1 and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No 1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16 November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances,2 and in particular Article 6(1) thereof, 
Having regard to the recommendation of the European Commission,3 
Having regard to the resolutions of the European Parliament,4 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

On  16 November  2016,  the  Commission  adopted  the  Annual  Growth  Survey,5 
marking  the  start  of  the  2017  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  9-10 March  2017.  On  16 November  2016,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report,6  in  which  it 
identified France as one of the Member States for which an in-depth review would be 
carried out. On the same day, the Commission also adopted a recommendation for a 
Council  Recommendation  on  the  economic  policy  of  the  euro  area.  That 

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OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2017) 509 final. 
P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040. 
COM(2016) 725 final. 
COM(2016) 728 final. 

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Recommendation  was  endorsed  by  the  European  Council  on  9-10 March  2017  and 
adopted by the Council on 21 March 2017.7 

As a Member State whose currency is the euro and in view of the close interlinkages 
between the economies in the economic and monetary union, France should ensure 
the full and timely implementation of the Recommendation for the euro area which is 
reflected in recommendations 1 to 4 below.  
The 2017 country report for France8 was published on 22 February 2017. It assessed 
France’s  progress  in  addressing  the  country-specific  recommendations  adopted  by 
the Council on 12 July 2016, the follow-up given to the recommendations adopted in 
previous years and France’s progress towards its national Europe 2020 targets. It also 
included an in-depth  review under Article 5 of Regulation (EU)  No 1176/2011,  the 
results  of  which  were  also  published  on  22 February  2017.9  The  Commission’s 
analysis  leads  it  to  conclude  that  France  is  experiencing  excessive  macroeconomic 
imbalances. In particular, France is characterised by weak competitiveness and high 
and  increasing  public  debt, in  a  context  of  low  productivity  growth.  The  risk  of  an 
adverse  effect  on  the  French  economy  and,  given  its  size,  of  negative  spillovers  to 
the economic and monetary union, is particularly important. 

On  28  April  2017,  France  submitted  its  2017 National  Reform  Programme  and  its 
2017 Stability  Programme.  To  take  account  of  their  interlinkages,  the  two 
programmes have been assessed at the same time. 

The relevant country-specific recommendations have been taken into account in the 
Member States’ programmes for the European Structural and Investment Funds (ESI 
Funds) covering the 2014-2020 period. As foreseen in the legislation governing the 
ESI Funds,10 where it is necessary to support the implementation of relevant country-
specific  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and  amend  its  relevant  ESI  Funds  programmes.  The  Commission  has  provided 
further guidelines on the application of those rules.11 

France is currently in the corrective arm of the Stability and Growth Pact. In its 2017 
Stability Programme, the government plans to correct the excessive deficit by 2017, 
in line with the Council Recommendation of 10 March 2015, with a headline deficit 
of 2.8% of GDP. The headline deficit is planned to decline further to 1.3% of GDP in 
2020. The medium-term budgetary objective – a structural deficit of 0.4 % of GDP – 
is planned to be achieved by 2019. However, the recalculated12 structural balance is 
projected to reach  -1.2%  of GDP in  2020 and therefore the medium-term objective 
would  not  be  reached  over  the  programme  horizon.  According  to  the  Stability 
Programme, the general government debt-to-GDP ratio is expected to decrease from 
95.9%  of  GDP  in  2018  to  93.1%  of  GDP  in  2020.  The  macroeconomic  scenario 

OJ C92/01, 24.3.2017, p. 1. 
SWD(2017) 75 final. 
COM(2017) 90 final. 
Article  23  of  Regulation  (EU)  No  1303/2013  of  the  European  Parliament  and  of  the  Council  of  17 
December  2013  laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the 
European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and 
the  European  Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European 
Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime 
and  Fisheries  Fund  and  repealing  Council  Regulation  (EC)  No  1083/2006,  OJ  L  347,  20.12.2013,  p. 
320. 
COM(2014) 494 final. 
Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology. 

(2) 

(3) 

(4) 

(5) 

(6) 

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(7) 

(8) 

(9) 

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underpinning  these  budgetary  projections  is  plausible.  At  the  same  time,  the 
measures needed to support the planned deficit targets from 2018 onwards have not 
been sufficiently specified. 

On 10 March 2015, the Council recommended France to put an end to the excessive 
deficit  situation  by  2017  and  to  achieve  a  general  government  deficit  of  2.8%  of 
GDP, consistent with an improvement in the structural balance of 0.9% of GDP, in 
2017.  Based  on  the  Commission  2017  spring  forecast,  the  headline  deficit  is 
projected  to  reach  3.0%  of  GDP  in  2017,  above  the  target  recommended  by  the 
Council.  For  2018,  under  unchanged  policies,  the  headline  deficit  is  projected  at 
3.2% of GDP, thus exceeding the Treaty reference value and pointing to risks to the 
durable correction of the excessive deficit. Moreover, the recommended fiscal effort 
is  not  projected  to  be  delivered  over  the  period  covered  by  the  excessive  deficit 
procedure  as  the  consolidation  strategy  pursued  by  France  relies  primarily  on 
improving  cyclical  conditions  and  a  continuation  of  the  low  interest  rate 
environment, which are outside the control of the authorities.  

For  2018,  should  a  timely  and  durable  correction  eventually  be  achieved,  France 
would become subject to the preventive arm of the Stability and Growth Pact and to 
the  transitional  debt  rule.  In  the  light  of  its  fiscal  situation  and  notably  of  its  debt 
level,  France  is  expected  to  further  adjust  towards  its  medium-term  budgetary 
objective  of  a  structural  deficit  of  0.4  of  GDP.  According  to  the  commonly  agreed 
adjustment  matrix  under  the  Stability  and  Growth  Pact,  that  adjustment  translates 
into a requirement of a nominal growth rate of net primary government expenditure13  
which  does  not  exceed  1.2%  in  2018.  It  would  correspond  to  an  annual  structural 
adjustment of 0.6% of GDP. Under unchanged policies, there is a risk of a significant 
deviation  from  that  requirement  in  2018.  There  is  also  a  risk  that  France  will  not 
comply with the transitional debt rule in 2018, as the structural balance is projected 
to  deteriorate  by  0.5%  of  GDP  as  opposed  to  the  minimum  linear  structural 
adjustment of 0.4% of GDP. Overall, the Council is of the opinion that France needs 
to stand ready to take further measures to ensure compliance in 2017 and that further 
measures  will  be  needed  as  of  2018  to  comply  with  the  provisions  of  the  Stability 
and  Growth  Pact.  However,  as  foreseen  in  Regulation  (EC)  No  1466/97,  the 
assessment of the budgetary plans and outcomes should take account of the Member 
State's  budgetary  balance  in  the  light  of  the  cyclical  conditions.  As  recalled  in  the 
country-specific 
Commission 
recommendations, the assessment of the 2018 Draft Budgetary Plan and subsequent 
assessment  of  2018  budget  outcomes  will  need  to  take  due  account  of  the  goal  to 
achieve a fiscal stance that contributes to both strengthening  the ongoing recovery 
and  ensuring  the  sustainability  of  France's  public  finances.  In  that  context,  the 
Commission intends to make use of the applicable margin of appreciation in the light 
of the cyclical situation of France. 

Communication 

accompanying 

these 

The  level  of  public  expenditure  in  France  is  one  of  the  highest  in  the  EU.  The 
expenditure ratio is projected to reach 56.2 % of GDP in 2017, 9.7 percentage points 
higher  than  in  the  EU.  France  has  followed  an  expenditure-based  consolidation 

Net  government  expenditure  is  comprised  of  total  government  expenditure  excluding  interest      
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  4-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

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strategy  that  has  relied  mainly  on  declining  interest  rates  and  cuts  in  public 
investment. However it is unlikely that the low interest rate environment will prevail 
in the medium term and the cut in productive investment could harm future economic 
potential.  In  contrast,  the  spending  reviews  have  identified  a  number  of  possible 
efficiency gains that have not been implemented. The spending reviews identified a 
fraction  -  less  than  2  %  -  of  the  overall  planned  expenditure  savings  of  EUR  50 
billion over the period 2015-2017. However, only part of them have translated into 
actual measures in the 2016 budget, while the measures in the 2017 budget Act relied 
on those already identified in the spending review exercise of 2015. Savings derived 
from  spending  reviews  could  significantly  increase  by  widening  the  expenditure 
areas under review and by implementing a multi-annual strategy to fully translate the 
identified savings into concrete budgetary measures. 

High  social  security  contributions  combined  with  high  level  of  taxes  weighing  on 
companies  can  discourage  private  investment  and  hamper  companies’  growth  and 
new hires. Policy measures to reduce labour costs have continued to be implemented, 
with  the  start  in  April  2016  of  the  second  phase  of  reductions  in  employers’  social 
security  contributions  planned  under  the  solidarity  and  responsibility  pact.  In 
addition,  the  government  has  increased  for  2017  the  tax  credit  for  competitiveness 
and employment (CICE) from 6 % to 7 %. These measures to reduce the labour tax 
wedge  have  improved  France’s  competitiveness  since  2013  but  accumulated  past 
losses  have  not  yet  been  recovered.  At  the  average  wage,  in  2015  France  had  the 
highest  employers’  social  security  contribution in  the  EU  as  a  share  of  total  labour 
costs  paid  by  the  employer,  even  though  it  is  on  a  declining  trend.  The  recent 
evaluations  of  these  measures  highlighted  their  positive  effect  on  employment  and 
firms’ profit margins but further evaluations are needed to fully assess their impact 
on  wages,  investment,  employment  and  firms’  margins.  Recent  evaluations  also 
suggest  that  the  consolidation  of  all  labour  cost  reduction  schemes  and  their 
transformation in permanent reductions in social contributions would optimise their 
effects on employment and investment. 

At 38.4 % in 2016, the effective average corporate tax rate was the highest in the EU 
and other taxes on production  are also  particularly  high.  To curb this  trend,  France 
has announced steps to reduce the statutory corporate income rate to 28 % in 2020. 
At the same time, the tax burden continues to fall less on consumption than in other 
EU  Member  States.  In  2014,  France  ranked  27th  in  the  EU  for  tax  revenues  from 
consumption as a percentage of total taxation. The VAT system is characterised by a 
middle-ranking  standard  rate  and  low  reduced  rates  applied  to  a  large  base.  The 
complexity of the tax system is a barrier to a well-functioning business environment. 
France has a high tax burden coupled with many tax breaks, reduced rates and a great 
number  of  tax  schemes  resulting  in  increased  compliance  costs  and  uncertainties. 
Total  tax  expenditure  is  sizeable  in  France  at  more  than  3 %  of  GDP.  The 
administrative cost to tax authorities of collecting taxes is also high and is above the 
EU average.  

In  2016,  the  unemployment  rate  decreased  to  10.1 %.  Unemployment  is  higher 
among  young  people,  the  low-skilled  and  those  not  born  in  the  EU.  Ongoing 
governance  reforms  are  key  to  aligning  training  opportunities  with  employment 
prospects  and  economic  needs.  In  parallel,  jobseekers,  less  qualified  workers  and 
SME  employees  face  persistent  difficulties  in  having  access  to  training.  Ensuring 
their participation and the relevance of training provided may require strengthening 
existing  measures  and  rebalancing  resources.  Young  people,  and  among  them  the 

(10) 

(11) 

(12) 

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(13) 

(14) 

least  qualified,  still  face  difficulties  entering  the  labour  market.  In  this  context, 
measures taken to support apprenticeships have translated into positive results so far. 
But  the  initial  vocational  education  and  training  offered,  specifically  when  school-
based  and  in  some  tertiary  sectors,  is  not  sufficiently  linked  to  employment 
opportunities.  Moreover,  pupils  from  a  disadvantaged  background  are  more  often 
steered  towards  initial  vocational  education,  which  also  accounts  for  the  large 
majority of early drop outs, contributing to high educational inequalities. The impact 
of socioeconomic status on students’ performance is the highest in the OECD.  

In  2016  only  54.5 %  of  non-EU  born  people  of  working-age  were  in  employment. 
The  female  employment  rate  (45.4 %)  was  one  of  the  lowest  in  the  EU.  The 
employment  gap  between  non-EU  born  and  French  born  people  increased  to  17.5 
percentage  points  in  2016  (23.7  percentage  points  for  women).  The  poor 
performance  of  non-EU  born  people  pulls  down  the  overall  employment  rate  and 
represents  a  chronic  underutilisation  of  labour.  Second  generation  immigrants  also 
face  adverse  employment  outcomes  that  are  not  explained  by  differences  in  age, 
education  and  skills.  Moreover,  gaps  in  educational  outcomes  are  persistent,  as 
second generation immigrants are only partially catching up. In order to address this 
challenge,  a  comprehensive  strategy  is  necessary,  including  notably  targeted 
measures  on  language  skills,  upskilling  and  training,  job  counselling  and  other 
targeted  active  labour  market  policies.  Effective  access  to  services  is  key  to 
promoting  labour  market  participation,  as  well  as  action  against  discriminatory 
practices affecting the hiring of non-EU born and second generation immigrants. 

Since 2013 the French minimum wage has followed its indexation rules. In a context 
of weak inflation and slowing wage growth, its growth has been lower than reference 
wages. While the minimum wage is high compared with the median wage, the cost 
of  labour  at  the  minimum  wage  has  been  reduced  by  exemptions  from  social 
contributions.  Increases  in  the  minimum  wage  induce  wage  increases  for  most 
categories of workers and risk creating upward wage compression. While indexation 
of  the  minimum  wage  is  important  to  preserve  workers’  purchasing  power,  the 
current  indexation  mechanism  might  contribute  to  delaying  the  necessary  overall 
wage adjustment. Moreover, in the current context of high unemployment, there are 
risks that the cost of labour at the minimum wage hampers employment opportunities 
for  low  skilled  people.  The  group  of  independent  experts  annually  assesses  the 
minimum  wage  in  France  and  provides  non-binding  opinions  on  its  development. 
Their  opinion  on  ad-hoc  hikes  has  always  been  respected  so  far  and  is  playing  an 
important role to control the use of such ad-hoc hikes. 

(15)  With  the  law  of  July  2016  on  labour,  social  dialogue  and  professional  pathways, 
France  introduced  measures  aimed  at  improving  firms’  capacity  to  adjust  to 
economic cycles and at reducing segmentation. The law clarifies rules on individual 
economic  dismissals,  extends  the  scope  of  majority  company-level  agreements  and 
increases  the  effectiveness  of  collective  bargaining.  Persistently  high  levels  of 
unemployment  have  put  a  strain  on  the  sustainability  of  the  unemployment  benefit 
system. In that regard social partners reached in March 2017 an agreement on a new 
unemployment benefit convention, to be endorsed by the French government, which 
aims at reducing the annual deficit by EUR 1.2 billion. 

(16) 

Although  France  has  improved  its  overall  regulatory  performance,  the  business 
environment continues to be middle ranking in comparison to major competitors. In 
particular,  despite  continued  simplification  efforts,  businesses  are  still  faced  with  a 
high  regulatory  burden  and  fast-changing  legislation.  This  is  one  of  the  main 

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obstacles to private investment. With the simplification programme, France has taken 
steps to reduce red tape for businesses but a significant amount of measures adopted 
before  2016  have  not  yet  been  implemented.  At  the  same  time,  threshold  effects 
continue to affect the development 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. These threshold effects can, in turn, affect 
firms’  productivity,  competitiveness  and  internationalisation.  Indeed,  according  to 
empirical  evidence,  the  10  and  50  employee  thresholds  are  particularly  costly  for 
employers,  while  the  French  economy  is  characterised  by  a  disproportionally  low 
share  of  companies  above  these  thresholds  implying  a  link  between  these  two 
phenomena. 

sectors 

such  as  accountancy,  architecture,  homecare 

Competition in services has improved in a number of sectors, but some economically 
important 
services, 
accommodation  and  food  services,  taxi  and  private  hire  vehicle  services,  are  still 
characterised  by  low  competition  and/or  regulatory  obstacles.  Barriers  remain  in 
place  for  these  services,  notably  excessive  regulatory  requirements,  and  these 
discourage entry or limit effective competition. Reducing these barriers could allow 
existing  firms  or  new  ones,  making  use  of  new  technological  and  digital 
developments,  to  increase  their  competitiveness  and/or  enter  markets,  and  lead  to 
benefits for consumers through lower prices and better quality service. To this end, 
as part of a package of measures to tackle barriers in services markets,14 in January 
2017  the  Commission  has  launched  a  mutual  evaluation  exercise  inviting  EU 
Member States to conduct evaluation of the respective barriers they have in place to 
limit access to certain professions. 

Innovation in France 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 
innovation  performance  raises  questions  about  the  efficiency  of  public  support 
mechanisms.  In  particular,  cooperation  between  public  research  and  companies  is 
suboptimal and weighs on the economic output of the innovation system. 

In  the  context  of  the  European  Semester  the  Commission  has  carried  out  a 
comprehensive  analysis  of  France’s  economic  policy  and  published  it  in  the  2017 
country report. It has also assessed the Stability Programme and the National Reform 
Programme and the follow-up given to the recommendations addressed to France in 
previous  years.  It  has  taken  into  account  not  only  their  relevance  for  sustainable 
fiscal and socioeconomic policy in France, but also their compliance with EU rules 
and guidance, given the need to strengthen the EU’s overall economic governance by 
providing EU-level input into future national decisions.  

In  the  light  of  this  assessment,  the  Council  has  examined  the  Stability  Programme 
and its opinion15 is reflected in particular in recommendation 1 below. 

In  the  light  of  the  Commission’s  in-depth  review  and  this  assessment,  the  Council 
has  examined  the  National  Reform  Programme  and  the  Stability  Programme.  Its 
recommendations  made  under  Article  6  of  Regulation  (EU)  No 1176/2011  are 
reflected in recommendations 1 to 4 below, 

(17) 

(18) 

(19) 

(20) 

(21) 

14 

15 

COM(2016)  820  final,  COM(2016)  821  final,  COM(2016)  822  final,  COM(2016)  823  final, 
COM(2016) 824 final. 
Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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HEREBY RECOMMENDS that France take action in 2017 and 2018 to: 

1. 

2. 

3. 

4. 

Ensure  compliance  with  the  Council  recommendation  of  10  March  2015  under  the 
excessive  deficit  procedure.  Thereafter,  pursue  fiscal  policy  in  line  with  the 
requirements of the preventive arm of the Stability and Growth Pact, which translates 
into  a  substantial  fiscal  effort  for  2018.  When  taking  policy  action,  consideration 
should be given to achieving a fiscal stance that contributes to both strengthening the 
ongoing  recovery  and  ensuring  the  sustainability  of  France’s  public  finances. 
Comprehensively  review  expenditure  items  with  the  aim  to  make  efficiency  gains 
that translate into expenditure savings.   

Consolidate the measures reducing the cost of labour to maximise their efficiency in  
a  budget  neutral  manner  and  in  order  to  scale  up  their  effects  on  employment  and 
investment.  Broaden  the  overall  tax  base  and  take  further  action  to  implement  the 
planned decrease in the corporate income statutory rate.  

Improve  the  access  to  the  labour  market  for  jobseekers,  notably  the  less  qualified 
workers and people with a migrant background, including by revising the system of 
vocational  education  and  training.  Ensure  that  minimum  wage  developments  are 
consistent with job creation and competitiveness. 

Further  reduce  the  regulatory  burden  for  firms,  including  by  pursuing  the 
simplification  programme.  Continue  to  lift  barriers  to  competition  in  the  services 
sector,  including  in  business  services  and  regulated  professions.  Simplify  and 
improve the efficiency of public support schemes for innovation. 

Done at Brussels, 

For the Council 
The President 

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