COMMISSION STAFF WORKING DOCUMENT Country Report France 2018 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 2018 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
Date: 2018-03-07
Institutions: European Commission, Secretariat-General
Subjects: France, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.3.2018 SWD(2018) 208 final  COMMISSION STAFF WORKING DOCUMENT Country Report France 2018 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 2018 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(2018) 120 final}   
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Summary of the main findings from the Macroeconomic Imbalance Procedure 

in-depth review 

4.  Reform priorities 

4.1.  Public finances and taxation 

4.2.  Labour market, education and social policies 

4.3.   Investment, competitiveness and business environment 

4.4.   Sectoral policies 

Annex A: Overview table 

Annex B: Macroeconomic Imbalance Procedure scoreboard 

Annex C: Standard tables 

References 

LIST OF TABLES 

Table 1.1: 

Key economic, financial and social indicators – France 

Table 2.1: 

Summary Table on 2017  country-specific recommendations assessment 

Table 3.1: 

MIP Assessment Matrix (*) – France 2018 

Table 4.3.1: 

Stock of FDI: residents abroad (assets) and non-residents in the economy (liabilities) 

Table 4.4.1:  Modal share evolution - long distance 

Table 4.4.2: 

Financial soundness indicators - all banks in France 

Table B.1: 

The MIP scoreboard for France (AMR 2018) 

Table C.1: 

Financial market indicators 

Table C.2: 

Headline Social Scoreboard indicators 

Table C.3: 

Labour market and education indicators 

Table C.4: 

Social inclusion and health indicators 

Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

1 

4 

11 

15 

22 

22 

31 

40 

49 

56 

64 

65 

71 

10 

13 

20 

43 

52 

53 

64 

65 

66 

67 

68 

69 

70 

 
 
 
 
 
LIST OF GRAPHS 

Graph 1.1: 

Contributions to GDP growth (2010-2019) 

Graph 1.2: 

Potential GDP growth breakdown in France 

Graph 1.3: 

Potential total factor productivity growth in selected euro area countries 

Graph 1.4: 

Evolution of import penetration in selected euro area countries 

Graph 1.5: 

Trade balance – France 

Graph 1.6: 

Household and non-financial corporation indebtedness 

Graph 1.7: 

France – non-financial corporation debt: gaps relative to benchmarks 

Graph 2.1:  Overall multiannual implementation of 2011-2017 CSRs to date 

Graph 3.1: 

Decomposition of unit labour cost rate of change 

Graph 3.2: 

Effects of the crédit d’impôt pour la compétitivité et l’emploi transformation 

Graph 4.1.1:  Contributions to the change in the public debt ratio in France 

Graph 4.1.2:  Projections of French public debt under alternative scenarios 

Graph 4.1.3: 

Trends in real estate 

Graph 4.1.4:  Other taxes on production (2016) – Top 10 

Graph 4.1.5: 

Tax structure as % GDP, 2015 

Graph 4.2.1:  Unemployment rate in France and the EU 

Graph 4.2.2:  Minimum wage (level and evolution) and employment for low-skilled workers 

Graph 4.2.3:  Unemployment rate and potential additional labour force 

Graph 4.2.4:  Percentage of low-skilled in total employment (September 2017) 

Graph 4.3.1:  Export of goods in value - by sector evolution 

Graph 4.3.2:  Export of goods in volume - performance 

Graph 4.3.3:  Export of goods in value - by quality rank (as % of total exports) 

Graph 4.3.4:  Service exports - France 

Graph 4.3.5:  Participation of the French SMEs in the internal and world markets compared to the 

EU average 

Graph 4.3.6: 

Investment in selected Euro area Member States -expressed as a percentage of GDP 

Graph 4.3.7:  Number of employees and number of firms - French manufacturing industry 

Graph 4.3.8:  Performance in the Small Business Act report for 2017 

Graph 4.4.1:  R&D intensity (2015) 

Graph 4.4.2:  Economic structure  (% of value added) 

LIST OF BOXES 

Box 2.1: Tangible results delivered through EU support to structural change in France 

Box 3.1: Euro area spillovers 

Box 4.2.1:  Monitoring performance in the light of the European Pillar of Social Rights 

Box 4.3.1: Investment challenges and reforms in France 

Box 4.4.1: Policy highlights on environment and climate 

4 

5 

5 

6 

6 

7 

8 

11 

16 

18 

22 

22 

26 

28 

29 

31 

31 

33 

33 

40 

40 

41 

41 

42 

43 

44 

45 

49 

50 

14 

19 

32 

48 

55 

 
 
 
 
EXECUTIVE SUMMARY 

as 

the 

regards 

launched, 

economic 

The  improved  macroeconomic  scenario  is  an 
asset for pursuing ambitious structural reforms, 
while improving the situation of public finances 
in  France  (1).  After  three  years  of  moderate 
growth, 
in  France  has 
activity 
accelerated  sharply  in  2017.  The  government  is 
undertaking  important  reform  actions.  A  Grand 
Plan  d'Investissement  for  the  period  2018-2022  is 
on-going, as well as the implementation of adopted 
labour  market  reforms  and  additional  measures  to 
be 
pension, 
unemployment  benefit  system,  and  vocational 
education  and  training.  Meanwhile,  challenges 
remain  to  improve  public  finances  on  a  more 
sustainable basis, in particular while the high level 
of private debt is still a potential source of concern. 
These  also  include  a  comprehensive  review  of 
public  finances,  the  simplification  of  the  tax 
system  and  the  increase  in  efficiency  of  the  tax 
system. Improving access to the labour market for 
less  qualified  workers  and  people  with  a  migrant 
the 
background 
administrative 
and 
improving  collaboration  between  public  research 
and  companies  would  contribute  to  increase  the 
competitiveness of the French economy.  

is  also  an 
and 

issue.  Reducing 

regulatory 

burden 

Economic  activity  has  accelerated  and 
is 
forecast  to  remain  strong  in  the  near  future. 
GDP growth in France increased to 1.8 % in 2017 
from 1.2 % in 2016. It was driven by strong private 
investment  growth  and  in  particular  by  a  strong 
recovery  in  the  housing  market.  According  to  the 
Commission 2018 winter forecast, GDP growth is 
expected to reach 2.0 % in 2018 and 1.8 % in 2019 
as  spare  capacity  in  the  economy  is  reabsorbed. 
Private  consumption  growth  is  set  to  recover 
somewhat, while investment growth is expected to 
remain  strong.  Moreover,  the  contribution  of  net 
exports  is  expected  to  improve  in  a  context  of 
sustained global demand. 

(1)  This  report  assesses  France’s  economy  in  the  light  of  the 
European Commission’s Annual Growth Survey published 
on 22 November 2017. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
resilient  and 
European  economy  more  productive, 
inclusive.  In  so  doing,  Member  States  are  encouraged  to 
focus  on  the  three  elements  of  the  virtuous  triangle  of 
economic  policy  —  boosting 
investment,  pursuing 
structural reforms, and ensuring responsible fiscal policies. 
At  the  same  time,  the  Commission  published  the  Alert 
Mechanism Report (AMR) that initiated the seventh round 
of  the  macroeconomic  imbalance  procedure.  The  AMR 
found  that  France  warranted  an  in-depth  review,  which  is 
presented in this report. 

1 

The performance of French exports has stopped 
deteriorating.  Export  market 
shares  have 
stabilised  since  2012,  led  by  more  favourable 
developments in France’s main trade partners. The 
trade  deficit  is  expected  to  have  reached  a  trough 
in  2017,  as  imports  remained  more  vigorous  than 
exports  and  oil  prices 
rebounded.  External 
sustainability  is  not  a  concern  for  France  in  the 
short  term,  whilst  the  weak  export  performance 
continues to weigh on growth prospects. 

In  the  long term, growth  is  expected  to remain 
moderate. In line with an EU-wide trend, France’s 
potential  growth  has  been  eroded  since  the  2008 
financial  crisis.  Yet,  France’s  potential  growth 
increased  to  1.0 %  in  2016  and  is  expected  to 
further  accelerate,  up  to  1.3 %  in  2019.  Structural 
reforms have been planned and some have already 
been  undertaken.  They  seek 
the 
economic challenges that limit potential growth.  

to  address 

line  with 

Competitiveness  is improving, although France 
has  not  fully  regained  previous  losses.  The 
growth of unit labour costs has recently recovered, 
increased  economic  activity. 
in 
Productivity growth remains subdued and prevents 
French  competitiveness  from  recovering  more 
quickly.  Labour  market  and  tax  reforms  are  on-
going. Additional measures have been launched to 
improve 
the  French 
economy,  including  product  market  reforms.  The 
positive effect of these actions is likely to become 
more prominent in the medium term.  

the  competitiveness  of 

indebtedness 

France’s  public 
is  high.  The 
general  government  deficit  is  expected  to  decline 
below the threshold value of 3 % of GDP in 2017. 
However,  the  adjustment  of  government  spending 
is proving difficult despite the dampening effect of 
the  low  interest  burden.  Debt  is  expected  to 
stabilise  at  96.9 %  of  GDP  over  the  forecast 
horizon  (2017-2019).  Despite  the  objective  to 
reduce  expenditure  more  than  3  pps  of  GDP  by 
2022, 
identification  and  monitoring  of 
structural  savings  are  still  unknown.  In  turn, 
targets  for  healthcare  spending  (ONDAM)  and 
operational 
authorities 
(ODEDEL)  are  less  demanding  for  2018.  As  a 
result, it seems that France currently plans to ‘back 
load’ the envisaged consolidation effort by cutting 
spending in later years. 

spending 

local 

the 

of 

 
 
                                                           
Executive summary 

and  a  high  share  of  children  in  formal  childcare. 
Some issues in the areas of educational inequalities 
and  labour  market  segmentation  merit  attention. 
Recently,  the  number  of  people  at  risk  of  poverty 
and social exclusion has also been rising, even if it 
remains at a relatively low level. 

findings  of 

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

in-depth 

the 

  Cost competitiveness has improved in recent 
years. Wage growth remains moderate. No ad-
hoc  hike  in  the  minimum  wage  has  been 
since  2013.  The  possibility  of 
decided 
reforming 
the  minimum  wage  automatic 
indexation mechanism is under discussion. Tax 
measures have reduced labour costs. However, 
the  competitiveness  gap  accumulated 
in 
previous years has not been closed yet. 

  Other factors driving the competitiveness of 
French exports continue to be weak. France’s 
share  of  the  global  market  has  been  more 
resilient  for  services  than  goods  since  2008, 
especially  for  business  services.  The  share  of 
low-,  middle-  and  top-quality  goods  in  total 
French exports has slightly increased, while the 
share  of  high-quality  goods  has  significantly 
decreased.  The  proportion  of  exporting  SMEs 
is lower in France than in other Member States. 

the 

systems 

reform  of 

  The  labour  market  situation  continues  to 
improve,  yet  challenges  remain 
to  be 
tackled,  especially  for  some  categories.  The 
government has presented an ambitious reform 
agenda  to  the  social  partners.  It  includes  the 
adopted reform of the labour law, as well as the 
for 
announced 
unemployment 
and 
benefit, 
vocational  education  and  training,  comprising 
apprenticeship.  Remaining  challenges  concern 
the still high level of unemployment (especially 
for  younger  and  lower-skilled  people)  and  the 
segmentation  of 
labour  market.  The 
integration  of  disadvantaged  groups  in  the 
labour market and their transition towards more 
stable  forms  of  work  can  also  be  improved. 
This  is  particularly  relevant  for  people  with  a 
migrant background. 

pensions, 

the 

to 

fall. 

Unemployment 
The 
continues 
unemployment  rate declined from  10.4 %  in 2015 
to 9.5 % in 2017 and is forecast to decrease further 
in  the  coming  years,  while  the  employment  rate 
rose  to  71 %  in  the  third  quarter  2017.  Labour 
market  conditions  for  younger, 
lower-skilled 
workers,  and  people  with  a  migrant  background 
(both  first  and  second  generations)  remain  more 
difficult.  

Its large economy and integration with the rest 
of  the  euro  area  make  France  a  source  of 
potentially  significant  cross-border  spillovers. 
Model simulations suggest that product and labour 
market  reforms  in  France  can  yield  positive  long-
term  GDP  effects  for  both  France  and  the  rest  of 
the euro area. 

the 

and 

2017 

further 

ensuring 

reducing 

Overall,  France  has  made  some  progress  in 
addressing 
country-specific 
recommendations. Some progress has been made 
in  improving  access  to  the  labour  market  for 
jobseekers, 
that  minimum  wage 
developments are consistent with job creation and 
the 
competitiveness, 
regulatory  burden  for  firms.  Some  progress  has 
also  been  made  on  taxation  by  decreasing  the 
statutory  corporate  income  tax  rate  and  reducing 
the cost of labour. Limited progress has been made 
in  ensuring  the  sustainability  of  public  finances 
and  reviewing  expenditure  items.  There  has  also 
been only limited progress in raising the efficiency 
of  public  support  schemes  for  innovation  and 
revising  the  system  of  vocational  education  and 
training. No progress has been made in continuing 
to lift barriers to competition in the services sector.   

the  Europe  2020  strategy,  France 

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

France  performs  relatively  well  on 
the 
indicators  of  the  Social  Scoreboard  supporting 
the  European  Pillar  of  Social  Rights.  Overall, 
the social protection system is effective and shows 
good results both in the fields of social protection 
and  health.  France  also  has  a 
low  gender 
employment gap, relatively low income inequality, 

2 

 
 
Executive summary 

efficiency  of 

the 
are  under 
consideration for pensions, healthcare, housing 
allowances and vocational training. 

spending 

  The  tax  system  has  been  reformed  to 
address  the  high  tax  burden  on  companies 
and  favour  productive  investment.  While 
these  reforms  aim  to  improve  the  business 
environment,  the  tax  system  continues  to  be 
complex.  In  addition,  it  is  characterised  by 
relatively 
levels  of  consumption  and 
environmental  taxes  and  a  high  level  of  taxes 
on production. 

low 

Other key structural issues analysed in this report, 
which  point  to  particular  challenges  for  France’s 
economy, are the following: 

  Educational  inequalities  remain  high  and 
the vocational education and training system 
in  matching 
presents  some  weaknesses 
labour  market  needs.  New  measures  have 
been adopted to reduce educational inequalities 
linked 
to  socioeconomic  background.  The 
system  of  initial  vocational  education  and 
training  does  not  sufficiently  foster  access  to 
employment,  despite  undertaken 
reforms. 
Access  to  the  continuous  vocational  training 
system  is  uneven  for  different  categories  of 
employed workers and unemployed.  

  Social conditions in France are good overall. 
In general, the French social protection system 
appears  effective  in  reducing  poverty  and 
exclusion  and  providing  access  to  healthcare 
and  childcare.  Still,  inequalities  based  on 
migration  and 
socioeconomic  background 
remain,  especially  in  deprived  urban  areas. 
Some,  mainly  rural,  areas  face  challenges  in 
attracting  physicians.  Access  to  affordable 
housing can be challenging in urban areas. 

support 

schemes  can  be 

  Innovation performance remains below that 
of  EU  innovation  leaders.  The  efficiency  of 
public 
further 
improved.  It  is  to  be  seen  if  the  results  of 
evaluations  will  lead  to  a  sufficient  policy 
response improving the overall performance of 
the  system.  In  addition,  knowledge  transfer 
research  and  companies 
between  public 
remains  a  challenge;  there  is  room  to  further 
promote such collaboration. 

in 

the 

investment 

comparison 

  The French business environment is middle-
to  major 
ranking 
competitors.  While 
remains 
dynamic  with  respect  to  the  euro  area,  the 
to 
government  has  announced  measures 
improve 
as 
environment, 
business 
companies  are  still  facing  fast  changing 
legislation,  complex  regulatory  requirements 
and  burdensome  administrative  procedures. 
Size-related  regulatory  thresholds  continue  to 
weigh  on  firms’  growth.  Competition  is  still 
weak  in  several  service  sectors,  notably  in 
professional  and  business  services.  Lack  of 
clarity  and  prioritisation  about  the  French 
state’s  objectives  as  shareholder  in  several 
large  incumbent  firms  operating  in  sectors  of 
major economic importance remains, including 
railways  and  energy.  The  new  regulatory 
framework for the collaborative economy aims 
at taking into account the specificities of these 
services  but  holds  back  their  development. 
France's low coverage with fast broadband also 
limits  its  ability  to  benefit  from  the  digital 
economy. 

low.  Long-term 

  High  public  debt  coupled  with  already  high 
structural  deficits  could  be  a  source  of 
significant  risk  for  public  finances  in  the 
medium  term.  Short-term  sustainability  risks 
remain 
risks  are  also 
contained,  notably  due  to  pension  indexation 
rules  and  favourable  demographics  compared 
to  the  rest  of  the  EU.  Still,  sustainability 
challenges in the medium term remain high and 
call for significant consolidation in the coming 
years  to  bring  down  public  debt.  The  debt 
burden  for  the  private  sector  continues  to 
increase.  The  combination  of  high  public  and 
private debt is an additional risk factor. 

  A  new  expenditure-based  consolidation 
strategy  has  been  announced.  The  already 
very  high  tax  burden  leaves  little  margin  for 
further  tax  increases,  suggesting  that  further 
consolidation needs to be expenditure-based. A 
new  spending  review  framework  has  been  put 
forward, aiming to identify efficiency gains and 
to  generate  savings  at  all  levels  of  the  public 
administration.  The  concrete  scope  of  this 
framework  remains  to  be  clarified  and  the 
framework  has  not  yet  been  implemented. 
Reforms  aiming  at  simplifying  and  improving 

3 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

after  several  years  of  contraction.  Finally,  the 
contribution of net exports is expected to gradually 
improve  in  a  context  of  sustained  global  demand. 
According  to  the  2018  winter  forecast,  GDP 
growth  is  expected  to  reach  2.0 %  in  2018  and  to 
slightly  decelerate  to  1.8 %  in  2019  as  spare 
capacity in the economy is reabsorbed (Graph 1.1). 

The 
labour  market  situation  continues  to 
improve.  The  employment  rate  (for  those  aged 
between 20 and 64) gradually increased to 70 % in 
2016,  compared  to  the  71.1 %  EU  average,  and 
continued to improve in 2017 in line with the EU 
trend. In parallel, the unemployment rate decreased 
from 10.4 % in 2015 to 10.1 % in 2016 and 9.5 % 
in 2017 (vs. 7.7 % in the EU and 9.1 % in the euro 
area) and it has continued to decrease in 2017. It is 
projected to decline further, supported by ongoing 
reforms.  Youth  unemployment  has  fallen  from 
24.6 %  in  2016  to  22.6 %  in  2017,  but  remained 
above the EU and euro area average (respectively 
16.8 %  and  18.9 % 
limited 
integration of young people into the labour market 
is  also  reflected  in  a  stable  NEET  (not  in 
education, employment or training) rate of 11.9 %. 
There  is  a  decreasing  number  of  school  drop-outs 
in  the  15-19  age  group,  while  unemployment  is 
still high in the 20-24 age group showing only first 
signs of improvement in 2017. 

in  2016).  The 

Wage  growth  remains  subdued,  reflecting  the 
labour  market  slack,  low  inflation  and  weak 
productivity  gains.  Nominal  compensation  per 
employee increased by 1.0 % in 2016 and is set to 
accelerate  only  gradually.  Minimum  wage 
increases are expected to remain moderate. In line 
with  wage  developments,  inflation  is  forecast  to 
reach  1.5 %  in  2018  and  2019,  up  from  1.2  %  in 
2017. 

Potential  risks  to  French  growth  come  from 
outside the country, while domestic risks do not 
appear  to  be  a  cause  for  concern.  Recent  cost-
competitiveness  gains  could  help  exporters  to 
better  absorb  the  euro’s  appreciation  than  in  the 
past. Moreover, higher corporate investment could 
help  boost  potential  growth,  leading  to  self-
fulfilling higher growth expectations. 

GDP growth 

strongly  after 

strong  private 

After three years of moderate growth, economic 
activity in France has accelerated sharply. GDP 
growth  increased  to  1.8 %  in  2017 (2),  after 
registering  1.2 %  in  2016.  Economic  activity  has 
been  driven  by 
investment. 
Household  investment  grew  at  a  sustained  pace, 
recovering 
several  years  of 
contraction. In addition, corporate investment held 
up remarkably well following the end of the over-
amortisation scheme, a fiscal incentive for firms to 
invest. By contrast, private consumption slowed as 
higher  inflation  diminished  the  purchasing  power 
of households. Moreover, net exports continued to 
weigh  on  growth,  as  exports  were  hampered  by 
temporary factors while imports remained strong. 

Graph 1.1:  Contributions to GDP growth (2010-2019) 

Source: Commission 2018 winter forecast 

Growth  is  set  to  remain  strong  in  the  near 
future.  Economic  sentiment  has  continued  to 
improve  in  recent  months,  with  some  confidence 
indicators  approaching  or  even  exceeding  their 
pre-crisis peaks. Private consumption growth is set 
to  recover  somewhat  in  2018,  in  line  with 
increases 
in  household  purchasing  power. 
Investment  growth  is  expected  to  rise  further  in 
2018  before  cooling  slightly  in  2019.  Household 
investment is set to remain strong, as indicated by 
the  increase in  new  construction  starts.  Moreover, 
public  investment  is  forecast  to  rebound  in  2018 

(2)  The  GDP  growth  figures  are  non-calendar  adjusted.  In 

2017, calendar adjusted GDP growth reached 1.9 %. 

4 

-10123101112131415161718 (f)19 (f)Changes in inventoriesNet exportsInvestmentGovernment consumptionPrivate consumptionReal GDP (y-o-y%)%, pps.  
 
 
                                                           
1. Economic situation and outlook 

The decline in long-term growth prospects also 
exacerbates  the  challenges  associated  with  the 
high  public  debt.  The  deceleration  of  potential 
GDP  makes  it  more  difficult  for  France  to  bring 
down 
its  public  debt  without  greater  fiscal 
consolidation efforts (see Section 4.1). 

Graph 1.3: 

Potential total factor productivity growth in 
selected euro area countries 

Potential growth 

this  slowdown 

In  the  long term, growth  is  expected  to remain 
moderate as potential growth has declined since 
the  2008  financial  crisis.  While  averaging  1.8 % 
from  2000  to  2008,  the  annualised  growth  rate  of 
potential  GDP  amounted  to  just  1.0 %  between 
2009 and 2017. The rate of growth is projected to 
recover  gradually  and  to  reach  1.3 %  in  2019.  A 
slowdown  of  potential  GDP  has  been  observed  in 
most  major  euro  area  economies.  In  the  case  of 
France, 
to  a 
significant  reduction  in  the  contribution  of  total 
factor  productivity  (TFP)  to  growth,  while  capital 
accumulation  and  total  hours  worked  remained 
relatively  robust (Graph 1.2). In  annualised terms, 
the  decline  in  France’s  TFP  growth  amounted  to 
0.4 pp.  between  the  2000-2008  period  and  the 
2009-2017  period,  and  is  more  pronounced  than 
that of Germany. As a result, potential TFP growth 
in  France  decoupled  from  Germany  and  is  now 
lower  than  in  Spain,  although  it  remained  higher 
than in Italy (Graph 1.3). 

is  attributable 

Graph 1.2: 

Potential GDP growth breakdown in France 

Source: Commission 2017 autumn forecast 

the 

labour 

input  by  helping 

Structural  reforms  are  key  to  reinforcing  the 
growth  potential,  in  particular  because  they 
help  to  spur  TFP  growth (3).  Increasing  the 
quality  of 
the 
workforce acquire the right set of skills, adjusting 
the regulatory framework to encourage the growth 
of the relatively productive firms, and reducing the 
costs  of  firm  exit  by  facilitating  labour  market 
transitions,  contribute  to  productivity growth.  The 
French  labour  market  is  characterised  by  limited 
mobility  among  sectors  and  regions,  which  may 
hamper  resource  reallocation  and  reduce  TFP 
growth.  Labour  market  segmentation  may  also 
have  a  negative  effect  on  human  capital 
accumulation  (see  Section 4.2).  Inequality  of 
opportunity,  as  evident 
the  strong 
dependence  of  educational  outcomes  on  parental 
background,  may  be  associated  to  suboptimal 
investment in human capital (see Section 4.2). TFP 
growth  may  also  be  hampered  by  burdensome 
regulations,  including  social  and  tax  thresholds 

through 

(3)  Thum-Thysen, A. and R. Raciborski (2017),  Determinants 
of  trend  TFP  growth  and  key  policies  that  influence  it, 
Quarterly Report on the Euro Area, Vol. 16, No 2, October 
2017. 

5 

Source: Commission 2017 autumn forecast 

The  deceleration  in  TFP  growth  prevents  a 
faster  improvement  in  French  competitiveness. 
Wage  increases  have  been  moderate  in  recent 
years.  However, 
labour 
productivity,  largely  due  to  a  decline  in  TFP 
growth  despite  a  continued  increase  in  capital 
intensity,  prevents  a  faster  recovery  of  cost 
competitiveness (see Section 3). 

slowdown  of 

the 

0.0%0.5%1.0%1.5%2.0%2.5%0001020304050607080910111213141516171819Total labour (hours) contributionCapital accumulation contributionTFP contributionPotential GDP growth-0.4%-0.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%0001020304050607080910111213141516171819DEFRITES 
 
 
                                                           
1. Economic situation and outlook 

relatively 
demand (4). 

import-intensive 

components 

of 

As  a  result  of  strong  import  growth,  the  trade 
balance  started  deteriorating  again  in  2016. 
After  reaching  −1.5 %  of  GDP  in  2015,  the  trade 
balance  stood  at  −1.9 %  of  GDP  in  2016,  and  is 
expected  to  reach  a  trough  at  −2.4 %  of  GDP  in 
2017, according to the 2017 autumn forecast. The 
trade  balance  in  the  services  sector  deteriorated 
continuously  since  2012,  becoming  negative  in 
2014.  In  addition,  the  trade  balance  in  goods 
started  deteriorating  again  in  2016,  despite  lower 
oil  prices.  Excluding  energy  products,  the  trade 
balance in goods has been deteriorating since 2014 
(Graph 1.5). 

Graph 1.5: 

Trade balance – France 

that  are  calculated  on  the  basis  of  the  number  of 
employees  a  company  has  (see  Section 4.4).  The 
tax  structure  is  not  very  growth-friendly  (see 
Section 4.1). 

Trade balance and current account 

Export market shares have stabilised since 2012 
(see  Section  4.3).  A  number  of  temporary  factors 
affected  export  growth  in  2016.  In  particular, 
exports of refined petroleum products were hit by 
strikes  in  the  refineries  in  the  second  quarter  of 
2016,  while  unfavourable  weather  conditions 
damaged  agricultural  crops,  and 
terrorist 
attacks  hampered  tourism  exports.  As  a  result, 
growth  in  French  exports  remained  subdued  in 
2016  at  1.8 %,  below  both  export  market  growth 
(2.8 %)  and  world 
these 
temporary factors fade, export growth is forecast to 
gradually recover. 

trade  (2.4 %).  As 

the 

Graph 1.4: 

Evolution of import penetration in selected 
euro area countries 

Source: Commission 2017 autumn forecast 

result  of  globalisation.  However, 

By  contrast,  import  growth  has  proved  robust. 
Imports  have  accounted  for  a  growing  share  of 
GDP in volume. Above all, the increase in import 
penetration reflects general trends in world trade as 
import 
a 
penetration  has  increased  faster  in  France  than  in 
other  major  euro-area  economies  since  2010 
(Graph 1.4).  The  strong  import  growth  in  France 
reflects to some extent the composition of demand 
in recent years, characterised by the fast growth of 

Source: Insee 

In line with developments in the trade balance, 
the  current  account  deteriorated 
in  2016. 
According  to  balance  of  payment  statistics,  the 
current  account  balance  reached  −0.9 %  in  2016, 
after  registering  −0.4 %  in  2015.  In  cyclically-
adjusted  terms,  France  retained  a  sizeable  current 
account  deficit (5).  The  current  account  deficit  is 
larger  than  the  one  required  to  stabilise  the  net 
international  investment  position  (NIIP)  over  10 

(4) 

'Focus  –  The  sharp  rise  in  manufacturing  imports  since 
2014  reflects  the  composition  of  demand,  except  in 
transport equipment', Conjoncture in France, Insee, March 
2017. 

(5)  The  cyclically-adjusted  current  account  deficit  is  worth 
2.8 % of GDP. Due to strong statistical differences between 
balance of payments (BoP) and national accounts data, on a 
BoP basis the cyclically adjusted deficit is close to 1 %. 

6 

90951001051101151201251301011121314151617(f)18(f)19(f)2010=100Ratio of imports over GDP (in volume)FRDEITESEA-19-4%-3%-2%-1%0%1%2%3%4%0001020304050607080910111213141516ServicesGoods excl. energyCIF/FOB correctionEnergyTotalTotal excl. energy% of GDP 
 
 
                                                           
1. Economic situation and outlook 

Graph 1.6:  Household and non-financial corporation 

indebtedness 

Source: Eurostat 

to 

the 

the 

institution  commits 

than  10 pps  above 

investment-over-gross-savings 

of the Haut Conseil de stabilité financière whereby 
take  additional 
the 
prudential  measures  in  case  vulnerabilities  and 
risks related to private debt justify it. At 89.7 % of 
GDP in 2016, non-financial corporation debt stood 
fundamental 
more 
benchmark  obtained  with  regressions  (Graph 1.7), 
and also above prudential threshold, and should be 
monitored (7).  Non-financial  corporations  are 
expected to continue to rely on external financing 
since 
ratio 
stands  at  quite  high  levels,  substantially  higher 
than before the crisis (126.4 % in 2016, compared 
with  approximately  116 %  in  2007  and  2008). 
However, risks tend to be mitigated by the fact that 
this  growth  in  corporate  debt  seems  to  be  mainly 
issuance  of  bonds  by 
driven  by 
large 
the 
the  capital  markets  (INSEE, 
corporations  on 
2017b). As for the balance sheet structure of non-
financial corporations in France, the proportion of 
short-term  debt  over  total  debt  has  decreased 
regularly since the start of the crisis, from 34.3 % 
in  2007  to  28.9 %  in  2016,  which  limits  the 
problem  of  short-term  refinancing.  At  present, 
interest  payments  as  a  proportion  of  gross  value 

(7)  Fundamental-based 

are 

derived 

from 
benchmarks 
regressions  capturing  the  main  determinants  of  credit 
growth and taking into account a given initial stock of debt. 
Prudential  thresholds  represent  the  debt  threshold  beyond 
which 
is  high, 
minimising the probability of missed crisis and that of false 
alerts.  See 
(2017), 
"Benchmarks for the assessment of private debt", Note for 
the Economic Policy Committee". 

the  probability  of  a  banking  crisis 

also  European  Commission 

years (this latter standing at −0.5 % of GDP), and 
larger than the current account 'norm' (6) explained 
by fundamentals (+0.2 % of GDP). 

France's net borrowing has deteriorated as well 
to  −2.5 %  of  GDP  in  2016  and  is  expected  to 
deteriorate  further  to  −3.1 %  in  2017.  Net 
lending by households remains insufficient to fully 
finance  net  borrowing  by  the  general  government 
and  by  non-financial  corporations.  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  the 
euro area average. 

Private indebtedness 

The  level  of  consolidated  private  debt  has 
steadily increased since 1998, reaching 146.9 % 
of  GDP  in  2016.  Both  household  debt  and  non-
financial  corporation  debt  continued  to  grow  at  a 
relatively  rapid  pace  throughout  the  crisis  and  in 
subsequent  years  (Graph 1.6).  By  contrast,  in  the 
rest of the euro area, private debt has been falling 
since  2009.  While  household  debt  is  in  line  with 
the  euro  area  average,  the  debt  of  French  non-
financial  corporations  exceeded  the  euro  area 
average by 10.0 pps in 2016. 

(ii) 

Increasing  household  indebtedness  does  not 
seem  a  source  of  concern  in  the  near  future. 
This  is  because  of  (i)  the  prevalence  of  fixed-rate 
the  particular  French  system  of 
loans, 
guarantees  (granted  by  a  bank  or  an  insurer)  that 
provides an additional safety net in case of default, 
(iii)  the  comparatively  good  credit  profile  of 
borrowers,  (iv)  the  absence  of  any  particular  tax 
incentive  to  take  up  a  housing  loan,  and  (v)  a 
history of  low  defaults even  during  the  crisis (see 
Section 4.4). 

High  non-financial  corporation  debt,  combined 
with  still  low profitability,  is  a  potential  source 
of concern for France, should this trend persist. 
This is underlined by the 15 December 2017 report 

(6)  The  current  account  'norm'  benchmark  is  derived  from 
regressions  capturing  the  main  fundamental  determinants 
of  the  saving-investment  balance  (e.g.  demographics, 
resources),  as  well  as  policy  factors  and  global  financial 
conditions.  See  also  European  Commission,  2017, 
'Empirical  current  account  benchmarks:  modelling  the 
impact  of  demographic  variables',  LIME  Working  Group, 
24 April 2017. 

7 

0%20%40%60%80%100%120%140%160%04050607080910111213141516HouseholdsNon-financial corporationsPrivate sector EA19Private sectorMIP threshold% of GDP 
                                                           
 
                                                           
1. Economic situation and outlook 

preventive  arm  of  the  Stability  and  Growth  Pact 
and  the  transitional  debt  rule.  For  2019,  at 
unchanged  policies (9),  the  deficit  is  projected  to 
increase  to  3.0 %  of  GDP,  which  implies  a 
structural deterioration of 0.3 % of GDP. 

No reduction in the general government debt is 
foreseen  over  the  forecast  horizon.  The  public 
debt-to-GDP ratio reached 96.5 % of GDP in 2016, 
compared  with  91.1 %  for  the  euro  area  on 
average.  This  difference  between  France  and  the 
euro  area  average  is  expected  to  widen  further  in 
the  coming  years  (see Section 4.1)  as  the  French 
debt  ratio  is  forecast  to  keep  rising  in  2017  to 
96.9 % of GDP and remain at this level until 2019. 
This is mainly due to the projected deterioration of 
the  structural  deficit.  Despite  the  lack  of  progress 
in  public  debt  reduction,  sovereign  yields  remain 
very  low,  driven  by  the  expansionary  monetary 
policy  of  the  European  Central  Bank,  and  no 
refinancing issues have been detected. 

Social developments 

of 

for 

rate 

Despite  recent  labour  market  improvements, 
some  groups  of 
the  population  are  still 
disadvantaged. Education levels are a determining 
labour  market  performance.  The 
factor 
people  without 
unemployment 
qualifications  increased  from  2015  to  2016  by 
0.4 pp. to 18 %. It remained stable for graduates of 
upper-secondary  education  and  decreased  by 
0.6 pp. to 5.7 % for graduates of higher education. 
Divergence  in  opportunities  starts  in  school,  as 
PISA  results  highlight  a  strong  performance  gap 
depending  on  socioeconomic  background.  People 
not  born  in  the  EU  experience  a  large  and 
increasing  employment  gap  compared  to  those 
born in France (17.5 pps in 2016), and the children 
of  those  born  outside  the  EU  also  struggle  to 
overcome this gap. 

The  French  labour  market  is  also  marked  by 
entrenched segmentation. An increasing share of 
employees  is  on  temporary  contracts  and  is  very 
unlikely  to  move  to  permanent  contracts  (the 
transition  rate  was  at  13 %  in  2016,  one  of  the 
lowest  in  the  EU).  Compared  to  other  countries, 

(9)  This also implies that the envisaged replacement of the Tax 
Credit  for  Competitiveness  and  Employment  (Crédit 
d'impôt  pour  la  compétitivité  et  l'emploi  –  CICE)  by  a 
permanent  reduction  in  social  contributions  (see  section 
4.1) is not factored in Commission's projections. 

added  are  relatively  low.  In  2016,  they  stood  at 
4.6 %,  which  is  less  than  half  the  peak  value  of 
11.2 % reached in 2008. In spite of this decreasing 
trend  in  recent  years,  interest  payments  as  a 
proportion  of  gross  value 
remain 
substantially  above  the  average  value  of  2.6 %  in 
the 19 countries of the euro area. 

added 

Graph 1.7: 

France – non-financial corporation debt: gaps 
relative to benchmarks 

Source: European Commission 

Public finances 

to 

budgetary 

is  projected  to 

the  general  government  deficit 

The  reduction  of  the  deficit  below  the  3 %  of 
GDP  reference  value  seems  durable,  but  the 
increase. 
structural  deficit 
the  Commission  2017  autumn 
According 
forecast, 
is 
expected  to  fall  to  2.9 %  of  GDP  in  2017,  in  part 
due  to  the  additional  consolidation  measures  of 
more  than  EUR  4  billion  to  offset  previously 
detected state expenditure slippages. However, the 
of  AREVA’s (8) 
final 
impact 
recapitalisation  and  the  repeal  of  the  3 %  tax  on 
dividends,  both  pending  a  final  decision  by 
Eurostat,  might  compromise  the  reduction  of  the 
excessive  deficit  below  the  3 %  reference  value. 
Based  on  the  measures  presented  in  the  draft 
budgetary plan, the government deficit is expected 
to remain at 2.9 % of GDP in 2018. The structural 
balance,  however,  is  projected  to  deteriorate  by 
0.4 %  of  GDP,  which  contrasts  with 
the 
improvement  required  by  the  provisions  of  the 

(8)  The  French  multinational  group  specialised  in  nuclear 

power and renewable energy. 

8 

-50510152025303540990001020304050607080910111213141516% of GDPPrudential thresholdFundamental benchmark 
 
                                                           
                                                           
1. Economic situation and outlook 

women  occupy  a  relatively  good  position  in  the 
labour market compared to men, although women 
are  more  likely  to  be  in  part-time  work  than  men 
(22.2 %). 

Overall,  France  has  relatively  low  levels  of 
poverty,  but  the  risk  of  social  exclusion  is 
increasing.  The  poverty  rate  remained  stable  in 
2016 at 13.6 %, at 3.6 pps below the EU and euro 
area  averages.  The  impact  of  social  transfers  on 
poverty reduction was 42.4 % in 2016, 9 pps above 
the EU average, although these social transfers are 
being reduced. The percentage of people at risk of 
poverty or social exclusion increased to 18.2 % in 
2016,  from  17.7 %  in  2015,  but  is  still  below  the 
average EU level of 23.5 %. 

While income inequality in France is below the 
EU  average,  equality  of  opportunity  deserves 
attention. Income inequality measured through the 
Gini  index  of  disposable  income  was  relatively 
unchanged in 2016 compared to the previous year 
at 29.3 % in 2016, below the EU average of 31 % 
in  2015.  In  2016,  the  ratio  of  the  average  income 
of  the  bottom  quintile  to  that  of  the  first  quintile 
was  unchanged  at  4.3  in  2016,  below  the  EU 
average of 5.2 (10). This is the result of an effective 
tax  and  benefit  system  and  comparatively  low 
wage  dispersion.  However,  educational  outcomes 
are  highly  dependent  on  social  background. 
Moreover,  the  risk  of  poverty  for  the  children  of 
low-skilled  parents  has  been  rising  and  is  now 
above the EU average. 

(10)  The  Gini  index  considers  the  shape  of  the  whole  income 
distribution  and  takes  values between  0  and  1  (or  100 %), 
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. 

9 

 
 
 
 
 
 
 
                                                           
 
 
 
 
 
 
 
 
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) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
Source: Eurostat and ECB as of 30 Jan 2018, where available; European Commission for forecast figures (Winter forecast 2018 
for real GDP and HICP, Autumn forecast 2017 otherwise)                                                                                                   t 

10 

2004-072008-122013-1420152016201720182019Real GDP (y-o-y)2.30.30.81.11.21.82.01.8Potential growth (y-o-y)1.71.10.90.91.01.21.21.3Private consumption (y-o-y)2.30.50.61.42.2...Public consumption (y-o-y)1.71.51.41.11.3...Gross fixed capital formation (y-o-y)3.9-0.9-0.41.02.8...Exports of goods and services (y-o-y)4.31.22.64.31.8...Imports of goods and services (y-o-y) 6.01.33.55.74.2...Contribution to GDP growth:Domestic demand (y-o-y)2.50.50.61.32.1...Inventories (y-o-y)0.2-0.10.50.3-0.2...Net exports (y-o-y)-0.40.0-0.3-0.5-0.8...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.30.20.20.20.20.30.30.3Capital accumulation (y-o-y)0.80.60.40.40.50.50.60.6Total factor productivity (y-o-y)0.70.30.30.30.30.30.40.4Output gap2.1-0.8-1.5-1.4-1.2-0.8-0.20.1Unemployment rate8.79.010.310.410.19.59.38.9GDP deflator (y-o-y)2.11.10.71.10.40.91.41.5Harmonised index of consumer prices (HICP, y-o-y)1.91.90.80.10.31.21.51.5Nominal compensation per employee (y-o-y)3.02.51.50.91.01.72.02.0Labour productivity (real, person employed, y-o-y)1.40.20.40.80.5...Unit labour costs (ULC, whole economy, y-o-y)1.62.11.00.00.31.11.11.3Real unit labour costs (y-o-y)-0.51.00.3-1.1-0.10.2-0.2-0.2Real effective exchange rate (ULC, y-o-y)0.8-0.31.9-4.5-0.21.71.8-0.5Real effective exchange rate (HICP, y-o-y)0.0-1.21.0-4.51.30.31.7.Savings rate of households (net saving as percentage of net disposable income)9.910.08.98.58.2...Private credit flow, consolidated (% of GDP)8.65.72.74.96.2...Private sector debt, consolidated (% of GDP)110.6131.7139.8143.7146.9...of which household debt, consolidated (% of GDP)42.853.055.756.257.2...of which non-financial corporate debt, consolidated (% of GDP)67.878.784.187.489.7...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)2.64.24.13.53.2...Corporations, net lending (+) or net borrowing (-) (% of GDP)-0.3-0.4-2.2-1.7-1.9-2.9-2.5-2.3Corporations, gross operating surplus (% of GDP)18.017.517.018.017.717.417.617.7Households, net lending (+) or net borrowing (-) (% of GDP)2.83.83.23.02.82.72.62.5Deflated house price index (y-o-y)9.7-0.3-2.1-1.81.0...Residential investment (% of GDP)6.36.46.15.96.0...Current account balance (% of GDP), balance of payments0.0-1.0-1.0-0.2-0.9-1.4-1.2-1.1Trade balance (% of GDP), balance of payments-0.1-1.5-1.1-0.7-1.2...Terms of trade of goods and services (y-o-y)-0.6-0.41.23.10.8-0.60.60.4Capital account balance (% of GDP)0.10.10.10.10.0...Net international investment position (% of GDP)-4.8-11.9-16.1-15.7-15.7...Net marketable external debt (% of GDP) (1).-23.8-29.0-31.2-32.1...Gross marketable external debt (% of GDP) (1).238.9237.5238.7243.1...Export performance vs. advanced countries (% change over 5 years)-4.8-8.8-8.4-4.2-5.1...Export market share, goods and services (y-o-y)-4.5-3.91.3-1.10.7...Net FDI flows (% of GDP)1.71.50.6-0.10.7...General government balance (% of GDP)-2.9-5.4-4.0-3.6-3.4-2.9-2.9-3.0Structural budget balance (% of GDP).-5.0-3.2-2.7-2.6-2.4-2.7-3.0General government gross debt (% of GDP)65.480.793.795.896.596.996.996.9Tax-to-GDP ratio (%)44.444.847.547.547.547.847.647.4Tax rate for a single person earning the average wage (%)28.627.928.528.929.1...Tax rate for a single person earning 50% of the average wage (%)18.418.819.222.118.4...forecast 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

longer 

term  perspective  since 

Progress in implementing the recommendations 
addressed  to  France  in  2017 (11) has  to  be  seen 
in  a 
the 
introduction of the European Semester in 2011. 
Looking  at  the  multi-annual  assessment  of  the 
implementation of the CSRs since these were first 
adopted, 72 % of all the CSRs addressed to France 
have  recorded  at  least  'some  progress'.  28 %  of 
these  CSRs  recorded  'limited  progress'  or  'no 
progress' (see Figure 2.1). Substantial progress has 
been achieved in decreasing the cost of labour and 
reforming  the  labour  law.  Other  areas  where 
progress in implementing CSRs is more visible in 
addressing  challenges  relate  to  the  long-term 
sustainability  of  public  finances,  skills  and  life-
long learning, as well as the business environment. 

Graph 2.1:  Overall multiannual implementation of 2011-

2017 CSRs to date 

* The overall assessment of the country-specific 
recommendations related to fiscal policy exclude 
compliance with the Stability and Growth Pact. 
** 2011-2012: Different CSR assessment categories.  
***The multiannual CSR assessment looks at the 
implementation since the CSRs were first adopted until the 
February 2018 Country report. 
Source: European Commission 

In  terms  of  public  finances,  the  general 
government  deficit  has  decreased  over  time, 
while  public  debt  is  stabilising.  The  general 
government  deficit  decreased  by  1.7  pp.  between 
2011  and  2016,  from  5.1 %  to  3.4 %  of  GDP. 
While  initially  relying  more  on  tax  increases,  the 
consolidation  strategy  became  increasingly  reliant 
on  declining  interest  payments,  thanks  to  the 
prevailing low interest rates, and public investment 
cuts.  A  more  systematic  evaluation  of  public 
policies  was  pursued  and  reinforced  by 
the 
introduction  of  annual  spending  reviews  since 
savings  and 
2014.  However, 

resulting 

the 

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

past, see in particular Section 4. 

efficiency  gains  were  limited  due  to  a  lack  of 
appropriate follow-up and low political ownership. 
A  ceiling  to  the  growth  rate  of  spending  on 
healthcare  and  on  operational  spending  at  local 
authorities' level was introduced. While the former 
was  systematically  respected,  the  ceiling  for  local 
authorities  is  not  binding  and  its  respect  has  been 
ensured  by  cuts  in  local  investment.  Finally,  the 
long-term 
the 
complementary  pension  schemes  was  improved. 
Nonetheless,  structural  deficits  remained  high, 
hampering efforts to reduce public debt. Therefore, 
ensuring  sound  and  sustainable  public  finances 
remains  a  challenge,  especially  in  the  medium 
term, given the age-related expenditure trajectory. 

sustainability 

financial 

of 

Recent  reforms  are  expected  to  improve  the 
functioning of the labour market over time. The 
labour law has been modified to encourage hiring 
on permanent contracts, notably by reducing legal 
uncertainty  over  individual  dismissals.  Flexibility 
has been increased at company level, thanks to the 
simplifications  of  rules  on  collective  dismissals, 
the possibility to sign agreements at company level 
partially  derogating  from  branch  level  provisions, 
and  the  creation  of  company-level  agreements  to 
modify wages and adapt working hours in case of 
economic  difficulty.  The  most  recent  reforms  aim 
to  streamline  social  dialogue,  simplifying  its 
procedures  and  the  entities  involved.  The  training 
system  has  been 
reinforced  and  a  compte 
personnel  d'activité  has  been  set  up  to  allow  all 
workers (including civil servants, unemployed and 
the  self-employed)  to  access  and  manage  all  the 
rights  acquired,  both  in  terms  of  training  and 
recognition  of  periods  of  hardship,  throughout 
their career. The reforms that have been announced 
are  expected  to  complement  past  policy  actions. 
They will do this by reforming the unemployment 
benefit  system  and  the  vocational  education  and 
the 
training 
calculation rules for the different pension schemes. 

and  by  harmonising 

system, 

Since  2011,  efforts  have  been  made  to  improve 
the  business  environment.  A  simplification 
programme  was  launched  in  2013  to  reduce  red 
tape.  New  measures  have  recently  been  taken  or 
announced to limit the proliferation of regulations 
and  to  improve  relations  between  businesses  and 
public  authorities.  An  action  plan  is  currently 
being  drawn  up  to  foster  entrepreneurship  and 
business  growth.  To  develop  activity  in  the 

11 

 
 
 
                                                           
2. Progress with country-specific recommendations 

the  governance  of 

2018. Its aim is to improve the quality of training 
and 
the  overall  system. 
However,  little  progress has been  made  to benefit 
people  with  a  migrant  background.  Despite  only 
moderate nominal increase in the minimum wage, 
which followed its indexation rule since 2013, the 
employment  rate  of  lower-skilled  people  has 
continued to decline. This highlights the need for a 
comprehensive strategy to address this issue (CSR 
3).  On  the  reduction  of  the  regulatory  burden  for 
firms (CSR 4), a circular was adopted to limit the 
proliferation  of  regulations,  better  assess  their 
the  ‘over-
impact  on  businesses,  and  avoid 
transposition’  of  EU  directives  into  French  law. 
The  French  government  has  also  presented  a  bill 
including  a  ‘right 
to  make  a  mistake’  for 
entrepreneurs acting in good faith in their dealings 
with  public  authorities.  More  progress  in  lifting 
barriers  to  competition  in  the  services  sector  is 
warranted.  Assessments  are  being  carried  out  on 
the  efficiency  of  public  support  schemes  for 
innovation, but it remains to be seen how they will 
industry  and 
be 
into  action.  An 
innovation  fund  will  be  set  up 
to  support 
breakthrough innovation. 

translated 

European  Structural  and  Investment  (ESI) 
Funds  contribute  in  addressing  key  challenges 
to  inclusive  growth  and  convergence  in  France 
(see Box 2.1), notably by improving labour market 
access, focusing on the less qualified and the most 
vulnerable by reinforcing counselling schemes and 
addressing  early-school  leaving.  ESI  Funds  boost 
for  both 
vocational  education  and 
employed 
support 
unemployed 
and 
apprenticeship  and  employment  opportunities  for 
people  further  away  from  the  labour  market.  ESI 
Funds  also  contribute  to  improving  cooperation 
and  networking  between  enterprises  and  public 
research institutions. 

training 
and 

services  sector,  the  ‘Macron  law’  in  2015  lifted 
restrictions in a number of services sectors such as 
the  legal  professions.  No  substantial  measures 
have been adopted since then, although regulatory 
and  administrative  requirements  still  hamper  the 
uptake of digital technologies in the services sector 
(European Commission, 2018c). A clarification of 
the  French  state’s  objectives  as  shareholder, 
including in the railway and energy sectors, would 
complement  the  policy  actions  undertaken  in  this 
area.  Lastly,  some  initiatives  have  been  launched 
to  further  support  public  and  private  R&D 
activities  but  the  efficiency  of  such  measures 
cannot be assessed yet. 

labour 

through 

the  Tax  Credit 

Some  progress  has  been  made  to  address  the 
high  tax  burden  faced  by  companies.  Since 
2011, substantial efforts have been made to reduce 
the tax burden on companies and decrease the cost 
of 
for 
Competitiveness and Employment (Crédit d'impôt 
pour  la  compétitivité  et  l'emploi  -  CICE)  and  the 
Responsibility  and  Solidarity  Pact  (Pacte  de 
responsabilité et de solidarité). However, efforts to 
broaden the tax base on consumption and simplify 
the  tax  system  and  improve  its  efficiency  have 
been limited. 

the 

Overall, France has made some progress (12) in 
country-specific 
addressing 
2017 
recommendations.  Public  debt  continued 
to 
increase  in  2017  and  remains  high,  although  it  is 
expected to stabilise over the forecast horizon. The 
government  has  launched  a  new  strategy  to 
increase  efficiency  in  public  expenditure  Public 
Action  2022  (Action  Publique  2022).  However 
details of the new approach are not yet known nor 
are  the  potentially  associated  public  expenditure 
savings.  The  reduction  of  public  expenditure  is 
meant  to  contribute  to  achieving  the  objective  to 
reduce  the  deficit  and  to  counterbalance  cuts  in 
public revenues, due to the reduced tax burden on 
companies and the additional reductions in the cost 
of  labour  in  2019.  France  is  also  conducting  an 
that 
important  reform  of  capital 
is 
restore 
expected 
attractiveness (CSR 2). A reform of the vocational 
education  and  training  system  will  be  unveiled  in 

taxation 
increase  efficiency  and 

to 

(12)  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. 

12 

 
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Summary Table on 2017  country-specific recommendations assessment 

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

13 

France Overall assessment of progress with 2017 CSRs: Some CSR 1: Ensure compliance with the Council recommendation of 10 March 2015 under the excessive deficit procedure. Pursue a substantial fiscal effort in 2018 in line with the requirements of the preventive arm of the Stability and Growth Pact, taking into account the need to strengthen the ongoing recovery and to ensure the sustainability of France’s public finances. Comprehensively review expenditure items with the aim to make efficiency gains that translate into expenditure savings. (MIP relevant) Limited progress(1)  Limited progress in ensuring the sustainability of France’s public finances.  Limited progress in reviewing expenditure items.  CSR 2: 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 statutory corporate-income rate. (MIP relevant) Some progress   Some progress in consolidating and maximising the efficiency of measures reducing the cost of labour.  Some progress in broadening the overall tax base and in decreasing the corporate income tax rate.  CSR 3: Improve access to the labour market for jobseekers, in particular 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. (MIP relevant) Some progress  Some progress in improving access to the labour market for jobseekers.  Limited progress in revising the system of vocational education and training.  Some progress in ensuring minimum wage developments consistent with job creation and competitiveness. CSR 4: 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. (MIP relevant) Limited progress  Some progress in further reducing the regulatory burden for firms.  No progress in continuing to lift barriers to competition in the services sector.  Limited progress in simplifying and improving the efficiency of public support schemes for innovation.   
 
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: Tangible results delivered through EU support to structural change in France 

France is a beneficiary of significant European Structural and Investment Funds (ESI Funds) support 
and can receive up to EUR 26.8 billion until 2020. This represents around 4 % of public investment (1) 
annually over the period 2014-2018. By 31 December 2017, an estimated EUR 11.4 billion (42 % (2) of the 
total) was allocated to projects on the ground. This has paved the way for over 5 000 enterprises to cooperate 
with research institutions; over 100 firms are being supported to introduce new products to the markets they 
operate  in;  2  000  households  have  received    access  to  broadband  and  more  than  350  000  persons  have 
benefitted from integrated urban development strategies.  

ESI funds help address structural policy challenges and implement country specific recommendations. 
The European Social Fund (ESF) and the Youth Employment Initiative (YEI) support the improvement of 
labour  market  access,  focusing  on  the  less  qualified  and  the  most  vulnerable,  notably  by  co-financing 
reinforced  counselling  schemes,  such  as  the  'Garantie  jeunes'  or  'Accompagnement  global',  by  supporting 
measures  to  address  early-school  leaving.  ESI  Funds  boost  the  offer  of  initial  and  continuous  vocational 
education  and  training  for  both  employees  and  for  the  unemployed,  including  by  increasing  support  to 
apprenticeship or supporting measures which provide employment opportunities in specific social structures 
for people further away from the labour market. Over 1.5 million people had participated in actions financed 
by  the  ESF  and  the  YEI  within  the  national  programmes,  which  include  some  65 %  of  the  available 
ESF/YEI  funding  for  France,  adding  to  the  participants  supported  by  the  regional  programmes.  62 %  of 
youngsters so far supported by the YEI national programme were either employed (49 %) or in education or 
training (13 %) 6 months after their participation. 

Various  reforms  were  undertaken  already  as  precondition  for  ESI  Funds  support (3).  Smart 
Specialisation  Strategies  for  research  and  innovation  were  developed  to  focus  efforts  on  product 
specialisation  with  strong  market  potential.  This has  also helped  improve  cooperation  between  enterprises 
and public research institutions. ESI funds also support research infrastructures, which enable the pursuit of 
both research excellence and the development of local ecosystems for research and innovation that in turn 
create growth and jobs. 

France  is  advancing  the  take  up  of  the  European  Fund  for  Strategic  Investments  (EFSI).  As  of 
December  2017,  overall  financing  volume  of  operations  approved  under  the  EFSI  amounted  to  EUR  8.6 
billion,  which  is  expected  to  trigger  total  private  and  public  investment  of  EUR  39.6  billion.  More 
specifically, 79 projects involving France have been approved so far under the Infrastructure and Innovation 
Window  (including  27  multi-country  projects),  amounting  to  EUR  7  billion  in  EIB  financing  under  the 
EFSI.  This  is  expected  to  trigger  about  EUR  30.4  billion  in  investments.  Under  the  SME  Window,  32 
agreements with  financial  intermediaries have  been  approved  so far. European  Investment  Fund financing 
enabled  by  the  EFSI  amounts  to  EUR  1.6  billion,  which  is  expected  to  mobilise  approximatively  EUR  9 
billion in total investment. Over 82 000 smaller companies or start-ups will benefit from this support. SMEs 
rank first in terms of operations and volume approved, followed by RDI, energy and digital. 

Funding under Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is 
additional  to  the  ESI  Funds.  By  the  end  of  2017,  France  has  signed  agreements  for  EUR  2  billion  for 
projects under the Connecting Europe Facility. 

https://cohesiondata.ec.europa.eu/countries/FR 

(1)  Public investment is defined as gross fixed capital formation + investment grants + national expenditure on agriculture 

and fisheries. 

(2)  Update  financial  figures  are  available  at  beginning  February  2018  and  will  be  included  in  the  final  version  by  9 

February. 

(3)  Before  programmes  are  adopted,  Member  States  are  required  to  comply  with  a  number  of  so-called  ex-ante 

conditionalities, which aim at improving conditions for the majority of public investments areas. 

14 

 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE 

MACROECONOMIC IMBALANCE PROCEDURE IN-DEPTH 
REVIEW 

relating 

in  particular 

The in-depth review for the French economy is 
presented  in  this  report.  In  spring  2017,  France 
was identified as having excessive macroeconomic 
imbalances, 
to  weak 
competitiveness and high public debt, in a context 
of  low  productivity  growth.  The  2018  Alert 
Mechanism  Report 
(European  Commission, 
2017h)  concluded  that  a  new  in-depth  review 
to  assess 
should  be  undertaken  for  France 
developments  relating  to  identified  imbalances. 
Analyses  relevant  for  the  in-depth  review  can  be 
found in following sections: sources of imbalances 
related  to  public  debt  are  covered  in  Section  4.1; 
the  situation  of  the  labour  market  in  Section  4.2 
and  the  business  environment  in  Section  4.3. 
Potential spillovers to the rest of the euro area are 
discussed in Box 3.1 (*). 

Imbalances and their gravity 

Competitiveness  has  stopped  deteriorating, 
while  the  full  impact  of  structural  reforms  has 
still to materialise. As analysed in Sections 1 and 
4.3, 
the  export  performance  of  France  has 
stabilised compared to the decline observed in the 
past. However, in terms of trade balance, both the 
trade balance in goods and in services deteriorated 
in  2016.  The  current  account  deficit  reached 
−0.9 % of GDP (13), accompanied by a decrease in 
the  cyclically  adjusted  current  account  balance by 
0.3 pp. (14). It remains larger the deficit required to 
keep  the  Net  International  Investment  Position 
(NIIP)  in  balance  (−0.5 %  of  GDP)  or  the  one 
explained  by  fundamentals  (+0.2 %  of  GDP) (15). 
Labour cost growth continues to be moderate, but 
the decline in productivity growth prevents a faster 

(*)  An  asterisk  indicates  that  the  analysis  in  the  section 
continues to the in-depth review under the macroeconomic 
imbalances procedure (MIP). 

(13)  Current  account  figures  vary  according  to  the  data  source 
used.  The  current  account  balance  was  equal  to  -0.9 %  of 
GDP when  measured using Balance of Payments data and 
equal  to  -1.5 %  when  measured  using  national  accounts 
statistics.  

(14)  Cyclically  adjusted  current  account  is  the  current  account 
adjusted  for  the  domestic  and  foreign  output  gaps,  taking 
into account trade openness. 

(15)  The average current account needed in order to stabilise the 
NIIP is based on T+10 European Commission projections. 
The  current  account  explained  by  fundamentals  refers  to 
the  expected  current  account  given  the  level  of  its 
fundamentals with respect to world average. 

recovery  of  France's  competitiveness.  The  effects 
of  labour  and  product  market  reforms  recently 
announced  or  undertaken  will  take  some  time  to 
materialise.  Considerable  improvements  in  the 
competitiveness  of  the  French  economy  may  thus 
be expected only in the medium term. 

Growth  in  unit  labour  costs  is  recovering.  Unit 
labour  costs  in  non-agricultural  market  sectors 
have been growing since the third quarter of 2016. 
This  is  the  result  of  increased  gross  wages  per 
person,  driven  by  the  cyclical  upswing,  weak 
productivity growth, and the end of the ramp-up of 
measures  to  decrease  the  cost  of  labour  (Graph 
3.1).  In  real  terms,  unit  labour  costs  increased  by 
0.3 %  in  2016,  after  a  decrease  of  0.8 %  in  2015. 
The  construction  and  market  services  sectors  are 
contributing the most to the overall unit labour cost 
dynamics,  with  an  average  annual  growth  rate 
equal  to  2.7 %  for  the  former  and  1.1 %  for  the 
latter between 2008 and 2016. More precisely, unit 
labour  costs  in  the  construction  sector  have  been 
increasing  more  quickly  than  the  average  for  the 
sector  in  the  euro  area  (1.3 %)  or  in  other 
comparable  Member  States  of  the  EU,  such  as 
Germany (2.0 %) and Italy (2.0 %).   

Labour  productivity  growth  remains  subdued. 
Productivity  growth  fell  from  0.8 %  in  2015  to 
0.5 % in 2016, in line with the data for the EU and 
the euro area. It remained slower than in Germany 
(0.6 %) and Spain (0.7 %), but faster than in Italy 
(−0.3 %).  This  deceleration  is  partially  explained 
by  the  strong  job  creation  observed  over  the  year 
(Sections  1  and  4.2).  It  continued  in  2017  as 
productivity growth is estimated to be only 0.3 %. 
In 2018 and beyond, labour productivity is forecast 
to  progressively  reach  a  growth  level  close  to  its 
trend 
from 
employment  policies  (e.g.  reduction  in  the  crédit 
d'impôt  pour  la  compétitivité  et  l'emploi  rate,  end 
of  the  subsidy  for  new  hires,  and  reduction  in 
subsidised  schemes).  Nevertheless,  the  current 
trend productivity growth remains lower than prior 
to  the  crisis.  The  productivity  gap  between  the 
most  and  the  least  productive  companies  has 
increased  due  to  low  levels  of  sectoral  and 
geographical mobility  in  the  factors of production 

to  a  milder  support 

rate  due 

15 

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

trade 

strong 

several  other  Member  States.  France  shows 
particularly 
linkages  with 
neighbouring  euro  area  countries  and  the  UK. 
Financial  and  banking  linkages  between  France 
and  the  rest  of  euro  area  are  likewise  important. 
Box 3.1 illustrates how structural reform measures 
in France can carry both domestic and cross-border 
positive effects. The simulations presented therein 
follow 
area 
recommendations (16),  notably  as  for  increasing 
productivity and growth potential.   

spirit 

euro 

the 

the 

of 

Evolution, prospects and policy responses 

a 

into 

permanent 

Changes  in  the  measures  to  reduce  the  cost  of 
labour may have some effects in the short term 
and  be  relatively  more  favourable  to  lower-
skilled  workers.  The  transformation  of  the  Tax 
Credit  for  Competitiveness  and  Employment 
(Crédit  d'impôt  pour  la  compétitivité  et  l'emploi  - 
in 
reduction 
CICE) 
employers’ social  contributions,  associated 
to 
further  reductions  in  contribution  for  wages  up  to 
1.6 times the minimum wage, is planned for 2019 
(Section  4.1).  This  would  have  a  positive  impact 
on  economic  growth, 
investment  and  other 
macroeconomic  variables  over  the  short  run, 
according  to  the  combined  simulations  based  on 
the  European  Commission’s  EUROMOD  and 
QUEST models  (17).  As  shown  in  Figure  3.2, 
changes  to  this  tax  credit would  increase GDP  by 
0.23 % in 2019 compared to the baseline. This rise 
in  GDP  would  be  accompanied  by  an  equal 
increase  in  consumption  and  a  smaller,  but  more 
persistent, 
The 
distributional  effects  of  this  reform,  both  in  terms 
of  wages  and  employment,  would  favour  lower-
employers’ social 
because 
skilled  workers, 
contributions  would  become  more  progressive, 
making it cheaper to hire these workers.  

investment. 

increase 

in 

in  corporate-income  and 
Planned  changes 
capital taxation should lower the tax burden on 
companies  and  favour  investment.  The  finance 
law for 2018 continues the previous government’s 

(16)  European  Commission  recommendation  for  a  Council 
recommendation  on  the  economic  policy  of  the  euro  area 
(22.11.2017). 

(17)  According to the estimates provided by French authorities, 
this  transformation  is  expected  to  have  limited  results  in 
terms  of  employment,  i.e.  35  000  jobs  maintained  or 
created  in  2019  and  70  000  jobs  maintained  or  created  in 
2020.   

(labour and capital) (Cette, Corde and Lecat, 2017; 
Berthou, 2016; Fontagné and Santoni, 2015).  

Graph 3.1:  Decomposition of unit labour cost rate of 

change 

Source: European Commission 

The  high  public  debt-to-GDP  ratio  in  France 
remains  a  major  source  of  vulnerability  that 
compounds  the  risks  of  weak  competitiveness. 
Public debt grew further in 2017. High public debt 
weighs  on  growth  prospects  by  crowding  out 
productive public expenditure and requiring a high 
tax burden, also to service the interest on the debt. 
This  is  aggravated  by  the  also  high  levels  of 
private  sector  debt,  in  particular  non-financial 
corporations' debt which stands above fundamental 
and  prudential  benchmarks  (see  Section  1),  in  a 
context  of  low  productivity  growth.  High  public 
indebtedness makes France vulnerable, as it limits 
its  fiscal  capacity  to  offset  potential  negative 
shocks to the economy. Moreover, in such a case, 
if the sustainability of public finances were put at 
stake,  the  depreciation  of  public  debt  portfolios 
held by financial institutions could also undermine 
their solvency ratios and their ability to give credit, 
thereby  amplifying  the  negative  effects  of  such 
shocks.  Furthermore,  high  levels  of  public  debt 
combined  with  projections  of  insufficient  fiscal 
effort  and  the  projected  increase  in  pension  and 
healthcare  expenditure  lead  to  high  sustainability 
risks  in  the  medium  term.  Given  its  size,  such  an 
imbalance might entail potentially negative effects 
on other EU countries. 

The  strong  economic  and  financial  integration 
of the French economy with the rest of the euro 
area make it a potential source of spillovers for 

16 

-3-2-10123402030405060708091011121314151617*18*19*Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in 36 industrial competitors of France 
 
                                                           
3. Summary of the main findings from the MIP in-depth review 

regulatory 

companies.  New  programmes  have  also  been 
announced  to  support  research  and  innovation 
activities  (e.g.  Industry  and  Innovation  Fund, 
Fonds  pour  l'industrie  et  l'innovation).  However, 
complex 
administrative 
requirements  are  preventing  the  growth  of  the 
digital  and  collaborative  economy.  The  reduction 
of the regulatory burden and the clarification of the 
objectives  characterising 
the  French  state  as 
shareholder,  including  in  the  railway  and  energy 
sectors,  remain  key  to  improve  the  business 
environment for companies (Sections 4.3 and 4.4). 

and 

Public  debt  remains  high,  although  it  is  set  to 
stabilise 
in  2018.  General  government  debt 
continued to increase in 2016, reaching 96.5 % of 
GDP. It is forecast to peak at 96.9 % in 2017. This 
stands  in  contrast  to  the  rest  of  the  euro  area, 
where  average  debt  levels  are  already  declining 
(Section  4.1).  High  and  increasing  structural 
deficits are set to prevent the public debt ratio from 
decreasing.  In  recent  years,  low  inflation  and  low 
interest  rates  have  reduced  the  interest  burden, 
which  became  the  main  contributor  to  fiscal 
these  benefits  are 
consolidation.  However, 
expected  to  end  2019  as  a  result  of  the  expected 
normalisation of interest rates and higher inflation, 
which  impacts  the  rates  of  return  of  inflation-
indexed bonds.  

The  current  consolidation  strategy  puts  the 
emphasis on containing public expenditure and 
on  reaping  efficiency  gains.  In  the  multiannual 
programming  law  for  2018-2022  the  expenditure-
to-GDP ratio excluding tax credits is set to decline 
by  over  3  pps  between  2017  and  2022.  The 
government  targets  a  very  ambitious  deceleration 
of  the  rate  of  expenditure  growth  compared  to 
previous  attempts.  A  new  expenditure  ceiling  for 
state  expenditure  items  under  the  control  of  the 
government  has  been  introduced.  There  have  also 
been  reductions  in  the  number  of  state-subsidised 
contracts  and 
in  social  housing  allowances. 
Additional  savings  have  been  made  on  the  state 
wage bill by the reintroduction of one unpaid day 
in case of illness, a wage freeze for civil servants, 
and  a  reduction  in  the  number  of  public  sector 
employees. The multiannual programming law for 
2018-2022 sets an operational expenditure growth 
target  of  1.2 %  for  local  authorities  (Objectif 
d'évolution de la Dépense Locale) over that period. 
This  programming  law  also  plans  for  cuts  in 
transfers  from  the  state  to  local  authorities  to  be 

plan  to  reduce  the  corporate  income  tax  rate.  By 
2022, this measure would represent a total of EUR 
11  billion  of  tax  cuts  for  companies  and  is 
expected to increase GDP by about 1.5 percentage 
points  according  to  the  authorities.  In  addition 
recent measures have also targeted capital taxation 
to  reduce  taxes  on  capital  gains,  dividends  and 
interests to encourage investments in companies. A 
new flat rate of 30 % will apply on capital income 
and replace the current progressive system, which 
taxes capital income at a higher rate with targeted 
incentives or rebates related to the duration or the 
type of investment.  

Recently  adopted  labour  market  reforms  may 
also  contribute  to  the  competitiveness  of  the 
French  economy.  The  new  reform  of  the  labour 
law began with the Enabling Act of August 2017. 
It strengthens the new type of collective agreement 
(accords  de  compétitivité),  introduced  by  the 
Labour  Act  of  8  August  2016  to  maintain  or 
increase  employment  within  a  company.  It  allows 
to further review employees’ remuneration beyond 
working  time  conditions,  allowing  companies  to 
dismiss employees that refuse such agreements on 
real  and  serious  grounds.  Moreover,  the  2017 
reform 
for 
compensations  awarded  by  labour  courts  (called 
prud'hommes  in  France)  and allows  for  company-
level  agreements  to  prevail  in  the  definition  of 
wage  bonuses.  Reforms  of  vocational  education 
and 
to 
productivity  improvements  through  a  workforce 
upskilling (Section 4.2).  

training  under  discussion  could 

introduces 

ceilings 

binding 

lead 

the 

New  initiatives  aim  to  improve  the  business 
environment  for  companies,  but  bottlenecks 
remain. A number of measures have been taken to 
reduce 
regulatory  burden  weighing  on 
businesses and to facilitate their relations with the 
public  administration.  The  Plan  d'action  pour  la 
croissance  et  la  transformation  des  entreprises 
(PACTE)  seeks  to  promote  entrepreneurship  and 
support the growth of businesses. The Grand plan 
d'investissement  aims  at  gearing 
investments 
towards identified priorities. As for R&D policies, 
the ongoing evaluation of public funding schemes 
and  programmes  could  lead  to  the  adoption  of 
measures  to  increase  the  efficiency  of  these 
the 
schemes  and  programmes.  In  particular, 
evaluation 
research-business 
public 
collaboration  paved  the  way  to  improve  the 
and 
collaboration  between  public 

research 

of 

17 

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

Graph 3.2: 

Effects of the crédit d’impôt pour la compétitivité et l’emploi transformation 

Source: European Commission 

replaced by a contract agreement between the State 
and  local  authorities.  However,  the  effectiveness 
and  timeliness  of  the  mechanism  foreseen  to 
correct expenditure slippages is still to be proven. 
The  annual  spending  reviews  introduced  in  2014 
will be replaced with a broader Public Action 2022 
initiative  (Action  Publique  2022),  aiming  at  an 
ambitious  and  coordinated  overhaul  of  all  public 
policies.  The  roadmap  of  this  initiative,  including 
policies  and  evaluation  methods,  is  expected  for 
the first quarter of 2018. 

There  are  sustainability  risks  in  the  medium 
term,  mainly  due  to  the  high  structural  deficit 
and debt ratio. Sustainability risks are low in the 
short  term  (see  section  4.1).  However,  the  high 
structural deficit and debt level create a significant 
sustainability gap in the medium term. This gap is 
aggravated by the projected increase in age-related 
expenditure  over  the  next  15  years,  as  an  ageing 
population  requires  more  pension,  health  and 
social  care  expenditure.  Public  debt  reduction  is 
thus key to avert medium-term sustainability risks. 

Overall assessment 

of 

French  macroeconomic  imbalances  are  due  to 
high public debt and weak competitiveness in a 
context 
growth. 
Competitiveness  indicators  have  stabilised,  due  to 
moderate  wage  increases  and  measures  to  reduce 
the cost of labour. Yet, labour productivity growth 
remains  low,  preventing  a  faster  recovery  of 

productivity 

low 

long-term 
competitiveness  and  weighing  on 
growth  prospects.  The  trade  account  still  shows  a 
moderate  deficit  although  export  market  shares 
losses  have  stopped  since  2012.  The  already-high 
level of general government debt is set to peak in 
2017  and  is  projected  to  remain  unchanged  in 
2018.  The  high  public  debt  ratio  remains  a  major 
source  of  vulnerability,  as  it  weighs  on  growth 
prospects  and  limits  the  stabilisation  capacity  of 
fiscal policy in the event of a downturn. 

Reforms have gained momentum, but their full 
implementation  remains  crucial  and  further 
reforms  are  warranted  to  ensure  a  permanent 
reduction of macroeconomic imbalances. Action 
has  been  taken  to  improve  the  functioning  of  the 
labour  market,  to  decrease  the  tax  burden  on 
companies and capital, and to evaluate some public 
schemes  for  innovation.  Measures  have  also  been 
taken  to  reduce  the  cost  of  labour,  while  reforms 
have been announced for vocational education and 
training,  unemployment  benefit  system,  pensions, 
and to support the growth of companies. Still, the 
segmentation  of  the  labour  market  continues  to 
prevent  some  categories  of  employees  from 
improving  their  working  conditions.  A  review  of 
expenditure  items  that  effectively  leads  to  future 
expenditure savings remains warranted, along with 
further  decreases  in  the  complexity  of  the  tax 
system and in unjustified regulatory barriers. There 
is  also  scope  to  increase  competition  in  the 
services  sectors  and  to  raise  the  efficiency  of 
policy schemes to support innovation. 

18 

-0,2-0,1-0,10,00,10,10,20,20,320182019202020212022a) Effects on macroeconomic variablesGDPConsumptionInvestmentConsumer prices, incl. VAT-0,2-0,10,00,10,20,30,40,50,60,70,80,920182019202020212022b) Distributional effects, employmentEmployment- low skilled- medium skilled- high skilled 
 
3. Summary of the main findings from the MIP in-depth review 

19 

Box 3.1: Euro area spillovers Structural reforms in France can have positive cross-border economic effects on the rest of the Euro area. This box illustrates the implications of product and labour market reforms combined with a positive confidence shock using the Commission QUEST (1) model. The scenario does not reflect the impact of particular reform measures but the potential to close the gap with the three best EU performers in each reform area. Simulations suggest that structural reforms fostering competition, increasing competitiveness and improving allocative efficiency in the labour market stimulate domestic growth and lead to positive spillovers to the rest of the euro area (2). The simulated reforms consider first the potential impact of measures fostering a competitive product market environment by bridging the gap with the three best EU performers according to the OECD Product Market Regulation indicator (Austria, the Netherlands, and the United Kingdom). In line with empirical estimates, this translates into a permanent economy-wide reduction of marks-up by 12 pps (3). The second reform considers proposed changes in Employment Protection Legislation (EPL) that could improve the labour market responsiveness and spur productivity (4). It reflects the impact of closing the gap with the three best EU performers (Finland, Ireland, and the United Kingdom) according to OECD EPL indicator. Since those structural reforms may positively affect economic confidence, the simulations also include a positive confidence shock, reflecting higher investor's confidence (5).  Graph 1:  Impact of the reform scenarios in France and in the rest of the euro area  Source: European Commission (based on Quest model) Model simulations indicate that these product and labour market reforms combined with a positive confidence shock stimulate domestic growth and lead to positive spillovers to the rest of the euro area (6). By bridging the gap with the three best EU performers in these reform areas, the French real GDP raises by 1.4% after 5 years and by 1.8% after 10 years compared to a baseline scenario. At the same time, spillovers effect would translate into an increase of the GDP in the rest of the euro area by 0.08% after 5 years and by 0.1% after 10 years.                                                             (1) QUEST is the global macroeconomic model DG ECFIN uses for macroeconomic policy analysis and research. It is a structural model in the New-Keynesian tradition with microeconomic foundations derived from utility and profit optimisation and including frictions in goods, labour and financial markets. Detailed information on the model and applications are available at:  http://ec.europa.eu/economy_finance/research/macroeconomic_models_en.htm. (2)  Varga J., in 't Veld J. (2014): 'The potential growth impact of structural reforms in the EU. A benchmarking exercise', European Economy,  Economic Paper no 541 (3) Thum-Thysen A. and E. Canton (2015): Estimation of service sector mark-ups determined by structural reform indicators. European Economy - Economic Papers 547, European Commission. http://ec.europa.eu/economy_finance/publications/economic_paper/2015/pdf/ecp547_en.pdf   (4) See also, Bassanini, A., L. Nunziata and D. Venn (2009): 'Job protection legislation and productivity growth in OECD countries', Economic Policy, Vol. 24, Issue 58, 349-402. http://dx.doi.org/10.1111/j.1468-0327.2009.00221.x. (5) More specifically, the scenario illustrates the upgraded investor confidence through an elimination of the French-German bond spread which is currently around 30 basis points and assumes that half of the decrease in sovereign spreads is transmitted to firm lending rates. Moreover, the analysis takes into account the monetary policy environment and includes a binding zero-lower bound constraint on nominal interest rates for the first two years. (6)  The simulation implies that the PMJR and EPL indicators for France will go down respectively from 1.47 to 1.06 (mean of Austria, the Netherlands and the United Kingdom) and from 2.82 to 1.94 (mean of Finland, Ireland and United Kingdom).  
 
Table 3.1: 

MIP Assessment Matrix (*) – France 2018 

(Continued on the next page) 

20 

          Gravity of the challenge  Evolution and prospects  Policy response  Imbalances (unsustainable trends, vulnerabilities and associated risk) Competitiveness  Export market shares have stabilised over the recent past, as France has benefited from its geographical positioning (see Section 4.3).  Growth in nominal unit labour costs has decelerated markedly, growing by only 1.4 % in the three years to 2016. As a result, cost-competitiveness is improving, although past losses have not been fully regained yet. Low productivity growth reinforces the challenges associated with weak competitiveness.  Some elements of the business environment remain a drag to the non-cost competitiveness of the French economy. Similarly, labour market segmentation and low responsiveness to macroeconomic changes (see Section 4.2) prevents faster productivity growth.  The current account balance deteriorated in 2016, going in deficit by 0.9 % of GDP, but the Net International Investment Position (NIIP) remained contained at -16 % of GDP. Export market shares are expected to remain broadly stable over the coming years. The current account is forecast to reach a trough in 2017 and start improving from 2018.  Cost-competitiveness is also set to continue improving gradually, as wage and minimum wage dynamics remain moderate.  However, labour productivity growth remains low, preventing a faster recovery of cost-competitiveness.  Non-cost competitiveness is expected to improve over the medium-term, when the effects of the recently announced and undertaken policy actions will materialise.  The French authorities implemented the tax credit on competitiveness and employment (CICE) and the Responsibility and Solidarity Pact (RSP), to reduce the cost of labour and to decrease the tax pressure on firms. The credit rate of the CICE was further increased in 2017 from 6 % to 7 % after having increased from 4 % to 6 % in 2014. The transformation of the CICE into a permanent reduction in employers' social security contributions is now planned for 2019. It should be coupled with an additional reduction of employers' social contributions for employees below 1.6 times the minimum wage; the reduction should be incremental, up to a null contribution at minimum wage level.   The El Khomri law of August 2016 was followed in 2017 by the revision of the labour law for improving social dialogue and strengthening collective bargaining within firms. This reform aims to improve firms' ability to adapt more swiftly to changes in the macroeconomic environment, aiming at improving productivity through an optimised allocation of the workforce through sectors and regions.   A specific law for fostering firms' growth will be unveiled in spring 2018 following the launch of the Action plan for companies' growth and transformation (PACTE). At the same time, the Grand plan d'investissement will provide about EUR 57 billion for investments across different sectors of the economy for the period 2018-2022.    
 
 
 
 
 
4.1. Public finances and taxation 

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 measures to address these. 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 and policy 
response. 
Source: European Commission 

21 

Public debt Already at a very high level, government debt is expected to increase to 96.9 % of GDP in 2017. Such a high debt level constitutes a vulnerability for the economy as it reduces the fiscal space available to respond to future shocks (see Section 4.1) and weighs on growth prospects, by crowding out productive public expenditure and requiring a higher tax burden.  Although the financial sector does not face immediate risks, pressures from the combination of high public and private debt may increase in the future under adverse economic conditions.   On the positive side, debt management is of good quality and the government has taken advantage of the low sovereign yields to lengthen the average maturity of sovereign debt, mitigating the risks associated with refinancing needs at higher interest rates. The investor base is diverse, both by type and geographically. France’s public debt is still growing mainly due to the high French primary deficit. Yet, in projection, public debt should stabilise at 96.9 % in 2018 and 2019.  At current trends for age-related expenditures, the simulated debt trajectory at horizon 2032 points to high medium-term sustainability risks.  The Commission 2017 autumn forecast projects the headline deficit target to be at 2.9 % of GDP in 2017 and 2018. Significant risks surround the timely and durable correction of the excessive deficit.  The budgetary strategy of France to meet the headline deficit target relies largely on cyclical factors and lower interest payments on government debt, which implies certain risks. The projected structural effort for 2017 falls short of the effort recommended by the Council. Moreover, the French authorities do not envisage further structural effort in 2018.    The spending reviews have not been reinforced and no further savings and efficiency gains were identified. The process launched in 2014 will be abandoned. Policy evaluations of specific expenditure items have not always translated into concrete policy actions.  The expenditure-based consolidation has seen a setback in 2017. Expenditure growth targets were loosened and the new government had to take additional measures to ensure that the deficit does not breach the 3 % of GDP threshold (spending cuts of EUR 5.0 billion an exceptional corporate income tax).  The government plans to reduce the ratio of public expenditure over GDP (excluding tax credit) by 3.7 % over the next five years while increasing the efficiency of public expenditure. This is key to reduce public debt and mitigate medium-term sustainability challenges. However, some details of the composition of expenditure savings are missing. Moreover, between the draft and the adopted finance law, the real expendutre growth rte has been revised upwards. The consolidated effort was confirmed to be mostly achieved in later years.   Conclusions from in-depth review analysis  France is characterised by weak competitiveness and high public debt, in a context of low productivity growth. Associated vulnerabilities have cross-border relevance.  After falling for many years, export market shares have stabilised. The current account, close to balance in 2015, has slightly deteriorated in 2016 and should worsen further in 2017, but the stock of net foreign liabilities is moderate. Cost competitiveness is improving, gradually providing the basis for regaining past losses. Wage moderation continues, coupled with moderate productivity growth. Unemployment remains high and the labour market continues to be segmented. Some elements of the business environment weigh on the non-cost competitiveness. Public debt growth has been moderate and the debt/GDP ratio is projected to reach 96.9 % of GDP in 2017 and to remain stable in 2018 and 2019.  Policy measures have been taken in recent years, in particular to reduce the labour cost and to reform the labour law. Reforms have been announced to improve further the functioning of the vocational education and training system, of the unemployment benefit system, and of the pension system. The possibility to reform the minimum wage automatic indexation rule is under discussion. The Plan d'action pour l'investissement et la croissance des entreprises has been launched to foster initiatives in the private sector in France. The Grand plan d'investissement aims at gearing public investment towards identified priorities. Regulatory impediments hamper firms’ growth and the degree of competition in the services sector remains low. In addition, the spending review has not delivered the expected results to address the growing public debt-to-GDP ratio, improve public spending efficiency, and allow alleviating the tax burden. In this regard, the efficiency of public spending on housing and on vocational education and training deserves further attention.   
 
 
 
 
4.1. Public finances and taxation 

4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

General government debt sustainability (18)*  

Graph 4.1.1:  Contributions to the change in the public debt 

ratio in France 

General government debt continued to increase 
in 2016 and 2017 and it is projected to only stop 
rising in 2018 and 2019. Public debt rose further 
to  96.5 %  of  GDP  in  2016  and,  according  to  the 
Commission 2017 autumn forecast, is projected to 
peak  at  96.9 %  of  GDP  in  2017  and  to  remain  at 
this  level  in  2018  and  2019  (Graph  4.1.1).  This 
trend  implies  a  widening  gap  with  respect  to  the 
euro area, where overall public debt is projected to 
decline by some 4 pps to 85.2 % of GDP between 
2017 and 2019. The high projected French primary 
deficit explains most of this difference (see Section 
1).  The  contribution  of  the  declining  interest 
burden  to  overall  deficit  reduction  is  projected  to 
halt  in  2019  as  a  result  of  higher  inflation  and 
interest  rates  (see 
expected  normalisation  of 
Section 3). 

The  short-term  sustainability  does  not  seem  to 
be a cause of concern in spite of the high public 
debt ratio. Short-term sustainability is assessed by 
the  indicator  S0  (19).The  short-term  fiscal  sub-
index  indicates  high  risk  due  to  the  high  level  of 
gross financing needs, of the primary deficit and of 
public  debt.  However,  as  the  overall  S0  indicator 
does  not  flag  any  significant  risk,  the  identified 
short-term  fiscal  challenges  are  not  acute  enough 
to  generate  overall  risks  of  fiscal  stress.  This  low 
short-term  risk  is  confirmed  by  the  ‘AA  stable’ 
rating  given  by  the  three  major  rating  agencies  to 
French government debt.  

(18)  This  section  is  based  on  the  forthcoming  2018  Ageing 
Report  (European  Commission,  2018a)  and  the  Debt 
Sustainability Monitor update  — Autumn 2017 (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). 

(19)  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,  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 autumn forecast 

Graph 4.1.2:  Projections of French public debt under 

alternative scenarios 

Source: European Commission Debt Sustainability Monitor 
2017 

Sound debt management and the high rating of 
French debt reduce short-term risks. As French 
debt  is  denominated  in  euro  there  is  no  currency 
risk.  Moreover,  the  average  maturity  of  debt 
instruments was lengthened to more than 7.5 years 
in  2017  from  7  years  in  2014,  which  has  allowed 
France to secure low interest rates over the coming 
years.  The  investor  base  is  diverse.  Despite  the 

22 

-4-20246-4-20246201120122013201420152016201720182019Stock-flow adjustmentsInflation effectGrowth effectInterest expenditurePrimary balanceChange in the debt ratio% of GDP859095100105110115Baseline no-policy change scenarioStandardised (permanent) negative shock (-0.5p.p.) onGDP growthStandardised (permanent) positive shock (+1p.p.) to theshort- and long-term interest rates on newly issued androlled over debt% of GDP 
                                                           
 
 
 
4.1. Public finances and taxation 

recent slight decline, the high share of holdings by 
foreign investors of French debt (at close to 60 %, 
which  is  broadly  evenly  distributed  between  euro 
area  and  other  countries),  could  be  a  source  of 
vulnerability.  However, 
for 
French debt remains high. 

investor  appetite 

Sustainability risks remain high in the medium 
term.  According  to  the  baseline  scenario  in  the 
debt sustainability analysis, at unchanged policies, 
the public debt ratio in France is projected to keep 
rising to reach some 105.7 % of GDP in 2028. This 
increase  in  public  debt  stems  from  the  projected 
high primary deficits aggravated by the increase in 
age-related  expenditure,  namely  on  pensions, 
health  and  long-term  care.  Until  2026,  these 
pressures  are  offset  only  in  part  by  a  favourable 
snow-ball  effect  (e.g.  the  difference  between  the 
implicit  interest  rate  on  government  debt  and  the 
nominal  growth  rate  of  the  economy).  This  effect 
then  fades  out  and  subsequently  turns  negative 
when the rising interest rate burden outweighs the 
effect  stemming  from  nominal  growth.  Based  on 
the  updated  projections  in  the  forthcoming  2018 
Ageing  Report  the  Commission's  services  have 
recalculated  the  sustainability  indicators.  The  S1 
sustainability 
which  measures 
sustainability  risks  at  horizon  2032,  indicates  a 
high medium-term risk. This indicator implies that 
a  cumulative  gradual  improvement  in  the  French 
structural  primary  balance  of  5.1 pps  of  GDP, 
relative to the baseline scenario, would be required 
over  5  years  to  reduce  the  debt  ratio  to  60 %  of 
GDP by 2032. Specifically, 2.8 pps of the required 
fiscal  adjustment  would  be  due  to  the  debt  ratio's 
distance from the 60 % reference value, 1.9 pp. to 
the  unfavourable 
initial  budgetary  position 
(defined as the gap to the debt-stabilising primary 
balance) and the remaining 0.4 pp. to the projected 
increase  in  age-related  public  spending.  Public 
debt projections are especially sensitive to interest 
rate  and  growth  developments.  Higher  interest 
rates or lower projected annual GDP growth would 
lead  to  significantly  higher  debt  ratios  after  10 
years (Graph 4.1.2). 

indicator, 

However,  sustainability  risks  appear  contained 
in  the  long  term  as  a  result  of  the  projected 
decline  in  age-related  expenditure.  The  S2 
indicator  measures  fiscal  sustainability  challenges 
in the long term under a baseline no-policy change 
scenario.  In  the  case  of  France,  the  S2  indicator 
to  a  relatively  small  required  fiscal 
points 

adjustment (0.7 pp. of GDP) to ensure that the debt 
ratio  remains  sustainable  over  the  long  term.  This 
is primarily due to the projected fall in age-related 
spending  as  of  the  late  2030s  (contribution  of  -
1.6 pp. of GDP to S2), offset by the unfavourable 
initial  budgetary  position  (2.3 pps  of  GDP).  The 
projected  decline  in  age-related  expenditure  is 
mostly driven by the envisaged decrease in public 
spending  on  pensions  (-2.0  pps  of  GDP).  This 
decline stems mainly from the indexation of public 
pensions  to  inflation  as  measured  by  consumer 
prices, which means that pensions would grow less 
quickly  than  wages  on  average.  Notwithstanding 
the low S2 indicator, the implied fiscal adjustment 
might  lead  to  debt  stabilising  at  relatively  high 
levels.  This  indicator  should  therefore  be  taken 
for  high-debt  countries, 
with  some  caution 
including France. Moreover, long-term risks could 
arise  under  more  adverse  scenarios  involving 
lower  total  factor  productivity  growth  or  more 
care 
dynamic 
expenditures. 

healthcare 

long-term 

and 

Improving 
the  efficiency  of  spending  on 
pensions,  healthcare,  housing  and  vocational 
training and apprenticeship 

Pension system 

The financial situation of the pension system is 
worsening in the medium term. At 14 % of GDP 
in  2016,  pension  expenditure  in  France  is  among 
the  highest  in  the  EU,  where  it  stands  at  around 
13 % of GDP. At 50.5 % in 2016, the benefit ratio, 
defined  as  the  average  pension  as  a  share  of  the 
economy-wide average wage, is also above the EU 
average  of  43.5 %.  According  to  analysis  carried 
out  for  the  upcoming  Pension  Adequacy  Report, 
the adequacy of the pension system is good, with a 
40-year  career  at  average  wage  replacement  ratio 
of 0.68 (similar for women and men). Moreover, in 
2016 the "at risk of poverty and social exclusion" 
(AROPE)  of  older  people  (aged  65  or  over)  was 
10.0  %  in  France,  while  it  averaged  at  18.2  %  in 
the  EU.  The  average  effective  exit  age  from  the 
labour  market  (expected  at  61.8  years  in  2017), 
which is low in an EU perspective, is projected to 
increase progressively to 64.5 in 2050 as a result of 
recent  reforms.  The  French  pension  system  is 
currently  in  a  limited  deficit  amounting  to  around 
0.2 %  of  GDP  per  year.  According  to  the  Ageing 
Working  Group  projections,  pension  expenditures 
are projected to increase slightly until 2032 and to 

23 

 
4.1. Public finances and taxation 

will address the financial sustainability of pension 
regimes,  as  recommended  by  the  Comité  de  suivi 
des Retraites. 

Healthcare 

Demographic  changes,  coupled  with  slowly 
increasing  inflation  and  the  cost  of  medical 
innovation  require  the  well-performing  French 
healthcare  system 
to  become  more  cost-
effective.  France  spent  11.0 %  of  its  GDP  on 
health  in  2016.  This  makes  it  — together  with 
Sweden — the EU’s the second highest spender on 
health  (OECD/European  Observatory  on  Health 
Systems and Policies, 2017c). 

and 

thanks 

reforms 

reforms 

currently 
Recent 
underway  have  promoted  efficiency  gains.  The 
share of generics in the pharmaceutical market has 
increased 
to  a  series  of  measures 
implemented  (20).  However,  at  30 %  (2015),  it  is 
still far below the share in other big economies of 
the EU. The purchase of expensive medicines that 
could  be  replaced  with  cheaper  generics  remains 
an important challenge. Recent reforms to enhance 
cooperation between hospitals, strengthen primary 
care  and  improve  integration  of  care  have  yet  to 
show  results.  The  financial  situation  of  hospitals 
has worsened in 2017, according to the Fédération 
hospitalière  de  France  while  restructuring  of 
hospitals  is  at  a  standstill  (Cour  des  Comptes, 
2017e). Another challenge for future sustainability 
remains  France's  low  levels  of  spending  and 
activity on prevention (OECD, 2017d). Prevention 
has 
in  ongoing 
reforms. 

therefore  become  a  priority 

Housing policy 

Public spending on housing in France amounts 
to  around  2.0 %  of  GDP  and  targets  both 
housing supply and demand. Resources allocated 

(20)  Since  2010,  patients  who  refuse  a  generic  substitution 
proposed  by  the  pharmacist  have  to  pay  upfront  for  all 
prescribed  medicines  and  seek  reimbursement  later  from 
the  SHI.  A  pay-for-performance  (P4P)  scheme  was 
introduced  in  2009  to  reward  physicians  for  generic 
prescriptions, and since 2015 International Non-proprietary 
Names  (INN)  prescribing  is  mandatory  (although  this 
obligation  is  not  respected  yet  in  practice  in  many  cases). 
Pharmacists  also  have  an  incentive  to  propose  generics 
since 2012, since they have remuneration on public health 
objectives  (ROsP)  if  they  reach  a  certain  percentage  of 
generics sold. 

specific 

start  to  decline  thereafter,  thanks  to  an  only 
moderate increase in the old-age dependency ratio 
(by  around  15 pps).  No 
financial 
sustainability  issues  are  foreseen  for  the  pension 
system.  However,  the  new  set  of  projections 
released by the Conseil d'Orientation des Retraites 
(2017) show that, according to the prevailing rules, 
the  system  is  not  projected  to  return  to  balance 
until  the  late  2030s,  instead  of  2025  according  to 
previous  projections.  This  is  due  to  the  projected 
decline  in  the  average  contribution  rate  over  the 
next decade, which would entail a fall in resources 
of the system by around 1 % of GDP. This led the 
Comité  de  Suivi  des  Retraites  (2017)  to  issue  a 
recommendation  to  the  government  to  take  the 
necessary  measures  to  bring  the  pension  system 
back to balance. 

into 

entered 

force.  This 

The reform that entered into force in July 2017 
is  a  step  towards  simplification  of  the  pension 
system.  In  July  2017,  the  LURA  (Liquidation 
Unique  de  retraite  de  base  des  Régimes  Alignés) 
reform 
reform 
consolidated  into  a  single  calculation  the  pension 
benefits of private  sector  workers  that contributed 
to  several  basic  schemes.  The  reference  wage  for 
this  calculation  is  now  the  average  of  the  25  best 
years  of  wages  (indexed  to  inflation)  of  a  whole 
career. Moreover, only four quarters a year can be 
taken  into  account,  which  implies  that  individuals 
that contributed to several schemes simultaneously 
will get a lower pension than before this reform. 

A  comprehensive  pension  reform  aimed  at 
harmonising  the  calculation  rules  for  the 
different  pension  schemes  is  on  the  agenda. 
Despite  the  recent  reforms,  and  in  particular  the 
LURA  agreement,  the  pension  system  remains 
extremely  complex,  consisting  of  more  than  30 
schemes,  which  include  basic  and  mandatory 
complementary  schemes.  The  government 
is 
considering introducing a system strengthening the 
link between contributions and benefits, according 
to  which  the  amount  of  the  pension  at  the  age  of 
retirement  would  be  gauged  based  on 
the 
accumulated  contributions  over  the  whole  career 
and the expected years of life at retirement for the 
different  age  groups.  This  would  apply  to  the 
different  schemes,  although  they  could  maintain 
different  contribution  rates.  The  details  of  the 
reform  have  not  been  defined  yet 
and 
implementation 
is  not  foreseen  before  2019. 
However,  it  is  not  year  clear  whether  the  reform 

24 

 
                                                           
to  housing  policy  have  increased  faster  than  GDP 
in  the  last  two  decades  (+4.6 %  annual  average). 
Around  EUR  19  billion  —  almost  half  of  total 
annual  spending  on  housing  —  is  spent  on  rent 
subsidies in public housing or in the private sector. 
Housing policy also encompasses subsidised loans, 
tax  incentives,  rent  control  and  regulation.  The 
cost  of  providing  housing  benefits  is  expanding 
due to the indexation mechanism used to calculate 
these benefits and to the increase in the number of 
beneficiaries 
the  crisis. 
Indicators  such  as  the  number  of  new  housing 
projects,  the  vacancy  rate,  the  average  size,  age 
and  condition  of  existing  housing  can  be  good 
indicators  of  the  efficiency  of  the  housing  policy. 
Another  good  indicator  of  the  efficiency  of 
housing  policy  is  the  so-called  ‘effort  rate’  as 
measured  by 
ratio  between  housing 
expenditure  minus  allowances  and  net  household 
income. 

the  aftermath  of 

the 

in 

Despite  housing  allowances,  the  ‘effort  rate’  of 
households  is  moderately  on  the  rise.  The 
efficiency  of  housing  benefits  has  decreased  over 
the  last  decade  as  shown  by  the  increasing  effort 
rate of households.  This  increasing  effort rate  can 
be  explained  by  the  indexation  mechanism,  the 
disconnection  between  the  reference  rent  and  real 
the  use  of 
spending  on  housing  or  by 
undifferentiated  parameters  for  housing  in  the 
social  and  private  sectors  that  are  only  partially 
reflective of the region/zone of location. Moreover, 
as housing benefits are proportionate with the level 
rents up to a certain ceiling and directly disbursed 
to  the  owners,  they  are  believed  to  have  an 
inflationary effect on rents (Fack, 2005 or Grislain-
Letrémy  and  Trévien,  2014),  thereby  making 
access  to  housing  more  difficult.  In  an  effort  to 
limit  the  rise  of  rents  in  the  private  sector,  the 
control  of  rents  was  introduced  in  2015  in  pilot 
cities of Paris and Lille but was abandoned in 2017 
following  an  administrative  justice  ruling.  The 
French government decided to appeal this decision 
in  January 2018. The  recent across  the  board  cuts 
in  housing  benefits  lower  public  spending  on 
housing  but  do  not  address  the  increase  in  the 
effort  rate  for  tenants.  Nor  do  they  address  the 
discrepancy  in  the  effort  rates  in  the  private  and 
the  social  housing  sectors.  Finally,  housing 
benefits  do  not  address  the  main  issue  of  the 
scarcity in housing supply. 

4.1. Public finances and taxation 

The criteria for accessing social housing lead to 
suboptimal  outcomes.  Turnover  of  tenants  in  the 
social housing sector is low at between 10 and 15 
years,  compared  to  around  3  years  in  the  private 
rental  sector.  The  financial  situation  of  social 
housing  tenants  is  not  periodically  reassessed  to 
verify if the tenants still qualify to such lower-cost 
housing (Cour des Comptes, 2017f). Since 70 % of 
the population can claim access to social housing, 
waiting lists are long (1.7 million people in 2014) 
and only some particular situations lead to priority 
treatment  of 
(Agence  Nationale  pour 
l'information  sur  le  logement).  As  a  consequence, 
housing  supply  remains  locked  in  the  hands  of 
insiders  and  access is not always  granted  to  those 
most in need. Students can claim housing benefits 
irrespective  of  their  parents'  revenues  while  no 
preference  is given  to  lower-income  families  with 
young  children.  This  is  especially  concerning  as 
the housing conditions of young children can have 
a long lasting impact into later life. 

files 

The scarcity in housing supply is a challenge for 
housing  policy.  The  real-estate  market  did  not 
experience  any  sudden  or  significant  price 
correction  in  the  aftermath  of  the  2008  crisis.  For 
aspiring  owners,  access  to  housing  is  increasingly 
difficult  despite  strong  credit  growth  for  house 
purchases and a pick-up in the construction sector 
as  real  estate  prices  remain  high  and  overvalued 
(Philiponnet  and  Turrini,  2017)  (see  graph  4.1.3). 
Moreover, the conditions for tax credit schemes to 
facilitate  home  ownership  are  not  always  well 
defined  and  no  proper  analysis  of 
their 
effectiveness  has  been  done.  Administrative 
appeals  and  building  regulations  and  landowners 
not developing constructible land into housing are 
obstacles  to  increasing  housing  supply,  notably in 
tense  areas.  Finally,  the  owner-tenant  relationship 
is  unbalanced  with  more  legal  protection  given  to 
the  tenants.  This  leads  to  high  vacancy  rates  in 
private housing (INSEE, 2016a). 

improve 

Changes  to  the  different  elements  of  housing 
policy  could  help 
its  efficiency. 
Spending less on housing benefits and reallocating 
the  resources  to  housing  supply  instead  could 
improve the housing situation. This is particularly 
the  case  for  new  social  housing  in  areas  with 
strong  housing  demand  and  insufficient  housing 
supply. 
and  more 
comprehensive  assessments  of 
the  economic 
situation  of  tenants  in  social  housing  to  better 

addition, 

regular 

In 

25 

 
4.1. Public finances and taxation 

match  housing  need  and  existing  supply  could 
improve housing access for the most deprived at a 
lower cost. 

vocational 
completed by the reform of 2014 (22). 

training  and  apprenticeship  policy 

Graph 4.1.3:  Trends in real estate 

Source: European Commission 

Vocational training and apprenticeship 

significant  potential 

Vocational  training  and  apprenticeship  is  a 
domain  with  a 
for 
contributing  to  long-lasting  efficiency  gains  in 
public  expenditure.  Public  spending  in  this  area 
reached  around  EUR  24  billion  in  2015  or  about 
1.2 %  of  GDP  (Projet  de  loi  de  finances  pour 
2018),  excluding direct expenditure by  companies 
(21)  and  individual  expenditure  by  households. 
Companies  continued  spending  the  most  in  this 
area, accounting for 33 % of the total, followed by 
the  regions,  the  central  government  and  other 
public  administrations  (e.g.  Unedic,  Pôle  emploi) 
which  accounted  for  about 20 %,  15 %  and  10 %, 
respectively.  A  quarter  of  the  overall  expenditure 
was dedicated to training civil servants both at the 
central  and  local  levels  as  well  as  in  hospitals. 
Between  2011  and  2015  regions  increased  their 
share in the overall amount of public spending, in 
the  progressive  decentralisation  of 
line  with 

(21)  This  is  the  spending  by  companies  on  training  (whether 
bought  externally  on  the  market  or  provided  internally  by 
themselves)  outside  the  reimbursement  scheme  managed 
by  the  authorised  collecting  bodies  (Opca,  Organismes 
paritaires  de  collecte  agréés).  In  2014  this  spending  was 
more than EUR 6 billion. 

young 

people, 
people 

A number of shortcomings currently reduce the 
efficiency of spending in the vocational training 
and  apprenticeship  system.  Access  to  training 
for  different  categories  of 
remains  uneven 
namely 
the 
beneficiaries, 
unemployed, 
and 
lower-qualified 
employees  of  small  business.  Despite  recent 
overhauls  the  financing  and  governance  of  the 
system rest on complex collection mechanisms and 
a  very  high  number  of  intermediaries  and  players 
(23).  This  reduces 
transparency  and  hampers 
effective  coordination.  A  relatively  low  level  of 
regulation  and  control  undermines  the  quality  of 
the  overall  system  while  leading  to  risks  in  terms 
of  irregularities  and  fraud  (Cour  des  comptes, 
2017a). 

improvements 

associated  with 
Despite 
successive  plans,  the  jobseekers'  vocational 
training  system  still  lacks  a  comprehensive 
strategy.  The  main  initiatives  in  this  area  field 
since  2013,  including  the  latest  Plan  500  000 
formations  (see  also  Section  4.2),  focused  on  the 
training  and  employability  of  jobseekers  in  the 
aftermath  of  the  economic  crisis  but  were  mostly 
of a short-term nature. The Court of auditors (Cour 
des  Comptes,  2017b)  found  that  the  funding  of 
successive one-off plans by the central government 
did  not  address  the  system's  efficiency  problems, 
including  the  coordination  between  the  many 
actors 
financing  and  policy 
implementation. 

responsible 

for 

impact 

The government has announced for spring 2018 
two  comprehensive  reforms  of  the  vocational 
training  and  of  the  apprenticeship  systems 
whose 
in  terms  of  efficiency  and 
effectiveness will need to be assessed. Details of 
the  reforms  are  not  yet  defined  but  negotiations 
and  consultations  with  social  partners  started  in 
autumn  2017  based  on  a  guidance  document  and 
key principles put forward by the government. An 
additional EUR 14 billion over the next five years 
is  also  expected  to  be  channelled  to  vocational 
training  and  apprenticeship  via  the  so-called  Plan 

(22)  Law 2014-288 of 5 March 2014 for vocational training. 
(23)  More than 76 000 training providers were operating on the 
market in 2014 according to DGEFP (Délegation Générale 
à l'emploi et à la formation professionnelle)  

26 

-30-20-1001020304020002001200220032004200520062007200820092010201120122013201420152016Real house price growthBuilding permits (y-o-y %)Model-based valuation gapPrice-to-rent valuation gapPrice-to-income valuation gapTotal valuation gap 
 
                                                           
                                                           
4.1. Public finances and taxation 

57 

EUR 

d'Investissement  Competence  (PIC)  as  part  of  the 
broader 
billion  Grand  Plan 
d'Investissement  (see  Section  4.3).  The  PIC's 
objective is to train 1 million unemployed with low 
levels  of  qualification  and  1  million  young 
dropouts and to ensure the durable insertion in the 
labour market for 300 000 of them. The PIC would 
imply  almost  a  12 %  average  annual  increase  in 
public authorities'  spending on  vocational  training 
and  apprenticeship.  Some  observers  estimate  that 
this spending could generate positive impacts over 
five years in terms of GDP growth and savings for 
the  public  finances  via  reduced  spending  on 
unemployment benefits (Berger, 2017). Overall, it 
remains  to  be  seen  whether  the  design  and 
implementation  of  the  plan  and  of  the  systemic 
reforms  will  ensure  as  needed  the  improvement 
and  enhanced  monitoring  of  the  efficiency  of  the 
national vocational training system. 

Fiscal frameworks 

The  Action  Publique  2022  aims  to  renew  the 
approach  to  the  evaluation  of  public  policies. 
The  budgetary  trajectory  for  2018  and  2019 
includes  the  outcome  of  the  previous  spending 
reviews  process  launched  in  2014.  New  savings 
will  be  delivered  by  Action  Publique  2022 
(AP2022)  from  2020  onwards.  The  roadmap  for 
AP2022  will  be  defined 
in  April  2018  by 
government on the basis of a report written by the 
the  AP2022  Committee.  The  whole  process  seeks 
to  build  on  past  evaluations  of  French  public 
policy 
des  Politiques 
Publiques,  Modernisation  de  l'Action  Publique) 
and  new  structures,  such  as 
the  Direction 
interministérielle  de  la  transformation  publique. 
turn 
The  public  policy  evaluations  were 
assessed  in  2017  (KPMG,  2017)  and  part  of  the 
conclusions  of  this  exercise  seems  to  be  reflected 
in  the  new  approach,  in  that  stronger  political 
ownership  would  be  provided  by  a  periodical 
coverage in the Council of Ministers. 

(Révision  Générale 

in 

The territorial reform is ongoing, but it has not 
yet  simplified  the  layers  of  administration  (24). 
Changes to local authorities did not lead to simpler 
or  more  specialised  services  in  specific  areas  of 

(24)  The  territorial  reform  is  deployed  through  the  MAPTAM 
law  (loi  de  modernisation  de  l’action  publique  territoriale 
et d'affirmation des métropoles, the law of regions and the 
NOTRé  law  (Nouvelle  Organisation  Territoriale  de  la 
République). 

layers 

competence.  The  number  of  regional  and  local 
administrative 
is  unchanged  despite  a 
streamlining plan to create metropolitan areas and 
reduce the number of regions from 22 to 13 as of 
January  2016.  Plans  to  clarify  the  role  of  each 
layer of regional or local administration have only 
partly been achieved. In the short term, the costs of 
this  transformation  might  be  higher  than  the 
benefits.  Moreover,  the  rollout  of  this  large  scale 
transformation justified by the pursuit of efficiency 
gains  will  take  time  and  in  the  long  term,  the 
savings 
be 
counterbalanced  by  the  permanent  surcharges  in 
the merged administrative entities as compensation 
time  arrangements  could  be 
and  working 
harmonised  at 
level  (Cour  des 
the  highest 
Comptes, 2017c). 

achieved  might 

that 

are 

The  norms  have  been  reinforced  at  the  State 
level  while  the  growth  rates  of  healthcare 
spending  and  operational  spending  of  local 
authorities  have  been  loosened  further.  The 
2018-2022  multiannual  programming 
law  for 
public  finances  introduced  two  new  expenditure 
ceilings  to  improve  the  control  of  spending  at  the 
State  level  and  set  the  growth  rates  of  healthcare 
spending  until  2020  and  of  operational  spending 
by local authorities until 2022. The growth ceiling 
for healthcare expenditure,  the  ONDAM (Objectif 
National  de  Dépenses  d'Assurance  Maladie) 
covering  a  third  of  social  security  spending,  has 
been increased for 2018 from 2.1 % to 2.3 %. This 
is  to  reflect  the  dynamism  of  spending  for 
innovative treatments and pay-related measures. In 
recent years, the ONDAM has been respected with 
less ease and it made possible by the use of reserve 
credits (25). Spending at local level is guided by the 
ODEDEL  (Objectif  d'évolution  de  la  Dépense 
Locale),  the  growth  targets  of  which  are  not 
binding.  Contrary  to  the  approach  taken  in  2014-
2017 when State transfers to local authorities were 
cut,  the  authorities  envisage  a  deepening  of  the 
dialogue with local authorities with respect to their 
contribution  to  the  savings  effort  until  2022. 
Overall, the targets for the State, the ONDAM and 
the ODEDEL are less demanding for 2018 despite 
the objective to reduce expenditure by more than 3 
pps by 2022. As a result, France currently plans to 
‘back  load’  the  envisaged  consolidation  effort  by 
making cutbacks in spending in later years. 

(25)  Avis du Comité d'Alerte de l'ONDAM 2017 

27 

 
                                                           
                                                           
4.1. Public finances and taxation 

General tax structure * 

France  combines  a  high  overall  tax  burden  on 
labour and capital while energy taxes and other 
indirect taxes are relatively aligned with the EU 
average  (Graph  4.1.5).  The  implicit  tax  rate  on 
labour is one of the highest in the EU and exceeds 
the  EU  average  (41.3 %  compared  to  the  EU-28 
average of 35.9 % in 2015). Revenues from capital 
taxation are also above the EU average (10.8 % of 
GDP  compared  to  the  EU-28  average  of  8.4 %  in 
2015).  The  implicit  tax  rate  on  consumption  is 
slightly  above  the  EU  average  (21.0 %  compared 
to  the  EU-28  average  of  20.5 %  in  2015)  and  the 
implicit  tax  rate  on  energy  is  below  the  EU 
average (269 TOE compared to the EU-28 average 
of 271.3 TOE in 2015), but on an upward trend. 

Corporate taxation 

la valeur ajoutée des entreprises, worth EUR 17.5 
billion in 2017) levied on companies' value added 
are  particularly  distortive  since  they  disregard  the 
economic  performance  of  the  firm  and  directly 
affect  profit  margins.  The  Action  Plan  for 
Companies'  growth  and 
transformation  (Plan 
d'Actions pour la Croissance et la Transformation 
des  Entreprises  -  PACTE),  to  be  announced  in 
spring  2018  is  expected  to  review  taxes  on 
production. Finally, around 192 taxes yielding low 
revenue  (less  than  EUR  150  million  a  year)  have 
been identified, yet only a very limited number has 
been eliminated since 2014. 

Graph 4.1.4:  Other taxes on production (2016) – Top 10 

is  pursuing 

the  corporate 

important  reforms  to 
France 
transform 
tax  system.  The 
statutory  rate  corporate  income  tax  rate  will 
gradually  decrease  to  25 %  for  all  companies  by 
2022.  Although 
taxes  on 
companies is still an obstacle to private investment 
and  hampers  companies'  growth,  recent  reforms 
removing  surcharges  have  started  to  bear  fruits 
leading  to  a  decrease  in  the  statutory  corporate 
income tax rate, including surcharges from 38 % in 
2013.to 34.4 % in 2017. 

the  high 

level  of 

However,  the  debt-equity  tax  bias  in  corporate 
financing  remains  the  highest  in  the  EU.  In  the 
French corporate tax system, interest payments are 
tax deductible while equity returns are not. Due to 
this favourable treatment, investments financed by 
debt  need  to  earn  5  pps  less  in  return  than 
investments  financed  by  equity  to  yield  the  same 
after-tax  return.  This  debt-bias  may 
to 
excessive  leverage  and  make  companies  more 
vulnerable  to  economic  shocks.  Given  the  recent 
reforms  in  corporate  taxation,  the  corporate  debt 
bias is likely to decrease.  

lead 

Other  taxes  continue  to  weigh  on  businesses. 
Taxes on production (26) stood at 3.1 % of GDP in 
2016 (27)  above  Italy  (1.4 %),  Spain  (1 %)  or 
Germany (0.4 %) (Graph 4.1.4). Taxes such as the 
company value-added contribution (Cotisation sur 

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

mainly on capital and on labour. 

(27)  This figure excludes producer households. 

* Estimation is based on average growth 2010-2015 
Source: Eurostat 

Taxes on capital 

It 

investment. 

A reform of capital taxation is also underway to 
favour  productive 
is  an 
important  step  towards  more  neutrality  in  the 
allocation  of  investment.  Capital  taxation  in 
France  was  the  second  highest  in  the  EU  in 
2015 (28).  Until  now,  the  capital  taxation  system 
has favoured investments in  "lower-risk" products 
investments  like  housing  and  bank  deposits  over 
"riskier" 
foster 
productive  investment  and  attract  capital,  the 
wealth  tax  (Impôt  sur  la  Fortune)  has  been 
narrowed  down  to  a  tax  on  real  estate  wealth 
(Impôt  sur  la  Fortune  Immobilière).  In  addition, 
sources  of  capital  income  (except  real  estate 
income)  will  be  taxed  at  a  flat  rate  of  30 % 

like  shares.  To 

investments 

(28)  This also includes capital income of corporations 

28 

0.00.51.01.52.02.53.03.5FRATELLUUKITBECY*LVPT% of GDPEU 28 
                                                           
 
                                                           
4.1. Public finances and taxation 

distortions. The housing supply is particularly tight 
in certain areas of France even though the number 
of vacant properties is increasing (INSEE, 2016a). 
This suggests there is a need to incentivise owners 
to rent or sell their properties. 

The  base  for  the  inheritance  tax  is  expected  to 
increase  over  the  coming  decades  with  an 
ageing  society  and  relatively  wealthy  older 
cohorts. In 2015, inheritance tax has generated in 
France  around  0.55 %  of  the  GDP.  Indicators 
suggest  a  concentration  of  assets  among  the 
wealthier  and  older  households.    In  2015,  the 
wealthiest 10 % of households held around half of 
total wealth, while the lowest 10 % of households 
held  only  around  0.1 %  (INSEE,  2016b).  At  the 
same time, net assets held by households increase 
with  age.  In  this  context,  the  rules  applicable  to 
inheritance 
to 
incentivise  giving  earlier  to  younger  generations 
and  to  limit  the  perpetuations  of  inequalities 
(France Stratégie, 2017a). 

taxation  could  be 

reviewed 

Taxes on labour 

The tax wedge on labour remains high for those 
at average wage, while it keeps falling for those 
at  the  lower  end  of  the  income  distribution. 
Between  2012  and  2016,  the  tax  wedge  was 
reduced  by  around  2  pps  for  those  at  the  average 
wage and by more than 6 pps for workers earning 
50 %  of 
the 
introduction of the Tax Credit for Competitiveness 
and  Employment  and 
the  Responsibility  and 
Solidarity  Pact  has  further  reduced  the  tax  wedge 

the  average  wage.  Moreover, 

Graph 4.1.5:  Tax structure as % GDP, 2015 

Source: European Commission 

(Prélèvement forfaitaire unique). This flat tax will 
bring  neutrality,  transparency  and  simplicity  and 
reduce 
savings 
between 
distortions 
instruments (29).  A  monitoring 
committee 
established  under  the  leadership  of  the  prime 
minister  will  observe  the  impact  of  the  reform  on 
efficiency  and  fairness  given  that  replacing  a 
progressive system with a flat tax rate may lead to 
unintended effects. This reform will mainly benefit 
the  highest  decile  of  the  income  distribution.  In 
addition,  a  lower  taxation  of  capital  income  as 
compared  to  labour  may  generate  distortions  by 
creating  opportunities  for  eroding  the  income  tax 
base  and  converting  labour  income  into  capital 
gains.  Establishing  anti-abuse  rules  may  help  to 
limit such effects. 

tax 

(taxe 

foncière), 

the  housing 

The  property  tax  structure  in  France  is  rather 
complex. It includes the transaction tax (Droits de 
mutation à titre onéreux), the immovable property 
(taxe 
tax 
habitation)  and  the  tax  on  immovable  property 
wealth  (Impôt  sur  la  fortune  immobilière).  The 
main reform in this field is the gradual elimination 
for  80 %  households  by  2020  which  will  mainly 
increase the standard of living of the first 8 deciles 
of  the  standard  of  living  distribution  (DG  Trésor, 
2017).  Furthermore,  France  has  a  high  level  of 
transactions  taxes  which  represent  a  third  of 
revenue  of  property  taxation  hampering  labour 
mobility.  Moreover,  France  has  not  updated  its 
immovable  property  tax  base  since  1970  creating 

(29)  Some  life  insurance  contracts  and  savings  accounts  (e.g. 
Livret  A,  Plan  d'épargne  en  actions)  will  continue  to 
benefit from exemptions.  

29 

05101520253035404550DKFRBEFIATSEITHUDELUNLHRSIELPTCZESEEMTUKCYPLSKLVLTBGROIETaxes on labourTaxes on consumptionTaxes on capitalRecurrent property taxesEnvironmental taxes 
                                                           
 
4.1. Public finances and taxation 

Taxes on consumption and environment 

The  VAT  system  is  characterised  by  a  middle-
ranking  standard  rate  and  low  reduced  rates. 
France applies a standard VAT rate (20 %) which 
is  middle-ranking  in  comparison  to  neighbouring 
countries,  above  both  Luxembourg  (17 %)  and 
Germany (19 %), but below Belgium (21 % ), Italy 
(22 %) and Spain (21 %)). In addition, France has 
two reduced VAT rates (5.5 and 10 %), as well as 
a  super-reduced  rate  (2.1 %) (30).  Furthermore, 
VAT  compliance  is  worsening  in  France  even 
though  it  has  improved  overall  in  the  rest  of  the 
EU (CASE, 2016).  

low 

to  have 

France  continues 
levels  of 
environmental taxation. Efforts are being made 
to  increase  revenue  from  transport  fuel  taxes. 
Environmental taxation is set to continue to rise as 
the  carbon  tax  will  increase  between  now  and 
2030.  In  addition,  and  according  to  the  2018 
finance law excise duties on diesel will increase by 
EUR  0.026  per  litre  per  year  from  2018  to  2021. 
As  a  result,  the  taxation  gap  between  diesel  and 
petrol  will  be  closed  by  2021.    However,  France 
indexation  of 
does  not  apply  an  automatic 
environmental taxes. Indexing excise duty levels to 
inflation  may  prevent  an  erosion  of  tax  revenues 
and  would  help  to  maintain  the  impact  of  the  tax 
on  people's  behaviour.  Overall,  revenues  from 
environmental  taxes  steadily  increased  from  2009 
onwards  to  reach  2.2 %  of  GDP  in  2015,  but  are 
still below the EU-28 average (2.4 %). 

on  labour.  The  tax  wedge  for  very  low  income 
earners (50 % of the average wage), at 28.0 %, was 
well below the EU-28 average of 32.5 % in 2016. 
For  income  earners  at  the  average  wage,  the  tax 
wedge, at 48.1 %, remained well above the EU-28 
average  of  40.6 %  and  one  of  the  highest  in  the 
EU. 

social 

employers' 

Although 
security 
contributions are falling, they are still relatively 
high.  France  has  the  highest  employers'  social 
security  contributions  in  the  EU  as  a  share  of  the 
tax wedge (26.8 % compared to the EU-28 average 
of  18.3 %  in  2016).  This  explains  the  high  tax 
burden  on  labour  for  average-income  earners. 
These  high  levels  partly  stem  from  the  social 
security  system  being  financed  largely  through 
employer's  contributions,  which  is  only  partially 
the  case  in  other  countries.  In  2018,  employees' 
social  contributions  for  health  and  unemployment 
will be eliminated, meaning a decrease of 3.15 pps 
compensated  for  by  a  1.7  pp.  increase  of  the 
Generalised  Social  Contribution  (CSG)  to  9.2 %. 
Since the Generalised Social Contribution is levied 
on all kinds of incomes, including pension income, 
it  rebalances  part  of  the  tax  burden  from  those  in 
active employment to retirees. As of 2019, the Tax 
Credit  for  Competitiveness  and  Employment  will 
be transformed into a direct and permanent cut of 
employer's  social  security  contributions,  targeted 
at low-income earners and employer contributions 
will be set at zero for those earning the minimum 
(section  3).  This  change  will  bring 
wage 
predictability  and  simplicity  and  allow  companies 
that are outside the scope of corporate income tax 
to  benefit  from  the  labour  tax  decrease  (section 
4.2).  

The  withholding  of  personal  income  tax  as  of 
January  2019  will  provide  the  option  to 
individualise thee personal income tax. France is 
one of the very few EU countries levying personal 
income  tax  on  total  household  income  rather  than 
on individual income. This does not create enough 
incentives  for  non-working  partners  and  second 
earners  to  enter  employment  or  to  work  longer.. 
Estimations show that applying individual taxation 
would  increase  the  labour  force  by  5.2 %  and 
economic growth by 9.4 % of GDP between 2010 
and 2030 (Assemblée Nationale, 2014). 

(30)  Member  States  applying  super  reduced  rates  (rates  below 
5 %) before the creation of the Single Market in 1992 were 
allowed  to  continue  to  apply  them  as  a  transitional 
arrangement  until  the  application  of  the  definitive  VAT 
system. Only Spain, France, Ireland, Italy and Luxembourg 
apply a super reduced rate. 

30 

 
 
 
 
 
 
 
 
                                                           
4.2.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

Labour market performance* 

the 

2013 

recovery, 

following 

The 
labour  market  situation  continues  to 
improve,  in  line  with  more  solid  economic 
growth. After hovering around 10 % in the initial 
years 
the 
unemployment  rate  started  to  decline  in  2015 
although less rapidly than in the rest of the EU. In 
the  third  quarter  of  2017,  it  reached  9.5 %  of  the 
labour force, remaining above the EU and the euro 
area  averages  (respectively  7.7 %  and  9.1 %), 
notwithstanding  the  0.5 %  (year-on-year)  increase 
in employment. 

Graph 4.2.1:  Unemployment rate in France and the EU 

for 

opportunities 

its  indexation  rule  (31),  as  no  ad-hoc  increase  was 
adopted  after  2012  (Graph  4.2.2).  As  already 
analysed  in  the  2016  Country  Report  (European 
the 
Commission,  2016),  an  acceleration  of 
minimum  wage  evolution  may  have  possible 
feedbacks  on  the  overall  wage  growth  (32)  and  on 
the  cost-competitiveness  of  the  French  economy 
(Section  3).  Moreover,  it  may  further  hamper 
employment 
lower-skilled 
workers,  whose  employment  rate  remains  lower 
than  the  EU  average  (38.8 %  vs  44.5 %  in  2016). 
Contrary  to  the  trend  in  the  rest  of  the  EU,  the 
employment rate of low-skilled workers in France 
has continued to decrease in recent years (−0.9 pp. 
from  2015  and  −9.8  pps  from  its  peak  level  in 
2003).  In 
the  group  of 
their  2017  report, 
the 
independent  experts  assessing  annually 
minimum wage recommended not to introduce ad-
hoc hikes and suggested a number of options for a 
reform  of  the  indexation  rule  (Ministère  du 
Travail, 2017).   

Graph 4.2.2:  Minimum wage (level and evolution) and 

employment for low-skilled workers 

Source: Eurostat 

The  recovery  of  the  labour  market  has  been 
accompanied  by  moderate  wage  growth. 
Between 2008 and 2012 nominal wages responded 
slowly to the increase in unemployment and wages 
grew  at  an  annual  rate  of  around  2.5 %.  Since 
2013, the average growth rate for wages slowed to 
1.2 %,  reflecting  mostly  weak  labour  market 
conditions,  the  effect  of  labour  market  reforms, 
and  slower  productivity  growth  in  the  services 
sectors.  In  2017,  wage  growth  is  expected  to 
accelerate  to  1.5 %  as  unemployment  declined  to 
9.5 %.  

Increases  to  the  minimum  wage  also  remain 
limited.  The  minimum  wage  has  only  seen 
moderate  nominal  increase  since  2013  following 

Source: OECD, Eurostat, European Commission 

(31)  In  France,  the  hourly  minimum  wage  yearly  evolution  is 
indexed based on the evolution of the consumer price index 
for  those  in  the  bottom  20 %  of  the  income  distribution 
plus  half  of  the  increase  in  the  purchasing  power  of  the 
wages for white and blue collar workers. Optional "coup de 
pouce" can be added by government discretional decision. 

(32)  For  more  information  on  the  impact  of  minimum  wage 
increases  in  France  on  the  overall  wage  distribution,  see 
Arpaia and Van Heck (2017). 

31 

6789101112132008 Q12008 Q32009 Q12009 Q32010 Q12010 Q32011 Q12011 Q32012 Q12012 Q32013 Q12013 Q32014 Q12014 Q32015 Q12015 Q32016 Q12016 Q32017 Q12017 Q3FranceEuro areaEU 28%-1%0%1%2%3%4%5%0%5%10%15%20%25%30%35%40%45%50%55%60%65%2001200220032004200520062007200820092010201120122013201420152016min. wage relative to median wageemployment rate for low skilled workers (15-64y, educationlevel ISCED 0-2)min. wage y-o-y % change, real terms (rhs) 
 
 
 
                                                           
4.2. Labour market, education and social policies 

However,  the  labour  market  slack  remains 
considerable.  In  France,  there  is  still  a  high 
number  of  discouraged  and  underemployed  part-
time workers. The slack has continued to increase 
during the recovery (ECB, 2017). This reflects the 

presence  of  underused  capacities  in  the  labour 
market (Graph 4.2.3). 

The  improving  situation  has  not  reduced  the 
high segmentation of the French labour market. 

32 

Box 4.2.1:  Monitoring performance in the light of the European Pillar of Social RightsThe European Pillar of Social Rights, proclaimed on 17 November 2017 by the European Parliament, the Council and the European Commission, sets out 20 key principles and rights to benefit citizens in the EU. In light of the legacy of the crisis and changes in our societies driven by population ageing, technological change and new ways of working, the Pillar serves as a compass for a renewed process of convergence towards better working and living conditions.  France performs relatively well on the indicators of the Social Scoreboard (1) supporting the European Pillar of Social Rights. However, some challenges remain in relation to equal opportunities and the functioning of the labour market. The French educational system faces difficulties to ensure equal opportunities for new generations. The variation in performance explained by student's socio-economic status (2015 OECD PISA results) is comparatively high, with young pupils with a migrant background being further penalised. Moreover, the rate of youth not in employment, education or training (NEET), remains stable at 11.9%. Segmentation, which also tends to be higher for younger generations, is entrenched in the labour market. The transition rate from temporary to permanent employment is low. The capacity of latest reforms of the labour law and of the upcoming reform of the unemployment benefit system to address this challenge is yet to be assessed. France has an effective social protection system, notably concerning the impact of social transfers on poverty reduction and access to quality healthcare. The good performance of the healthcare system is confirmed by the low rate of unmet medical care needs (1.2 %) and by limited out of pocket expenditure. The new dedicated plan for access to care in the regions presented in October 2017 is aimed at progressively reducing the geographical disparities, for example by promoting the recruitment of health workers in underserved regions, the creation of multidisciplinary medical homes and telemedicine.                                                             (1) The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and "compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible alternatives will be discussed in the relevant Committees. Abbreviation: GDHI – gross disposable household income. Early leavers from education and training (% of population aged 18-24)On averageGender employment gapBetter than averageIncome quintile ratio (S80/S20)Better than averageAt risk of poverty or social exclusion (in %)Good but to monitorYouth NEET (% of total population aged 15-24)On averageEmployment rate (% population aged 20-64)On averageUnemployment rate (% population aged 15-74)On averageGDHI per capita growth On averageImpact of social transfers (other than pensions) on poverty reductionBetter than averageChildren aged less than 3 years in formal childcareBetter than averageSelf-reported unmet need for medical care Better than averageIndividuals' level of digital skillsOn averageSocial protection and inclusionDynamic labour markets and fair working conditionsEqual opportunities and access to the labour marketFRANCEMembersStatesareclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaveragesandclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituations").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaveragebutitisimprovingfast.Formethodologicaldetails,pleaseconsult the draft Joint Employment Report 2018, COM (2017) 674 final. 
 
4.2. Labour market, education and social policies 

employees 

represented 

There  is  a  clear  distinction  between  the  labour 
market 
full-time 
conditions  of  permanent, 
contracts on  the  one hand  and of  temporary,  part-
time  contracts  or  self-employment  on  the  other. 
Temporary  employment  and  self-employment 
without 
respectively 
15.5 % and 6.7 % of the 15-64 years' workforce in 
the  third  quarter  of  2017,  compared  to  the  EU 
average  of  12.6 %  and  9.7 %.  Moreover,  the 
transition rate from a fixed-term to an open-ended 
contract remains one of the lowest in the EU (13 % 
vs.  an  EU  average  of  23.2 %  in  2016),  while  the 
average  job  tenure  for  permanent  contracts  is  one 
of the longest in the EU (Box 4.2.1).   

Employment  nor 
in  Education  and  Training 
(NEETs) rate (11.9 %) remains stable, even as the 
EU’s  average  NEET  rate  declines.  However,  the 
number of newly employed people as a percentage 
of 
is 
increasing  and  catching  up  with  the  EU  average 
(14.8 %).  Approximately  one  third  of  18-34  year 
old  NEETs  are  foreign-born  or  have  at  least  a 
foreign born parent (OECD, 2018). 

total  number  employed 

(14.3 %) 

the 

Graph 4.2.4:  Percentage of low-skilled in total employment 

(September 2017) 

Graph 4.2.3:  Unemployment rate and potential additional 

labour force 

Source: Eurostat, Labour Force Survey 

Labour  market 
improvements  also  hide 
important  challenges  for  specific  groups  of  the 
population.  There  is  high  unemployment  among 
the  lower-skilled  and  young  people  (respectively, 
17.3 %  and  22.5 %  in  the  third  quarter  of  2017). 
The  lower  employment  rate  for  these  groups 
(Graph 4.2.4) is a  persistent feature of  the French 
labour  market  (IMF,  2017).  In  particular,  people 
with  low  qualification  levels  tends  to  lose  jobs 
faster  and  are  more  likely  to  be  in  long-term 
unemployment,  which  remains  high  in  France 
(46.7 % of total unemployment in the third quarter 
2017).  An  increasing  share  of  these  long-term 
unemployed  is  in  very-long  term  unemployment 
(24.6 % in 2016). Similarly, those who fall out of 
the education system face persistent difficulties in 
entering  the  workforce.  Young  people  Not  in 

Source: Eurostat, Labour Force Survey 

Employment  conditions  for  people  with  a 
migrant  background,  whether  born  in  France 
or  outside  the  EU,  remain  difficult  with  high 
unemployment  rates  that  are  only  slowly 
decreasing. Recent data on third-country nationals 
show  an  improvement  in  their  employment  rate 
from  46.2 %  to  47.8 %  and  a  decrease  in  their 
unemployment rate from 25.4 % to 23 % between 
the second quarter of 2016 and the second quarter 
of 2017. In the same vein, the unemployment rate 
of  people  born  outside  the  EU  stood  at  18.8 %  in 
2016,  down  from  19.0 %  in  2014.  Nevertheless, 
the  gap  in  the  employment  rate  between  people 
born  in  France  and  those  born  outside  the  EU  is 
increasing (it was 17.5 pps in 2016, up from 16.5 
pps in 2015). This indicates that structural barriers 
to  the  employment  of  those  born  outside  the  EU 
have not been tackled. The situation is particularly 
worrisome for women born outside the EU, whose 
activity  rate  decreased  from  57.8 %  in  2015  to 
56.4 % in 2016, while the activity rate for women 
born  in  France  increased  from  75 %  to  75.6 % 

33 

05101520252008Q12008Q32009Q12009Q32010Q12010Q32011Q12011Q32012Q12012Q32013Q32014Q12014Q32015Q12015Q32016Q12016Q32017Q1% of labour force 15-74Unemployment rateAvailable but not seekingUnderemployedSeeking but not available-10-9-8-7-6-5-4-3-2-10200820092010201120122013201420152016DEESFRIT 
 
 
4.2. Labour market, education and social policies 

The  gender  gap  remained  stable  in  2016,  at 
comparatively  low  levels.  The  employment  rate 
was at 7.5 pps lower for women than for men and 
the gender gap in pay was at 15.5 pps in 2016. The 
incidence  of  temporary  contracts  was  0.9  pps 
higher  for  women  than  for  men  and  the  part-time 
employment  rate  was  22.2  pps  higher  for  women 
than  men,  which  is  higher  than  the  EU  average, 
although  with  a  relatively  high  number  of  hours 
worked (22.9 per week vs 20.7 EU average). Since 
2015, parental leave can be shared among the two 
parents. 

The  new  government  is  following  an  ambitious 
labour market reform agenda, beginning with a 
new reform of the labour law. After the Enabling 
Act  of  August  2017,  five  ordonnances  were 
adopted by the French Council of Ministers on 22 
September  and  the  sixth  on  20  December  2017 
(Section  3).  They  follow  on  from  the  Law  on 
labour,  social  dialogue  and  securing  professional 
pathways  of  August  2016,  including  measures  to 
redefine  economic  dismissals  and  to  introduce 
indicative  compensation  thresholds  for  unlawful 
dismissals  (European  Commission,  2017d,  2018c) 
(34).   

The  new  reform  of  the  labour  law  clarifies  the 
structure  of  collective  bargaining.  Based  on 
existing legislation, the ordonnances specify which 
elements  are  defined  by  sector-level  agreements, 
such as issues related to employment and working 
conditions  (including  minimum  wages  for  each 
category of workers), while firm-level agreements 
will  continue  to  regulate  working  time  and  pay 
beyond  the  minimum  wage  for  each  category  of 
workers.  The  ordonnances 
streamline 
(European  Commission, 
collective  bargaining 
2017f), enabling sector level bargaining to prevail 
over the law for defining some conditions for using 
fixed-term and "project contracts"  

also 

The  rules  on  dismissal  have  also  been  revised. 
Compulsory  compensation  ceilings  have  been 
introduced  for  unlawful  dismissals  (Section  3), 
along  with  a  new  mutually-agreed  collective 
resignation  procedure  (rupture  conventionnelle 
collective).  At  the  same  time,  the  timespan  for 

(34)  While  it  is  too  early  to  assess  the  effective  impact  of  the 
law,  as  far  as  recourse  to  judiciary  is  concerned,  in  2016 
new cases brought to labour courts decreased by 18.7 % in 
2016 (Ministère de la Justice, Chiffres clés 2017). 

widening the gap with women born outside of the 
EU  from  17.2  to  19.2  pps.  People  born  in  France 
who  have  two  foreign-born  parents  have  slightly 
less favourable education profiles (33) and are also 
more often in unemployment and, when employed, 
they  have  lower  salaries  than  people  with  parents 
born  in  France.  Analyses  show  that  part  of  this 
employment gap remains even after controlling for 
individual  characteristics  (age,  level  of  education, 
etc) (OECD,  2014a,b).  The  reasons  for  these 
unfavourable  outcomes  may  be  linked  to  the  lack 
of  social  networks,  weaknesses  in  the  educational 
in  accessing  high-quality 
system,  difficulty 
programmes,  and  discrimination  in  recruitment. 
Studies  based  on  identical  CVs  with  different 
names  (one  with  a  traditional  ethnically  French 
name and the other with a traditionally African or 
Arabic name) have shown that job applicants born 
in  France  to  immigrants  from  North  and  sub-
Saharan Africa have to send twice as many CVs to 
get  a  job  interview  as  applicants  with  a  French 
‘native’  background.  Consistency  between  self-
reported and measured employment discrimination 
was confirmed by a recent analysis (Meurs, 2017).  

the  obstacles 

An insufficient link between integration, labour 
market and education policies contributes to the 
unfavourable 
situation  of 
socio–economic 
people  with  a  migrant  background.  The  low 
number  of  experienced  teachers  in  schools  in 
deprived  areas  and  the  insufficient  support  to 
teachers  through  continuous  training  to  deal  with 
children  with  a  migrant  background  represent 
some  of 
to  provide  more 
opportunities  for  those  born  in  France  to  foreign-
born  parents.  For  immigrants  to  France,  a  reform 
of  the  integration  policy  is  expected  to  take  place 
in 2018.  French-language training for immigrants 
with  no  knowledge  of  French  is  low  (200  hours 
maximum  for  one  year)  compared  to  similar 
integration  schemes  in  other  EU  Member  States. 
Career  guidance  at  the  end  of  this  language 
training remains limited and coordination between 
those  responsible  for  this  career  guidance  is 
progressing  slowly. 
targeted 
schemes to foster the integration of immigrants to 
France have been put in place, although they reach 
only a limited number of beneficiaries.  

Innovative  and 

(33)  Among  those  aged  25-54,  native-born  with  two  foreign 
born  parents  were  (in  2014)  more  likely  to  not  having 
reached  higher  secondary  education  level  (20.0  %)  than 
native born with native background (15.2 %). 

34 

 
                                                           
                                                           
4.2. Labour market, education and social policies 

expected to grow to EUR 33.8 billion in 2017 and 
EUR 37.1 billion in 2018.  

further 

reform  of 

The  reform  of  the  rules  and  governance  of  the 
unemployment  benefit  system  may  play  an 
important  role  in  addressing  the  debt  of  the 
system  and  the  persistent  segmentation  of  the 
the 
labour  market.  A 
unemployment benefit system has been announced 
for  2018.  The  reform  is  expected  to  incentivise 
firms  to  use  longer  work  contracts  that  are  less 
costly  for  the  unemployment  benefit  system,  for 
introducing  a  new  bonus-malus 
example  by 
system,  the  parameters  of  which  are  still  to  be 
defined.  Measures 
to 
to 
unemployment  benefits  for  employees  that  resign 
and  for  independent  workers  have  also  been 
announced, while the possibility to re-organise the 
system  for  achieving  more  substantial  savings  is 
under  discussion.  Another  measure 
to  be 
implemented  is  aligning  rights  to  maternity  leave 
for self-employed people with those of employees. 
In  France,  more 
in 
employment are still at risk of not having access to 
unemployment  benefits  after  losing  their  jobs. 
Self-employed  workers  do  not  have  access  to 
unemployment  protection  and  have  only  partial 
access  to  paid  parental  leaves,  while  insurance 
against accidents at work is not compulsory.  

than  10 %  of  people 

extend 

access 

The  government  is  also  shifting  public  support 
away  from  subsidised  employment  contracts 
and towards increased training and counselling. 
Contracts  subsidised  by  the  government,  mainly 
found  in  the  non-profit  sector,  have  gradually 
decreased since 2016. They will decline further in 
2018 from 310 000 to 200 000 and will be limited 
to  the  most  vulnerable  people  in  the  non-profit 
sector,  including  young  people  and  the  long-term 
unemployed. This new type of contracts (Parcours 
Emploi Compétence, PEC) will be accompanied by 
increased counselling and training actions, in view 
of  a  more  sustainable  integration  of  beneficiaries 
in  the  labour  market.  An  evaluation  published  by 
Dares  (2017)  showed  that  subsidised  employment 
schemes  in  France  are  more  effective  in  times  of 
economic  downturn.  They 
are  particularly 
effective  in  the  non-profit  sector,  as  they  often 
target  people  who  have  difficulties 
finding 
employment,  although  these  contracts  do  not 
improve  their  later  employment  prospects.  In  the 
for-profit  sector  subsidised  contracts  present  a 

introducing  a 
lawsuit  contesting  a  dismissal 
(except in cases of harassment and discrimination) 
has been reduced and the scope of the assessment 
of  economic  difficulties  has  been  restricted  from 
the international to the national level.  

The  framework  of  social  dialogue  between 
employers  and  employees  has  been  further 
modified.  In  line  with  the  reform  of  2016,  the 
majority  principle  for  concluding  agreements  will 
become the rule as of 1 May 2018. The reduction 
in  the  number  of  sectors  from  700  to  200  will  be 
speeded  up.  The  validity  of  sectoral  agreements, 
currently  applying  to  most  of  the  branches  and 
98 %  of  employees,  is  now  associated  to  new 
conditions.  The  capacity  of  concerned  companies 
to adopt agreements without the presence of trade-
union 
expanded.  The 
ordonnances  also  merge  various  social  dialogue 
entities into a single one. 

delegates  will 

be 

the 

issue  of 

The  rules  of  the  unemployment  benefit  system 
were  recently  changed  by  social  partners,  but 
the  system  continues  to  be  in  deficit  and  does 
labour  market 
not  address 
segmentation.  The  French  unemployment  benefit 
system  is  characterised  by  a  comparatively  short 
minimum  contribution  period  (17  weeks),  high 
coverage  of  unemployment  benefits  for  the  short-
term unemployed (53.7 % vs 32.4 % EU average), 
and by a long duration of benefits with a one-year 
work record (52 weeks), while the net replacement 
rate is around the EU average.  Moreover, rules are 
still  characterised  by  an  extended  eligibility  for 
seniors  and  the  features  of 
the  system  can 
incentivise  the  use  of  shorter  contracts  (35).  New 
rules  on  the  unemployment  benefit  system  were 
agreed  by  social  partners  on  28  March  2017  and 
began to be implemented on 1 October 2017. The 
new  rules  postpone  entry  into  senior-specific 
benefits  from  the  age  of  50  to  53  and  modify  the 
method  for  calculating  daily  rights  to  reduce  the 
incentives  for  short-term  contracts.  These  new 
rules aim to bring the annual deficit of the system 
down  from  EUR  4.3  billion  in  2016  to  EUR  3.8 
billion  in  2017  and  EUR  3.25  billion  in  2018. 
Notwithstanding  this  decrease  in  the  deficit,  the 
debt  of  the  unemployment  benefit  system  is 

(35)  For comparative elements, see the draft Joint Employment 
Report 2018, which draws from the benchmarking exercise 
conducted  in  the  EMCO  committee.  For  a  more  detailed 
description  of  the  flaws  of  the  unemployment  benefit 
system, please refer to European Commission (2017d). 

35 

 
                                                           
4.2. Labour market, education and social policies 

this objective was set before the announcement of 
the general decrease in subsidised contracts, which 
might  reduce  the  support  to  the  most  deprived 
urban  areas,  people  living  there  may  still  benefit 
from  a  renewed  targeted  hiring  premium  called 
Emplois francs, to be tested in 2018 in ten of these 
neighbourhoods.    

Education and skills 

France  performs  well  with  respect  to  the 
Europe 2020 headline targets on education and 
skills.  A  comprehensive  reform  mobilising  all 
relevant  actors  and  supported  by  the  European 
Social  Fund  has  reduced  the  early  school-leaving 
rate  to  8.8 %  in  2016,  below  the  9.5 %  Europe 
target  (European  Commission, 
2020  national 
2017b). The percentage of French people aged 30-
34  with  tertiary  education  was  43.6 %  in  2016, 
well above the EU average of 39.1 %.  

and 

Aggregate  data  hide  considerable  disparities 
the 
given 
the  strong  correlation  between 
socioeconomic  background 
students’ 
educational  performance.  There  is  a  sizeable 
performance  gap  between  the  lower  and  upper 
socioeconomic  quartiles  in  terms  of  educational 
achievement  of  15  years-old  students  (OECD 
2016b).  This  gap  is  34.6  pps  compared  to  an 
average  EU  gap  of  26.2  pps.  After  correcting  for 
socioeconomic conditions, the score of pupils with 
a  migrant  background  remains  32  points  below 
that  of  French  pupils  born  to  French  parents, 
whose  performance  is  in  line  with  the  OECD 
average.  Vocational  education  and 
training 
pathways  perform  much  worse  than  the  OECD 
average, while students in general or technological 
education achieve much better results than OECD 
average  (DEPP,  2016).  Aside  the  intended  higher 
allocation for priority education and disadvantaged 
schools  (éducation  prioritaire),  the  distribution  of 
resources  remains  unequal.  This  difference  in 
terms  of  resources  holds  true,  both  in  terms  of 
funding  and  teachers,  across  different  types  of 
schools  and  regions,  as  teaching  posts  tend  to 
remain  unfilled  in  certain  fields  and  geographical 
areas.  

Measures  have  been  taken  to  address  these 
inequalities.  2018  public  funding  for  school 
education increased by 2.6 pps compared to 2017. 
This  will  help  to  give  more  public  funding  to  

higher  risk  of  deadweight  losses,  increasing  with 
the recovery of the labour market. 

or 

jeunes  –  an 

labour  market  policies  have  been 
Active 
refocused  to  help  young  not  in  education, 
(NEETs).  The 
employment, 
training 
programme  Garantie 
intensive 
counselling framework associated with a minimum 
income grant for young NEETs without resources, 
which is partly financed by the Youth Employment 
Initiative – was made untargeted in 2017 and is to 
be  further  strengthened  in  2018,  with  the  goal  of 
reaching  100 000  beneficiaries.  First  evaluations 
have  shown  that  young  people  enrolled  in  the 
programme  are  more  likely  to  subsequently  find 
employment,  especially  in  a  more  sustainable 
form.  In  2016,  more  than  two  thirds  (68.9 %)  of 
NEETs  aged  under  25  were  registered  with  the 
European Youth Guarantee schemes. The ability of 
public  employment  services 
find 
remains  a 
for  young  NEETs 
employment 
challenge;  a  high  proportion  of  young  NEETs  are 
registered  with  the  Youth  Guarantee  scheme,  but 
almost 80 % of those registered did not receive any 
(European 
offer 
Commission,  2017e).  A  new  statistical  tool  for 
monitoring  beneficiaries  of  different  programmes 
for  young  people  (TRAJAM)  was  launched  in 
January  2018,  together  with  a  new  outreach 
initiative  for  NEETs,  financed  by  the  new  Plan 
d'Investissement  dans  les  Compétences  of  the 
Grand Plan d’Investissement 2018-2022 (Sections 
4.1 and 4.3).   

than  4  months 

to  swiftly 

for  more 

in 

(14 %), 

the  Garantie 

Inhabitants  of  the  most  deprived  urban  areas 
(quartiers  prioritaires  de  la  politique  de  la  ville) 
have  been  prioritised  by  different  supporting 
schemes.  Inhabitants  of  these  areas  represent  a 
in  subsidised 
significant  share  of  enrolment 
contracts 
jeunes 
programme  (23 %),  and  the  so-called  ‘second 
chance’  schools  aimed  at  early  school-leavers 
(30 %). An agreement was signed in October 2016 
between  the  ministries  in  charge  of  labour  and 
urban  policy  and  the  main  public  employment 
service  (Pôle  emploi)  for  the  period  2016-2020. 
The  objective  of  the  agreement  was  to  halve  the 
these  areas  by 
employment  gap  affecting 
committing 
in 
the  share 
subsidised contracts awarded their inhabitants. The 
agreement 
public 
employment  service  counselling  and  preparation 
for  apprenticeships  available  to  them.  Although 

to  further 

increase 

increase 

aims 

also 

to 

36 

 
4.2. Labour market, education and social policies 

level 

tertiary 

apprenticeship, 

accounted  for  a  quarter  of  secondary 
level 
vocational  enrolment.  Increases  observed  in  the 
number of  apprentices (+1.7 %  between end 2015 
and end 2016) are essentially due to a fast take-up 
of 
currently 
representing  37 %  of  all  apprentices.  The 
proportion  of  vocational 
secondary 
graduates  entering  bachelor  degrees  (licence)  has 
more  than  doubled  since  2000  (DEPP,  2017),  but 
the rate at which they complete higher education is 
6 %,  well  below  the  completion  rate  of  nearly 
50 %  for  those  with  a  general  upper  secondary 
diploma.  

upper 

The  integration  of  vocational  upper  secondary 
students  into  the  labour  market  is  improving 
along  with  the  labour  market  recovery.  The 
stronger integration capacity of apprenticeship and 
the  wide  differences  across  sectors  are  also 
confirmed.  The  advantage  given  by  work-based 
orientation is significant and can be observed at all 
levels from upper secondary education (ISCED 3) 
to  short-cycle  tertiary  education  (ISCED  5),  as 
well as for nearly all specialties of both production 
is  particularly 
and  services  pathways.  This 
significant for the first level of qualification, where 
the difference in the employment rate is above 25 
pps.  However,  for  both  school-based  and  work-
based  pathways,  the  relevance  of  the  initial 
training  offer  and  guidance  of  students  is  not 
completely  in  line  with  the  labour  market,  as 
sectors  attracting  significant  shares  of  student 
present  lower  post-diploma  employment  rates, 
notably retail and trade specialisations.   

level 

for  upper-secondary 

Several  measures  have  been  developed  to 
improve  the  employment  prospects  of  students 
in  vocational  education  and  training  and  to 
encourage  them  to  enter  higher  education. 
These  measures  include  creating  new  vocational 
courses 
students, 
focusing  on  areas  of  work  experiencing  strong 
growth, and the opening of additional Campus des 
Métiers  et  des  Qualifications, 
to  promote 
vocational  training  within  a  particular  economic 
sector. Further measures have been announced for 
2018.  For  example,  the  government  intends  to 
promote  apprenticeships  within  initial  vocational 
education  and  training,  by  revising  its  funding 
involvement  of 
system  and 
professional branches in the definition of curricula. 
The  government  also  plans  to  encourage  those 
with a vocational upper secondary diploma to enter 

increasing 

the 

primary  education  (36),  in  line  with  the  French 
Court  of  Auditors’  recommendation  to  reduce 
funding allocated to upper secondary education in 
favour  of  primary  education  (Cour  des  Comptes, 
2017b) .  In  turn,  this  will  help  reduce  inequality, 
for  example  by  further  diminishing  the  maximum 
number  of  pupils  per  class  in  lower  grades  and 
raising  teachers’  salaries  in  the  areas  identified  as 
éducation prioritaire. A new scheme has also been 
launched  to  allow  lower  secondary  students  to  do 
their  homework  at  school  for  free  under  qualified 
supervision.    

to 

further 

in  higher  education  are 
Student  numbers 
expected 
increase,  creating  a 
challenge  for  the  government.  The  parliament 
has  adopted  a  law  to  support  students’  success 
notably  through  increased  guidance  to  entry  and 
support during higher education, as well as through 
the  publication  of  expected  competences  prior  to 
entry ('attendus') for different study areas. Overall 
costs  linked  to  students’  status  and  life  will  be 
reduced and quotas of beneficiaries of needs-based 
grants  in  selective  tracks  will  be  introduced. 
Together  with  comparatively  low  tuition  fees  and 
needs-based  grants  benefiting  35.8 %  of 
the 
student population in 2014/2015 (Euridyce, 2016), 
these  measures  facilitate  the  access  to  higher 
low-income 
education 
backgrounds.  Demographic  challenges  are  still 
likely in the future, as projections forecast a 14 % 
increase 
the  number  of  higher  education 
students between 2015 and 2025 (MENESR-SIES, 
2017  and  European  Commission,  2017b).  This  is 
why the 2017 White paper on higher education and 
research  calls  for  an  additional  EUR  10  billion  in 
public  expenditure  on  higher  education  over  the 
next  10  years  to  cope  with  this  increase  (+40 000 
in 2017 only) (MENESR, 2017).  

people 

from 

for 

in 

The  proportion  of  upper  secondary  students 
enrolled  in  vocational  education  and  training 
(VET)  has  been  decreasing,  following  the 
European 
trend.  Vocational  education  and 
training,  either  school-based  or  work-based, 
represented  41.5 %  of  total  students  in  upper 
secondary education in 2015 against 43 % in 2013, 
below  the  EU  average  of  47.3 %.  Apprenticeship 

(36)  Annual expenditure by educational institutions on primary 
students is 15 % lower than in OECD countries, whereas it 
is  37 %  higher  for  upper-secondary  students  (OECD, 
2017). 

37 

 
                                                           
4.2. Labour market, education and social policies 

programme could be further strengthened. The first 
is  to  improve  the  quality  insurance  of  training,  as 
provided  for  by  the  2015  decree  on  quality  of 
training 
continuous  vocational  education  and 
actions.  The  second  improvement  would  better 
identify  training  needs  at  sectoral  and  regional 
levels.  This  would  require  employers  to  redefine 
the skills they need (France Stratégie, 2017c). The 
reform 
vocational 
and 
announced  for  2018  aims 
these 
challenges,  by 
the  monitoring  of 
training  outcomes  and  increasing  people’s  access 
to training, while accompanying the most in need.  

training 
to  address 

improving 

education 

Social protection 

France’s  social  protection  system  performs 
overall well (see Box 4.2.1). In 2016, the poverty 
rate remained unchanged at 13.6 %, 3.7 pps below 
the  EU  and  euro  area  averages.  The  system  of 
transfers helps reduce the intensity of poverty, yet 
France’s  poverty  rate  of  23.6 %  before  transfers 
was  still  below  the  EU  average  of  25.9 %. 
Although the impact of social transfers on poverty 
reduction  has  been  decreasing  to  42.4 %  in  2016, 
in line with the EU trend, it remained 9 pps above 
the  EU  average.  Moreover,  income  inequality  — 
as  expressed  by  the  Gini  index  of  disposable 
income  —  stabilised  at  29.3 %  in  2016  and 
remained below the EU average of 30.8 % in 2016. 
The  ratio  between  the  average  income  of  the 
bottom  quintile  and  that  of  the  first  quintile  of 
income distribution also remained stable at 4.3, but 
this is still well above the pre-crisis level of 3.9 in 
2007. The rate of those at-risk of poverty or social 
exclusion  rate  increased  to  18.2 %  in  2016,  up 
from 17.7 % in 2015, but it remains below the EU 
level of 23.5 % in 2016.  

Although  overall  poverty  rates  are  declining, 
specific  groups  face  increased  difficulties.  Even 
though  poverty  rates  in  France  are  below  the  EU 
average for all age groups, 35.2 % of single-parent 
families  are  at  risk  of  poverty,  followed  by 
children (19.1 %) and young people aged 18 to 24 
in  2015). 
(21.9 %  and  up 
Employment  status  strongly  impacts  the  risk  of 
poverty  although  to  a  lesser  extent  than  at  EU 
level.  38.4 %  of  unemployed  were  at  risk  of 
poverty in 2016 (48.7 % in the EU), an increase of 
1.2  pps  in  one  year,  while  only  7.9 %  of  those  in 
work  were  at  risk  of  poverty  (9.6  %  for  the  EU). 
13.5 %  of  part-time  workers  are  at  risk  of 

from  17.9 % 

higher education courses where their likelihood to 
succeed  is  higher,  like  the  'section  for  superior 
technicians'  where  their  graduation  rate  was  more 
than 60 % in 2016.    

to 

recruit 

training 

recruited  or 

system  would 

and 
prospects 
of  workers.  The 

A strengthened continuous vocational education 
and 
increase 
professional 
employment 
mobility 
of 
shortage 
appropriately  skilled  workforce  is  mentioned  by 
companies as the first hindrance to hiring (INSEE, 
2017c), notably for some sought-after profiles such 
as  ICT  specialists  (in  2017,  42 %  of  companies 
that 
reported 
tried 
recruitment  difficulties,  below  the  EU  average  at 
48 %).  Upskilling  through  training  may  also  help 
to  tackle  the  acute  difficulties  for  the  low-skilled 
people to get employed, as part of implementing of 
the  Upskilling  Pathways  Recommendation.  In 
2016,  a  plan  was  adopted  to  train  500 000 
jobseekers (Plan 500 000 formations), followed up 
by  200 000  additional  trainings  in  2017.  Even 
though  this  plan  has  reached  its  quantitative 
objective  of  doubling  the  number  of  trained 
jobseekers,  it  did  not  improve  their  ability  to  find 
work compared to former schemes; 50 % of those 
trained under the scheme were employed 6 months 
after the training and 25 % were on contracts with 
a  duration  of  more  than  6  months.  The  French 
Cour  des  Comptes  (Cour  des  Comptes,  2017b) 
argued  that  the  quick  implementation  schedule  of 
this  plan  and  its  focus  mainly  on  quantitative 
targets  were  responsible  for  the  limited  matching 
of  trainings  offered  with  locally  identified  needs. 
les 
The  new  Plan  d'Investissement  dans 
Compétences 
the 
shortcomings  of  the  Plan  500 000  formations, 
proposing  to  spend  EUR 7  billion  on  qualifying 
trainings  for  1  million  of  young  NEETs  and 
another  EUR  7  billion  for  1  million  of  low-
qualified jobseekers over 5 years (see also Section 
4.1). 

overcome 

intends 

to 

further 

improvement  of 

A 
the  Personal 
Training  Account  may  also  increase  access  to 
training.  A  new  Personal  Training  Account 
(called  the  Compte  personnel  de  formation,  CPF) 
was  introduced  in  2015  and  has  now  financed  1 
million  training  sessions.  So  far,  4.3  million 
French  people  have  opened  these  accounts,  less 
than  a  fifth  of  those  eligible.  Assessments  of  the 
implementation  of  the  CPF  (IGAS,  2017  and 
CNEFOP,  2017)  point  to  two  ways  in  which  the 

38 

 
4.2. Labour market, education and social policies 

euro  area  (3.5 %)  averages.  Severe  housing 
deprivation is affecting 9.8 % of households living 
under  the  poverty  threshold,  above  the  euro  area 
average of 8.9 % (11.8 % in the EU). As in the rest 
of the EU, house ownership is an important factor, 
as 6.2 % of tenants were exposed to severe housing 
deprivation in 2016, compared to 1.7 % of owners 
(6.4  %  and  1.6  %  in  the  EU).  By  keeping  rents 
low,  social  housing  enables  tenants  to  limit  the 
share  of  income  spent  on  accommodation,  which 
in 2016 was equal to 27.3 % against 40.7 % in the 
market  sector  for  people  having  income  in  the 
bottom quintile of the income distribution.  

live 

observed 

low-income  areas, 

Social  housing  is  distributed  unevenly  on  the 
territory  and  mostly  concentrated  in  deprived 
urban  areas.  8  out  of  10  households  in  areas 
covered  by  the  Politique  de  la  ville  policy,  which 
focuses  on 
in  social 
housing.  This  is  three  times  more  than  the 
proportion  of  people  in  social  housing  in  other 
areas.  Neighbourhoods  focused  on  by  this  policy 
account  for  30 %  of  all  social  housing,  despite  a 
rebalancing 
other 
neighbourhoods.  In  more  attractive  metropolitan 
zones, the supply of social housing offer is unable 
to  cope  with 
increased 
capacity built during the last 5 years. In 2015, the 
average waiting time for social housing was of 39 
months  in  Paris  and  more  than  19  months  in 
different  departments  of  Ile-de-France  (Paris 
region),  compared  to  the  12-month  average  in 
France  (INSEE,  2017d).  Movement  out  of  social 
housing  into  private  housing  by  some  of  its 
residents remains low (Section 4.1).  

the  demand,  despite 

towards 

New  measures  have  been  taken  to  improve  the 
government's social housing policy. The January 
2017  law  for  equality  and  citizenship  (loi  égalité 
citoyenneté)  encompasses  measures  to  clarify  the 
criteria  for  access  to  social  housing.  The  new 
government  also  plans  to  foster  mobility  out  of 
social housing as part of its housing strategy, to be 
partly translated into a draft law planned for March 
2018. This strategy also promotes direct access to 
sustainable housing, notably social housing, for the 
estimated 143 000 homeless people. These include 
an  increasing  share  of  families.  This  public  faces 
difficulties 
housing 
solutions,  despite  new  emergency  places  being 
opened in the last 5 years.  

emergency 

accessing 

monetary poverty. 26.5 % of those born outside the 
EU  are  at  risk  of  poverty,  2.5  times  the  rate  of 
those  born  in  France.  The  poverty  rate  in  urban 
most  deprived  areas  was  estimated  at  42 % 
(INSEE, 2016c). 

the  existing  minimum 

Measures  taken  to  reduce  poverty  aim  at 
income 
increasing 
support.  In  line  with  the  objectives  set  by  the 
Multiannual  antipoverty  plan,  the  main  minimum 
income  scheme  Revenu de  solidarité  active  (RSA) 
was  increased  by  10 %  in  real  terms,  contributing 
to  a  decrease  in  the  intensity  of  poverty.  As  of 
2018,  the  specific  minimum  incomes  for  elderly 
and disabled adults will be gradually increased by 
EUR 100 per month. In the future, the government 
is  also  expected  to  raise  the  in-work  income 
support  (Prime  d’activité)  introduced  in  2016. 
Currently,  around  2.5  million  households  receive 
this  support  (one  fifth  are  aged  under  25  years,  a 
larger  number  of  people  than  under  previously 
existing  mechanisms).  According 
INSEE 
(2017a), the higher levels of income support have 
decreased  the  poverty  rate,  due  to  better  targeting 
on  households  with  low  income.  Increases  in  the 
Revenu  de  solidarité  active  compensated  for  a 
slight rise in inequalities before transfers.    

to 

Access  to  healthcare  is  good,  although  the 
distribution  of  healthcare  professionals 
is 
uneven across regions. The percentage of people 
reporting unmet need for a medical examination is 
on  average  low,  at  1.2 %  of  the  population 
compared  to  the  EU  average  of  3.2 %  (OECD 
2016a,  2017c).   France  has  a  slightly  below 
average  density  of  active  physicians,  and  rural 
areas  are  more  likely  to  have  fewer  physicians. 
8 %  of  the  population  live  in  these  underserved 
rural  areas  with 
(déserts 
médicaux) (Vergier and Chaput, 2017).  Following 
two  health  plans  in  2012  and  2015,  a  dedicated 
plan for access to care in the regions was released 
in  2017.  It  plans  to  continue  promoting  the 
recruitment of doctors and other health workers in 
underserved 
of 
multidisciplinary medical homes and telemedicine 
(Section 4.1). 

fewer  physicians 

creation 

regions, 

the 

Access to housing remains nonetheless a matter 
of  concern  for  people  living  in  poverty.  The 
severe  housing  deprivation 
rate  has  been 
increasing since 2013 and stood at 2.7 % in 2016. 
This  rate  is  below  both  the  EU  (4.8 %)  and  the 

39 

 
4.3. INVESTMENT, COMPETITIVENESS AND BUSINESS 

ENVIRONMENT 

Exports of goods* 

In 2016, France was the world's seventh largest 
exporter  of  goods  in  terms  of  value,  with  a  3.1 
% market share of the world total. However, its 
position  has  deteriorated  compared  to  ten  years 
ago,  when  it  was  the  fifth.  The  incorporation  of 
emerging  market  economies  is  behind  the  change 
during this time span. However, other EU Member 
States  have  not  experienced 
this  negative 
development (37). 

Graph 4.3.1:  Export of goods in value - by sector evolution 

performance  of  French  goods  in  world  markets  is 
driven  by  geographic  specialisation:  in  countries 
where  France  exports  most  of  its  goods,  imports 
have grown faster in value than the world total. In 
fact,  France  has  experimented  limited  export 
market  shares  losses  in  such  markets.  However, 
the  higher  import  growth  experimented  in  them, 
than 
relative 
compensated  for  such  limited  loss  (see  graph 
4.3.2).  

total,  has  more 

the  world 

to 

Graph 4.3.2:  Export of goods in volume - performance 

Source: European Commission, COMEXT 

(1) Export performance is defined as the ratio between 
French exports of goods in volume and the size of export 
markets in volume. 
Source: European Commission, 2017 autumn forecast 

to 

stop 

France  has  managed 
further 
deterioration  in  its  goods  exports  since  2013. 
Moreover,  besides  this  evolution  (see  Section  1), 
the appreciation of the euro since the end of 2016 
does  not  seem  to  have  dented  overall  export 
performance.  Overall,  the  total  value  of  goods 
exports is now 13% above pre-crisis (2007) levels 
(since the second half of 2017). However, there are 
significant  performance  differences  across  sectors 
(see graph 4.3.1). 

Export  performance  of  French  goods  has  not 
significantly  improved  during  2017.  France's 
goods  exports  increased  as  a  percentage  of  the 
world  total,  measured  in  value.  However,  this  is 
not  due  to  an  increase  in  French  export  market 
shares  across  countries.  Instead,  the  improved 

(37)  The  cases  of  Spain  and  Germany  (keeping  world  export 
ranking  share  and  falling  one  spot,  respectively)  are  well 
known. However, the Netherlands has risen to become the 
fifth largest exporter of goods in 2016, starting from sixth 
in 2006. 

The share of high-quality goods in total French 
exports  has  decreased  significantly  over  the 
period 2011-2016, while the share of top quality 
goods  has  slightly  increased  (graph  4.3.3). 
French  export  quality  is  very  high  in  'other 
(including  aircraft)  and 
transport  equipment' 
'leather  and  related  products'  (which  includes 
luxury  products)  according  to  the  Vandenbussche 
(2014)  methodology.  This  is  in  line  with  the 
findings  of  an  analysis  by  Bas,  Fontagné,  Martin 
and  Mayer  (2015),  which  identifies  aeronautics 
and 
two  best-ranking 
exporting  sectors  for  France  using  a  different 
methodology.  However,  the  share  of  low  and 
medium  quality  exports  has  also  increased.  As  a 
result,  the  market  structure  of  French  exports  of 
goods  appears  to  be  skewed  towards  the  low  to 
middle  quality  categories  rather  than  the  high 
quality  category,  while  the  average  quality  of 
exported  goods  is  diminishing,  albeit  from  high 
levels.  For  instance,  the  average  quality  of  motor 

leather  goods  as 

the 

40 

50658095110125140155170060708091011121314151617Aircraft, spacecraft and related machineryMotor vehiclesOther goodsOne-yearmoving average, 2006 = 100808590951001051101151200607080910111213141516171819GermanySpainFranceItalyForecast 
 
 
                                                           
 
4.3. Investment, competitiveness and business environment 

vehicles  manufactured  in  France  and  exported 
abroad  has  fallen  from  an  average of 0.59 (out  of 
1) in 2006 according to the Vandenbussche (2014) 
methodology, to 0.45 in 2016 (38). 

generally, French firms exporting services seem to 
have  better  weathered  the  crisis  and  its  aftermath 
compared to manufacturing and construction peers 
by  better  reallocating  resources  to  the  most 
productive firms within the sector (40). 

Graph 4.3.3:  Export of goods in value - by quality rank (as 

% of total exports) 

Graph 4.3.4:  Service exports - France 

(*) Quality rank index based on the Vandenbussche (2014) 
method, where rank refers to the quality in the EU market of 
a particular 'country of origin-product' combination. 
Source: European Commissiom, Comext, ORBIS. 

France  is  not  expected  to  regain  goods  export 
market shares in its destination markets during 
the  forecast  horizon  (2018-2019).  The  impact  of 
the  recent  taxation  and  labour  market  reform 
initiatives  is  yet  to  feed  into  the  French  economy 
and impact its overall competitiveness. As a result, 
regaining  past 
the  economy 
competitiveness losses. However, it is expected to 
slowly  improve  its  position,  compared  to  the 
negative evolution observed in the recent past. 

from 

far 

is 

Exports of services* 

France  remains  the  world's  fourth  largest 
exporter  of  services  in  value,  with  a  4.8  % 
market share of the world total in 2016, keeping 
the  same  ranking 
it  held  a  decade  ago. 
Moreover,  from  representing  approximately  26  % 
of  the  total  value  of  French  exports  in  1999, 
services  represented  32  %  in  2016 (39).  More 

(38)  This  contrasts  with  exports  of  motor  vehicles  from  the 
United  Kingdom,  where  the  quality  and  number  of  motor 
vehicles increased during this period: from 0.74 to 0.81 (in 
the Vandenbussche scale) and by 10 %, respectively. 
(39)  A  certain  (mostly  accounting)  reallocation  of  export  from 
the goods category to the services exports has taken place 
during  this  period.  However,  this  is  a  common  pattern 

"Travel & Cultural": "Travel" and "Personal, cultural and 
recreational". "Finance": "Insurance and pensions" and 
"Financial". "Other": "Government" and "Construction". 
Source: UNCTAD, European Commission 

The  business  services  category  is  the  largest 
French  services  export.  Business  services  have 
surpassed travel, personal, cultural and recreational 
services  as  the  main  exporting  service  of  France 
(graph 4.3.4). They  are generally demanded  as  an 
intermediate input for other firms, including firms 
exporting goods: the complexity to access external 
markets  requires  purchasing  them  and,  over  time, 
firms that export goods to more countries also tend 
to  purchase  more  business  services  (in  value). 
Further  emphasising  its  importance,  French  firms 
exporting goods also export business services (41). 
Globalisation (search for new external markets) of 
this 
the 
phenomenon.  

firms  stands  behind 

large  French 

across  advanced  economies  and  should  not  mask  the 
changes presented in graph 4.3.4. 

(40)  Ben  Hassine  (2017)  compares  reallocation  patterns  of 

French firms across sectors during the crisis. 

(41)  Berlingieri (2015) analyses  an extensive dataset of French 
firms  entering  export  markets  and  establishes  a  positive 
correlation  between  business  services  expenditures  and 
external  market  presence.  Berlingieri  (2014)  presents 
evidence  regarding  the  origin  of  demand  for  business 
services (with United States data). 

41 

0%5%10%15%20%25%30%35%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)20112016Rank by 5 categories of quality (*)25.9 %33.5 %27.1 %19.2 %21.7 %17.2 %4.5 %8.5 %7.1 %7.1 %6.9 %6.6 %4.0 %6.2 %0%10%20%30%40%50%60%70%80%90%100%20082016Business servicesTravel & CulturalTransportFinanceITIPGoods-relatedOther 
 
                                                           
 
                                                                                   
4.3. Investment, competitiveness and business environment 

international openness and management capacities, 
including  language  and  culture –  see  Business 
France/Kantar public (2016). 

Graph 4.3.5:  Participation of the French SMEs in the internal 

and world markets compared to the EU 
average 

result, 

firms.  As  a 

Services exports tend to be concentrated within 
large 
the  underlying 
distribution  of  firm  size  is  relevant  to  understand 
services exports. Moreover, the environment firms 
face to grow also becomes important to explain the 
future evolution of French services export growth -
see  the  Business  Environment  Section  below  and 
Crozet,  Millet  and  Mirza  (2016).  Just  as  with 
exporting  goods  firms,  exporting  services  firms 
tend  to  be  larger  and  more  productive,  use  more 
capital intensive production processes and employ 
a  more  highly  skilled  workforce  –  see  Breinlich 
and Criscuolo (2011). 

SME export performance* 

The  proportion  of  exporting  SMEs  is  lower  in 
France than in other EU Member States. French 
SMEs  (up  to  250  employees)  represent  95  %  of 
French  exporting  businesses  and  14  %  of  French 
export  value.  In  2016  they  were  more  dynamic 
exporters  than  large  enterprises.  However,  they 
participate  less  in  the  internal  market  than  the 
SMEs of other EU Member States.  They represent 
16  %  of  EU  SMEs  but  only  6  %  of  exporting 
SMEs –  see  Direction  générale  des  entreprises 
(2017). Moreover, only 7.5 % of the French SMEs 
active in the industry sectors export goods to other 
Member States, with the EU average being  17.1 % 
–  see  Eurostat  (2014).Their  participation  in  world 
markets outside the EU is also lower than the EU 
average:  8.5  %  of  French  SMEs  active  in  the 
industry sectors export goods outside the EU (EU 
average: 10 %) – see Eurostat (2014). 

The share of French SMEs exporting online has 
decreased  since  2015  and  is  now  below  the  EU 
average. According to 2017 EUROSTAT figures, 
in  terms  of  online  exports  (covering  both  goods 
and services), French SMEs used to perform better 
than other EU SMEs, but they no longer do: 7.4 % 
of the French SMEs export online to other Member 
States  (EU  average:  8.4  %).  Moreover,  4.6  %  of 
the French SMEs export online to markets outside 
the EU (EU average: 5.0 %). 

Several factors explain the poor participation of 
French SMEs in trade. Trading across borders is 
easy  and  inexpensive  for  French  enterprises  (see 
World  Bank  2017).  Instead, the  main  obstacles  to 
export according to a survey of experts and SMEs 
exporting  from  France  are  (i)  high  production 
costs, (ii) unfavourable regulations and (iii) lack of 

Source: Eurostat 

The  French  administration  offers  support  for 
businesses export, but the multiplicity of actors 
and  schemes  hampers  access.  There  is  currently 
no  single  helpdesk  to  support  firms  when  they 
expand abroad. A number of operators and public 
agencies offer support to export, but most schemes 
are  not  well  known  (with  the  exception  of  the 
Volontariat International en Entreprise). 

FDI and investment 

France  stands  out  as  the  largest  origin  and 
destination  of  foreign  direct  investment  (FDI) 
among  the  large  Euro  area  Member  States.  In 
particular,  the  stock  of  FDI  by  French  residents 
abroad  is  higher  than  that  of  German,  Italian  and 
Spanish ones and is equivalent to 67 % of its GDP. 
With  the  exception  of  Spain,  a  Member  State 
traditionally  benefitting  from  technology  transfer 
from  abroad,  France  also  leads  FDI  entering  the 
economy by non-residents (table 4.3.1). 

The  high  cost  of  supplying  foreign  markets 
from France seems to have caused French firms 
to  opt  to  supply  foreign  markets  by  investing 
abroad.  The 
example  of  motor  vehicle 
manufacturing is instructive: whilst manufacturing 
of motor vehicles in France decreased by about 35 

42 

01020SMEs with intra-EUexports of goods (% ofSMEs in industry),2014SMEs with extra-EUexports of goods (% ofSMEs in industry),2014Intra-EU on lineexporters (% ofSMEs), 2017Extra-EU on lineexporters (% ofSMEs), 2017FranceEU average 
 
4.3. Investment, competitiveness and business environment 

Graph 4.3.6:  Investment in selected Euro area Member States -expressed as a percentage of GDP 

Source: European Commission, AMECO 

%  between  2006  and  2016,  the  two  main  firms 
headquartered in France produced more vehicles in 
2016 than 2006 worldwide (42). 

Public  infrastructure  in  France  is  best  in  class 
among  the  EU  Member  States  and  worldwide. 
France  is  characterised  by  a  strong  infrastructure 
and  logistics  base  to  supply  foreign  markets. 
France  is  ahead  of  almost  all  other  EU  Member 
States with regards to infrastructure supporting the 
competitiveness of the economy. According to the 
Global Competitiveness Report 2017-18, published 
by 
public 
infrastructure  in  France  is  considered  only  2nd  to 
the  Netherlands,  among  EU  Member  States,  and 
7th in the world. It is particularly well placed with 
respect  to  transport  infrastructure (43).  That  is,  the 
cost  of  supplying  foreign  markets  from  France 
seem to lie elsewhere than in public infrastructure. 

the  World  Economic  Forum, 

Public  investment  in  France  is  expected  to 
remain  above  the  other 
large  Euro  area 
Member  States  within  the  forecast  horizon. 
is 
France's  strong  standing  on 

infrastructure 

(42)  Together  they  manufactured  6.5mn  vehicles  in  2016, 
compared  to  5.9  in  2006,  an  11  %  percent  increase 
(excluding  Nissan  production  from  the  Renault  group). 
Source: OICA (2017). 

(43)  However,  and  although  not  accounted  for  as  a  public 
investment,  there  are  some  issues  arising  with  respect  to 
infrastructure  investments  that  are  to  be  made  through 
as  private 
(that 
state-owned 
investment). This is particular the case for railways, where 
there 
renew  existing 
infrastructure. See Section 4.4 on sectoral policies. 

to  maintain  and 

is  a  need 

enterprises 

compute 

expected  to  remain  in  the  forecast  horizon.  Since 
2011, public investment in France is 1pp. of GDP 
above  the  average  level  of  public  investment  in 
Germany,  Italy,  and  Spain  since  the  euro  was 
adopted  as  currency.  This  divergence  is  expected 
to  augment  over  the  forecast  horizon  (see  graph 
4.3.5). That is, the government is allocating and is 
expected to continue to allocate more resources to 
investment than the other large Euro area Member 
States,  in  an  economy  with  a  constrained  fiscal 
position and a best in class physical infrastructure 
to  support 
its  competitiveness –  see  World 
Economic Forum (2017). 

Table 4.3.1:  Stock of FDI: residents abroad (assets) and 

non-residents in the economy (liabilities) 

(1) Expressed as a percentage of GDP 
Source: European Commission, EUROSTAT 

Private investment in France is above other EU 
Member  States  as  a  percentage  of  GDP. 
Nevertheless, private investment patterns in France 
are  suboptimal,  resulting  in  poor  performance  – 
see European Commission (2017d). Investment in 
manufacturing  is  concentrated  in  subsectors  of 
declining  economic  importance  (as  measured  by 
their  value  added).  Moreover,  even  if  R&D 

43 

2017Q21999Q42017Q21999Q4France67.124.945.818.0Germany58.622.242.416.3Spain56.418.360.023.7Italy33.016.826.411.7AssetsLiabilities0.01.02.03.04.05.06.00607080910111213141516171819% of GDPPublic investmentDEESFRITForecast10.012.014.016.018.020.022.024.026.028.00607080910111213141516171819% of GDPPrivate investmentDEESFRITForecast 
                                                           
 
 
 
 
4.3. Investment, competitiveness and business environment 

with  the  decline  in  competitiveness  and  shrinking 
industrial  sector  of  the  French  economy (see 
Section 4.4). 

threshold  effects  continue 

Regulatory 
to 
hamper  firms'  growth.  Labour  market  reforms 
(see Section 4.2) will streamline the application of 
labour law, in particular for SMEs. This is because 
they  include  measures  to  simplify  social  dialogue 
(e.g. by  merging  companies'  representative  bodies 
into one). They also clarify the labour law, making 
it  more  predictable  (e.g.  compensation  rates  for 
unfair  dismissal).  Finally,  they  introduce  more 
flexibility  (e.g.  extending  the  areas  where  small 
companies  up  to  50  employees  can  negotiate 
directly  with 
their 
representative).  However,  their  implementation 
might  reinforce  thresholds  preventing  firms  from 
growing  beyond  a  certain  size.  This  is  because 
they  wish 
regulatory  burden 
associated with an increased number of employees 
–  see  Garicano,  Lelarge  and  Van  Reenen  (2017). 
In  this  respect,  the  50  employee  cut-off  seems 
particularly relevant, as shown in graph 4.3.7. 

employees 

to  avoid 

their 

the 

or 

Graph 4.3.7:  Number of employees and number of firms - 
French manufacturing industry 

X axis: number of employees 
Y axis: ln(number of firms) 
Source: Garicano, L., C. Lelarge, and J. Van Reenen (2017) 

investment  is  high,  some  goods  manufactured  in 
France are falling behind in the world quality scale 
(see  Exports  of  goods  sub  Section).  Some  sectors 
also  seem  less  successful  than  before  the  crisis  in 
spite  of 
creative 
industries). 

investments  made 

(e.g. 

France  is  taking  measure  to  foster  public  and 
private investments to prepare the economy for 
future  challenges.  Regarding  public  investment, 
under  the  Great  Plan  for  Investment  2018-2022 
(Grand  plan  d'investissement  2018-2022),  France 
will allocate EUR 57 billion over five years to the 
following  priorities:  environmental 
transition 
(EUR  20  billion),  skills  development  (EUR  15 
billion), 
(EUR  13  billion),  and 
digitalisation of public services (EUR 9 billion). In 
addition,  France  is  taking  measures  to  boost 
private  investment  (see  box  4.3.1  on  investment 
challenges). 

innovation 

Business environment* 

in 

ranks  poorly 

Administrative  and  regulatory  burden 
in 
France remains high and weighs on businesses. 
The  country 
international 
comparisons  with  respect  to  the  burden  of  its 
regulations.  For  instance,  according  to  the  Global 
Competitiveness Report 2017-18, France ranks 115 
out of 137 countries with respect to the burden of 
its government regulations. More specifically, and 
with  regards  to  the  World  Bank's  Doing  Business 
2018  report,  France  ranks  relatively  poor  with 
regards  to  "registering  property"  (25th  in  the  EU), 
"getting credit" (20th in the EU) and "paying taxes" 
(20th 
its  position 
deteriorated  the  most  with  regards  to  "getting 
"resolving 
credit" 
insolvency" (28th versus 24th). 

(90th  versus  82nd) 

the  EU).  Moreover, 

and 

in 

improve 

can  help 

A clarification of the objectives pursued by the 
State with regards to the firms where it holds a 
stake 
the  business 
environment and correct competitiveness losses. 
In 2015  the  State  booked  a EUR  10.1  billion  loss 
via the Agency for state shareholdings because of 
its  stakes  in  the  incumbent  railway  and  energy 
firms.  These  competitiveness 
losses  directly 
impacted  State  resources.  As  a  result,  the  French 
Court  of  auditors  –  see  Cour  des  comptes  (2017) 
concluded  that  the  French  state  as  shareholder  is 
characterised by having multiple and contradictory 
objectives  and  is  rarely  best-adapted  to  contend 

Regarding the business environment for SMEs, 
France  performs  broadly  in  line  with  the  EU 
average.  According  to  the  SBA  factsheet  (see 
graph  4.3.8),  France  scores  below  the  average  of 
other  EU  Member  States  with  regards  to  the  "EU 
single  market"  (in  line  with  the  above  analysis  of 
SME  participation  in  the  EU  internal  market)  and 
with 
"responsive 
administration"  (see  Section  on  administrative 
procedures hereafter). 

respect 

having 

to 

a 

France  continues  to  perform  below  the  EU 
average  on  entrepreneurial  activity.  France's 

44 

 
 
4.3. Investment, competitiveness and business environment 

Graph 4.3.8:  Performance in the Small Business Act report for 2017 

Source: European Commission 

see 

report 

early  stage  entrepreneurial  activity  (5.3  %  vs.  7.8 
% in the EU) and business ownership rate (4.3 % 
vs. 6.7  %  in  the  EU)  are  among  the  lowest in  the 
EU, according to the 2017 Small Business Act for 
Europe 
European 
("SBA") – 
Commission  (2017c).  Only  14  %  of  those  who 
want to set-up a business finally do so: one of the 
main reasons for this low proportion is the fear of 
failing –  see  Direction  générale  des  entreprises 
(2017). Although the rate of businesses alive after 
five years is higher (49 %) than in Europe (44 %), 
the  share  of  high-growth  enterprises  is  slightly 
lower  than  in  most  other  EU  countries  (8.5  % 
compared  to  an  9.2  %  EU  average  in  2015 –  see 
Eurostat  (2017):  this  shows  French  businesses 
have difficulties to grow and create jobs (see graph 
4.3.8). 

less  than  EUR  5  000;  and  (iii)  the  increase  in  the 
thresholds  for  taxation  of  micro-entrepreneurs.  A 
law  dedicated  to  companies'  growth  will  be 
unveiled  in  spring  2018  ,following  the  launch  of 
the  PACTE  (Plan  d'Action  pour  la  Croissance  et 
la Transformation des Entreprises). 

Fast  changing  legislation  and  burdensome 
administrative procedures 

The  fast  changing  legislation  and  policies  are 
considered a problem by French SMEs (44). This 
instability is considered to lead to legal insecurity 
and  hinder  investment.  More  generally,  new  laws 
and  norms  are  also  considered  to  have  led  to  an 
increase  in  the  number  and length of  legal rules – 
see Lamure and Cadic (2016). 

Difficulties  to  grow  are  rarely 
linked  to 
difficulties in accessing bank finance. Only 9 % 
of  French  SMEs  did  not  manage  to  get  the  full 
bank  loan  they  planned  for  during  2017  (EU:  17 
%). Back in 2013, the rejection rate was above 20 
%,  according  to  the  latest  Commission  survey  on 
access to finance of enterprises. 

to 

or 

taken 

announced 

A  number  of  specific  measures  have  recently 
been 
support 
entrepreneurship and help firms grow. The new 
government has adopted measures in favour of the 
self-employed,  including:  (i)  the  exemption  of 
social  security  contributions  for  the  first  financial 
year  for  those  setting  up  a  business  with  turnover 
of  less  than  EUR  40  000;  (ii)  the  exemption  for 
those  liable  for  the  minimum  business  premises 
contribution (CFE) who record annual turnover of 

in 

too 

late 

The impact of new policies and laws on SMEs is 
insufficiently assessed and/or taken into account 
at  early  stages  of  the  policy  making  process. 
SMEs  claim  that  impact  assessments  are  carried 
the  adoption  process,  with 
out 
insufficient  quality  controls,  and  with 
little 
business involvement – see Conseil d'État (2016). 
Moreover,  policies  might  not  exclusively  target 
them  (e.g.  taxation  or  environment).  However, 
they  can  burden  them  disproportionately.  In  this 
regard,  an  additional  test  has  been  introduced  to 
complement  impact  assessments  with  information 
from  SMEs.  However,  none  was 
coming 

(44)  For  89  %  of  them  compared  to  64  %  across  the  EU, 

according to the Commission SBA report. 

45 

0.00.20.40.60.81.0Entrepreneurship'Second chance''Responsiveadministration'State aid & publicprocurementAccess to financeSingle marketSkills & innovationEnvironmentInternationalisationEU averageFrance 
                                                           
 
4.3. Investment, competitiveness and business environment 

Although  some  measures  adopted  under 
the 
Simplification  Programme  seem  to  have  provided 
to  firms  substantial  savings –  see  Ernst  &  Young 
(2016)  –  overall  the  programme  appears  to  have 
had moderate benefits. This is partly due to the fact 
that a substantive part of the measures have not yet 
been implemented (one third in October 2017) and, 
more importantly, its limited scope. 

Authorities are working to improve the relation 
between  business  and  public  administrations. 
The  government  has  presented  a  draft  law  to 
simplify  administrative  procedures  and  promote 
the exchange of information between private firms 
and  individuals  and  the  public  administration 
without  automatically  incurring  into  sanctions.  In 
particular, following the introduction of a so-called 
"Droit à l'erreur", business and citizens will not be 
sanctioned  automatically  by  the  administration 
when making a mistake. This follows the positive 
experience  of  the  rescrit  fiscal.  France  has  also 
launched  a  programme  to  reform  the  perimeter  of 
the  public  administration  and  to  improve  the 
quality  of  public  services  by  2022  ("Action 
Publique 2022"). 

Regulatory constraints in professions* 

Competitive pressures have been restrained for 
many  years  in  a  number  of  services.  Together 
with the increase in labour costs, it partly explains 
why prices of services such as real estate, housing 
food,  professional  services  as  well  as 
and 
administrative and support services, have increased 
significantly (about 40%) since 2000 – see France 
Stratégie  (2017b)  Such  increases  hamper  overall 
competitiveness,  as  they  represent  costs  for  firms 
that  demand  services  as  inputs  (see  above).  The 
latest available statistics show that churn rates are 
still lower in France than in the EU for all services 
(Eurostat,  2014  figures)  and  that  gross  operating 
rates  are  particularly  high  for  real  estate  activities 
and  for  legal  and  accounting  services  (Eurostat, 
2015 figures). 

to 

ambitious  measures 

increase 
Some 
competition  in  the  services  sector  have  fallen 
short  at  the  implementation  stage.  The  2015 
Macron  law  targeted  restrictions  in  sectors  where 
price  levels  increased  most  in  previous  years  (i.e. 
legal  professions).  Unfortunately,  its  spirit  has 
been diluted in implementing acts. For example, in 
the  case  of  notaries,  the  competition  authority 

conducted  for  legislation  initiated  in  2016  or  the 
first quarter of 2017 (45). 

time 

The  number  and  complexity  of  administrative 
procedures  weigh  on  French  SMEs.  A  recent 
survey – see Plum (2017) – estimated time lost in 
administrative tasks amounted to 7.7 % of a firm's 
in  France  (average  across  11 
working 
countries:  5  %).  Similar  conclusions  arise  in  the 
SBA  regarding  cost  and  length  of  procedures  that 
exceed  the  EU  average:  i.e.  time  to  transfer 
property  is  estimated  at  64  days  compared  to  the 
24  day  EU  average;  standardisation  requirements 
weighing  on  several  sectors'  competitiveness, 
including  construction –  see  Autorité  de 
la 
concurrence  (2015);  etc.  Costs  are  not necessarily 
decreasing:  registering  property  costs  increased 
from 6.1 % to 7.3 % in 2017 (EU average: 4.8 %). 

new 

norm 

should 

regulatory 

The  French  government  is  trying  to  better 
assess  the  impact  of  regulation  and  limit  the 
proliferation of norms. The new government has 
issued  a  circular  in  July  2017(46)  prescribing  that 
any 
be 
counterbalanced  by  the  withdrawal  or,  if  duly 
justified,  simplification  of  at  least  two  existing 
norms. It also limits the capacity to "gold-plating" 
the  transposition  of  EU  legislation  and  requires 
better  impact  assessments  of  regulations,  asking 
for quantitative evaluations of costs and savings to 
be embedded in regulations. In addition, under the 
housing plan, the government has committed to not 
adopt  new  standards  in  the  construction  sector 
except  for  security  reasons (47).  A  circular  issued 
in  January  2018  (48)  prescribes  that  new  laws 
should  present  simplification  measures  of  the 
existing 
the 
legislation.  Last,  but  not 
to 
ordonnances  on 
simplify,  clarify,  and  make  labour  law  more 
flexible (see Section 4.2).  

least, 
law  are  expected 

labour 

The  government  has  moved  beyond  previous 
initiatives to simplify the business environment. 
The  Simplification  Council  established  by  the 
previous  government  has  not  been  prolonged. 

(45)  Impact assessments are compulsory for draft laws, but not 
for amendments, which constitute a growing source of law 
and are not subject to explicit evaluation. 

(46)  Circulaire  du  26  juillet  2017  relative  à  la  maîtrise  du  flux 

des textes réglementaires et de leur impact  

(47)  http://www.gouvernement.fr/argumentaire/logement-la-

strategie-du-gouvernement 

(48) Circulaire du 12 janvier 2018 relative à la simplification du 

droit et des procédures en vigueur 

46 

 
                                                           
4.3. Investment, competitiveness and business environment 

private  individuals  posting  on  them (51).  In  the 
passenger transportation sector, the Thévenoud and 
Grandguillaume  laws  regulate  services  provided 
and offered by such platforms, (52). In view of the 
limitations  arising  with  respect  to  hired  vehicles, 
the 
considered 
"appropriate" by the public authorities remains key 
to  ensure  a  wider  availability  of  services  and 
competition. 

licenses 

number 

taxi 

of 

recommended  the  nomination  of  1  652  new 
notaries  for  2016  and  2017,  whilst  only  633  have 
been  nominated  so  far  –  see  Autorité  de  la 
concurrence (2017). 

Regulatory  barriers 
to  activity  were  not 
reduced  in  2017;  in  addition,  administrative 
barriers remain high. Regulatory barriers are still 
high (Autorité de la concurrence, 2016), regarding 
reserves  of  activity/exclusive  rights  for  many 
professions, notably the professional services – see 
European  Commission  (2017i).  Other  types  of 
restrictions  include  voting  rights  requirements, 
multidisciplinary 
restrictions  and  professional 
indemnity  insurance  requirements.  These  partly 
come  into  play  at  an  early  stage.  For  instance,  a 
fixed  maximum  number  of    entrants  has  been 
applied  for  the  past  30  years  to  study,  train  and 
obtain  qualifications  required  for  certain  health 
professions  (e.g.  doctors,  dentists).  The  resulting 
stagnation  in  the  number  of  professionals  (49), 
depending  on 
the  profession  considered,  has 
persisted  despite  the  existence  of  the  EU  single 
market and the mutual recognition of professional 
result 
qualifications  across 
profitability  from  exercising 
in  a  significant 
number  of  these  professions remains  important  – 
see  Inspection  générale  des  finances  (2012).  In 
addition to regulatory requirements, numerous and 
complex administrative procedures complicate the 
provision  of  services  and  contribute  to  their  high 
cost 
such  as  accountancy  and 
architecture  –  see  Ecorys  (2017),  the  construction 
sector (50), etc. 

the  EU.  As  a 

sectors 

in 

The new regulatory framework foreseen for the 
collaborative  economy  aims  at  taking  into 
account  the  specificities  of  these  services,  but 
holds  back  their  development.  The  French  State 
Council  (Conseil  d'État)  has  advocated  a  more 
innovation-friendly  policy 
the 
development  of  digital  services –  see  Conseil 
d'État (2017). Legislation regulating the online and 
digital  industry  has  been  adopted  and  authorities 
are  revising  legislation  specific  to  collaborative 
economy providers and platforms. For instance, in 
the  accommodation  sector,  the  newly  introduced 
"ALUR"  and  "Digital  Republic"  laws  establish 
obligations  with  respect  to  the  platforms  and  the 

to  encourage 

(49)  Health at a Glance, OECD (2011) and (2017). 
(50)  Broad  insurance  and  certification  requirements  apply  to 

foreign services providers in the construction sector. 

(51)  Individuals  have  to  register  when  offering  their  primary 
home  for  short-term  rentals  and  are  subject  to  a  prior 
authorisation by relevant municipalities when offering their 
secondary  homes.  If  annual  revenues  from  tourist  rentals 
exceed EUR 23.000, services providers must affiliate at the 
“self-employed  Social  Register”.  Platforms  are  obliged  to 
inform  providers  about  their  regulatory,  social  and  tax 
obligations,  including  annual  revenue;  and  must  suspend 
online advertising if rentals exceed 120 days per year. 
(52)  Ridesharing intermediation for profit is not authorised. 

47 

 
                                                           
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
4.3. Investment, competitiveness and business environment 

Box 4.3.1: Investment challenges and reforms in France 

Section 1. Macroeconomic perspective 

Gross fixed capital formation is high compared to the euro area; dynamic, with expected annual growth close 
to 3% for 2016-2019; and standing above pre-crisis levels. Despite high indebtedness, financing conditions 
remain  favourable,  with  improved  profit  margins  continuing  to  support  corporate  investment.  In  2018  and 
2019, the share of investment in GDP is expected to increase, with all components contributing. France is one 
of the main beneficiaries of the Juncker Plan with approved financing reaching EUR 8.7 billion. 

Section 2. Assessment of barriers to investment and ongoing reforms (1)  

Some  progress  has  been  made  to  reduce  regulatory  and  administrative  burdens  on  firms  through  the 
simplification programme and a circular adopted in 2017 to better assess the impact of regulation and limit 
the proliferation of norms. For 2018 the government has announced a number of initiatives, including: 

  Measures  to  simplify  and  improve  the  exchange  of  information  between  firms  and  citizens  and 
public administrations, by limiting sanctions if mistakes are made at an early stage ("Droit à l'erreur"). 

 

The Grand plan d'investissement 2018-2022 (see Section 4.3). 

 
The  "PACTE",  which  aims  to  facilitate  the  establishment,  growth  and  transmission  of  firms, 
simplify  their  regulatory  and  administrative  environment  and  support  their  financing,  innovation, 
digitalisation, and export performance abroad. 

France  has  also  made  some  progress  to  decrease  the  labour  tax  wedge  and  gradually  reduce  the  corporate 
income tax. Further announced reforms, including the flat tax on capital income, might enhance incentives to 
channel savings towards productive investments, thereby reducing obstacles to corporate investment. 

Main barriers to investment and priority actions underway 

1. Regulatory  and  administrative  requirements  are  the  main  barrier  for  private  investment.  Announced  and 
adopted measures (see Sections 4.3 and 4.4) can limit burdens to invest, including in network industries. 

2. Despite some progress achieved to reduce the labour tax wedge and corporate income taxation, other taxes 
on  production  remain,  no  taxes  identified  as  inefficient  by  the  2014  report  of  the  General  Inspection  of 
Finances have been suppressed and the tax system remains complex (see Section 4.1). 

3. High speed broadband is not widely deployed. France lags behind the EU average in NGA coverage: only 
52%  of  households  were  covered  in  2017  (EU:  80%).  This  limits  France's  ability  to  fully  exploit  the 
benefits of the digital economy.   

(1) 

'Education'  includes  skills  and  labour  shortage  barriers,  quality  of  education,  vocational  education  and  training,                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
and apprenticeship systems - Commission Staff Working Document (2015) 400 final. 

48 

Regulatory/ administrative burdenCSRTaxationCSRPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&IInsolvency frameworkBusiness services / Regulated professionsCSRCompetition and regulatory frameworkCSRRetailEPL & framework for labour contracts ConstructionWages & wage settingCSRDigital Economy / TelecomEducation CSREnergyLegend:TransportNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedNot assessed yetPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
  
 
4.4. SECTORAL POLICIES 

Research and Innovation 

to 

increase 

innovation 

investment, 
in  R&D 
Despite  an 
innovation  performance  remains 
France's 
leaders  (53). 
below  that  of  EU 
According 
the  2017  European  Innovation 
Scoreboard,  France  continues  to  rank  11th  in  the 
EU  and  made  only  limited  progress  since  2010. 
The Scoreboard shows that human capital and the 
attractiveness  of  the  research  system (54)  are  the 
relative strengths of France, although collaboration 
between  innovation  actors  remains  weak.  Since 
its  overall  R&D 
2007,  France 
investment as  a  share  of  GDP,  but  is  still  not  on 
par with the best EU performers and is stagnating 
since  2012.  Overall  and  despite  a  level  of  public 
R&D intensity (55) higher than most EU countries, 
France  is  not  on  track  to  meet  its  national  2020 
target which is for 3 % of the GDP to be invested 
in R&D (Graph 4.4.1). 

increased 

Graph 4.4.1:  R&D intensity (2015) 

Source: European Commission 

There is a need for stronger and more efficient 
links between public research and firms. France 
has  difficulties  in  sustaining  links  between  the 
academic  world  and  industry.  Structures  exist  to 
address  the  transfer  of  academic  ideas  to  new 

(53)  The innovation leaders are Sweden, Denmark, Finland, the 

Netherlands, the United Kingdom and Germany 

(54)  The  attractiveness  of  the  research  system  is  measured  by 
the number of foreign doctorate students, being 170.6 % of 
the EU average in 2016  

(55)  R&D intensity is defined as R&D expenditure as a share of 

GDP. 

to 

to 
research 

support  companies 
public 

ventures (56)  and 
in 
contracting 
research 
institutions (57).  However,  the  efficiency  of  these 
structures  could  be  improved (Sénat,  2017).  The 
lack  of  cooperation  between  academia  and 
business  is  notably  visible  in  the  low  level  of 
public  R&D  financed  by  business.  French  public 
R&D financed by business is only 67 % of the EU 
average.  Finally,  an  increased  support  to  project-
based  funding  (National  Research  Agency)  may 
contribute  to  promote  public  research  topics  that 
are  closer  the  needs  of  business  and  thus  more 
likely to be used by companies.  

Incentivising researchers to move to the private 
sector  remains  a  challenge.  A  group  of 
independent experts (Beylat-Tambourin, 2017) has 
reviewed  the  Allegre  Law  (58)  and  suggested 
measures  to  ease  the  creation  of  companies  by 
researchers  and  clarify  the  rules  on  profit  sharing 
of  intellectual  property  between  researchers  and 
companies.  This  has  not  yet  been  translated  into 
policy measures. 

industry 

industry 

The share of value added produced by France's 
medium  high-tech 
is  significantly 
lower  than  the  EU  average.  The  share  of  value 
added  in  medium  high-tech  (e.g.  automotive)  and 
(e.g.  pharmaceuticals  and 
high-tech 
electronics) has been decreasing since 2007 and is 
currently below the EU average. This trend affects 
France's 
innovation  capacity,  especially  since 
business  R&D  intensity  in  these  sectors  is  very 
high. French R&D intensity is the third highest in 
the  EU  in  medium  high-tech  manufacturing,  and 
the  highest in the  EU  in  high-tech  manufacturing. 
A better scenario can be observed for the share of 
value  added  in  high-tech  knowledge-  intensive 
services 
programming, 
telecommunications)  where  France  has  a  share 
above  the  EU  average,  ranking  fifth  in  the  EU. 
These trends suggest that increasing investment in 
knowledge-based  sectors  (industries  and  services) 
may  be  beneficial 
increasing  non-cost 
for 
competitiveness  and  reducing  the  gap  in  business 
R&D  expenditure with  the  leading  EU  economies 
(OECD, 2017), see Graph 4.4.2. 

computer 

(e.g. 

(56)  Sociétés d'Accélération du Transfert Technologique 
(57)  Institut Carnot, Institut de Recherche Technologique 
(58)  Loi  99-587  du  12  juillet  1999  sur  l'innovation  et  la 

recherche 

49 

0,720,741,271,442,0300,511,522,520072015% of GDPBusiness R&D intensityPublic R&D intensityEU average 2015 (all sectors included) 
 
 
                                                           
                                                           
4.4. Sectoral policies 

Furthermore,  entrepreneurship  and 
innovation 
skills  are  part  of  the  curricula  of  students  of  all 
fields (European  Commission,  2017).  The number 
of  beneficiaries  of  the  "students-entrepreneurs" 
statute has almost doubled from 2015 to 2016. 

The  start-up  scene  is  improving  but  scaling-up 
in  France  remains  a  challenge.  Several  public 
and private-led initiatives have been put in place to 
boost the start-up scene. They include French Tech 
and  the  creation  of  the  largest  start-up  hub  in 
Europe,  Station  F.  While  the  share  of  new 
companies in knowledge intensive sectors is rising, 
there  is  still  not  enough  venture  capital  to  allow 
fast-growing  businesses  to  grow  and  remain  in 
France. The amount of venture capital received by 
French  companies,  when  divided  by  GDP,  put 
France fourth in the EU ahead of Germany and the 
United  Kingdom (European  Commission,  2018). 
Public  financing  (mainly  through  BPI  France) 
plays  a  large  role  in  the  French  market,  and  there 
are not many funds that have sufficient capacity to 
invest  in  big  projects.  Finally,  and  in  addition  to 
tax reforms (Section 4.1), successful tax incentives 
remain  in  the  2018  Finance  Law  such  as  the 
Young Innovative Enterprises (Jeunes Entreprises 
Innovantes)  and  the  "Madelin  tax  reduction" 
granted on investments in SMEs. 

Evaluations  of  R&D  policies  are  on-going.  A  
Commission on Assessment of Innovation Policies 
(CNEPI)  was  established  in  2014  to  review  the 
French  innovation  system.  However,  more  clarity 
is needed on how the CNEPI's evaluations will be 
used to improve future policies. In particular, their 
comprehensive  review  of  the  French  innovation 
system  in  2016  has  not  led  yet  to  any  major 
changes.  On  research  policy,  an  agency  for  the 
evaluation  of  the  research  system  and  higher 
education (Agence d'évaluation de la recherche et 
de  l'enseignement  supérieur)  was  established  in 
2006, and became in 2013 the High Council for the 
Evaluation  of  Research  and  Higher  Education 
(Haut Conseil de l'évaluation de la recherche et de 
l'enseignement  supérieur).  However, 
research 
organisations are not obliged to take action on the 
basis  of  its  evaluations which  indicate  there  is 
possibly 
for 
evaluating public research (OECD, 2014). 

the  system 

improve 

room 

to 

Graph 4.4.2:  Economic structure  (% of value added) 

Source: European Commission 

In  recent  years,  initiatives  have  been  taken  to 
improve  the  French  industrial  ecosystem.  The 
2013  plan  for  a  New  Industrial  France  (Nouvelle 
France  Industrielle)  has 
identified  nine  key 
sectors (59)  where  there  is  potential  to  transform 
the  industry  through  greater  use  of  IT.  According 
to 
the  French  Court  of  Auditors (Cour  des 
Comptes,  2016),  there  is great  potential  in  further 
linking 
the  competiveness  clusters  (Pôles  de 
Compétitivité)  with  these  nine  key  sectors.  Since 
the  current  programme  of  the  competitiveness 
clusters  will  expire  in  2018,  there  is  scope  to 
enhance  synergies  between  the  nine  key  sectors 
and  the  next  competitiveness  clusters  programme. 
In  addition,  in  2018  France  will  launch  a  new 
programme  promoting  disruptive  innovation:  the 
Breakthrough 
(Fonds  pour 
Innovation  Fund 
l'innovation  de  rupture).  The  funding  of  EUR  10 
billion  is  coming  gradually  from  selling  stakes  of 
state-backed companies. The focus for the fund is 
still  to  be  clarified.  An  option  would  be  to  target 
promising  sectors  in  which  France  has  a  relative 
favourable 
artificial 
intelligence (OECD, 2017). 

position 

such 

as 

France  has  very  good  human  capital  in  the 
fields  relevant  for  innovation  and  scientific 
production. The proportion of French graduates in 
science, technology, engineering and mathematics, 
is  above  the  EU  average  and  keeps  increasing. 

(59)  Smart  food  production,  digital  trust,  smart  objects,  data 
economy,  medicine  of  the  future,  transport  of  tomorrow, 
eco-mobility, sustainable cities, new resources 

50 

01234567High-techmanufacturingMedium high-techmanufacturingHigh-techknowledge-intensiveservices% of value added  20072015EU average 
 
                                                           
4.4. Sectoral policies 

sale  of  a  large  minority  share  (49.9 %)  of  the 
transmission operator (RTE) owned by EDF to two 
financial  groups (Groupe  Caisse des dépôts;  CNP 
Assurances).  The  French  State  also  provided 
external financing to EDF via capital injections in 
order  to  cope  with  strong  capital  expenditures 
(renewables, networks, existing and new nuclear). 

Wholesale electricity and natural gas prices are 
in  principle  freely  determined  by  the  market. 
However, schemes exist that can potentially distort 
price  formation  at  the  (i)  wholesale  (through 
ARENH (60) which gives access to electricity from 
nuclear  power  to  EDF's  competitors,  alternative 
suppliers, at a regulated price); or (ii) retail levels, 
such as the regulated segments for households and 
small firm (electricity and natural gas for industry 
were  fully  liberalised  1  January  2016).  Regulated 
tariffs constitute by their very nature an obstacle to 
the  achievement  of  a  competitive  energy  market, 
as  highlighted  by  the  European  Court  of  Justice 
with respect to natural gas in France (ECJ, 2016). 
However, so far, there is no deadline in the French 
Energy  Code 
for 
regulated 
households and small enterprises (61). 

to  end 

tariffs 

Market competition, including via new entry, is 
having  an  impact  on  the  State  incumbents  in 
to 
the  energy  sector.  The  gradual  opening 
competition of the European electricity and natural 
gas markets in the last decade is changing the role 
of  the  State  in  these  sectors.  Whilst  still  limited 
(about  2 %  for  electricity  and  3  %  for  gas)),  the 
switching rate per quarter in the energy sector has 
been  increasing  recently  in  France:  EDF  remains 
heavily  dominant  but  has  lost  approximately 
100 000 customers per month (residential and non-
twelve  months. 
residential) 
Furthermore, access to a deep pool of energy at the 
wholesale  level  remains  limited  due  to  the  strong 
vertical integration of EDF, and its control of most 
generation capacity and strong position at the retail 
level.  Moreover,  the  commitment  to  open  up 
markets seems counterbalanced by some measures 
detrimental  for  competition  (e.g.  use  of  an 
investment  derogation  clause  by  the  State  that 
restricts  competitive  access 
to  hydropower 
concessions operated by EDF). 

past 

the 

in 

(60) ARENH: accès régulé à l'électricité nucléaire historique)  
(61)  Following the ruling of the "Conseil d'Etat", changes might 
take place for regulated gas tariffs. It is not clear  if, in the 
coming years, this will also concern the electricity market, 
following the appeal introduced by a leading market player. 

Network industries 

France exhibits a high level of State ownership 
in the railway and energy sectors. At the end of 
2016,  the  French  State  had  significant  rights  in 
companies that served 85 % and 76 % respectively 
of the total number of consumers of electricity and 
gas representing respectively 71 % and 45 % of the 
total electricity and gas consumption. With regards 
to  the  railway  transportation  sector,  the  French 
domestic 
remains  a 
monopoly 
the  hands  of  a  State-owned 
incumbent  (SNCF  Mobilité),  despite  its  planned 
opening  to  competition  in  2019.  With  regards  to 
freight rail, the market is open to competition, but 
SNCF  Mobilité  holds  a  majority  share  of  the 
market  (i.e.  approximately  70 %).  Participation  in 
the capital of public or private corporations can be 
beneficial for public finances. However, it can also 
come at a cost and represent a potential liability for 
the government. 

rail  passenger  market 
in 

Energy 

to  50 %  of 

State  ownership  in  the  energy  sector  in  France 
differs from the other large EU Member States. 
On  average,  about  50 %  of  the  turnover  in  the 
energy sector in France is generated by companies 
with  a  state  ownership  above  50 %.  Companies 
with a minority shareholding of the State (i.e. with 
20 % 
their  equity  under  State 
ownership)  are  responsible  for  another  40 % 
turnover.  Only  the  Italian  State's  shareholding 
participations  are  similar  in  magnitude,  if  the 
minority shareholder participations are considered. 
Similarly,  the  size  of  the  assets  and  liabilities  of 
State-owned  enterprises  as  a  percentage  of  GDP 
are an order of magnitude higher in France than in 
the other Member States. 

Past policy choices weigh on the French energy 
sector.  For  instance,  with  respect  to  the  State-
owned  incumbent  in  the  electricity  sector,  EDF, 
the  State  has  (i)  pursued  a  dividend  policy  not 
commensurate with EDF's cash flow capacity, (ii) 
limited  taxes  and  levies  (CSPE)  dedicated  to 
compensating  the  renewable  electricity  surcharge 
paid  by  EDF;  (iii)  supported  EDF  investment  in 
the  restructuring  of  the  nuclear  sector  (reactors). 
As  a  consequence,  the  French  State  has  had  to 
subsequently  adjust  its  policy  choices;  change 
EDF's  dividend  policy  from  2015;  agree  to  repay 
debt related to the renewable levy; and support the 

51 

 
                                                           
4.4. Sectoral policies 

The  legacy  of  previous  investments  versus  new 
and  evolving  market  structures  raises  the  need 
to  prioritise  objectives  and  identify  solutions 
with  respect  to  France's  energy  policies.  Also, 
the  State  may  have  limited  capacity  to  support 
expected  investment  needs  of  EUR  70-80  billion 
for  EDF  in  the  next  five  years.  Addressing  these 
issues  is  key  to  enable  a  functional  electricity 
market,  as  highlighted  by  the  French  Court  of 
auditors and the Competition authority. 

took  place  compared  to  the  counter-factual  of  not 
having  implemented  market  liberalisation  (see 
Table  4.4.1). Moreover, dynamics  appear  so  swift 
that  the  market  structure  shows  signs  of  maturing 
and  becoming  saturated:  the  number  of  operators 
with a nation-wide network has reduced from 5 to 
3  and  prices  per  km  have  increased  by  25 % 
compared to 2015 — see ARAFER (2017). 

Table 4.4.1:  Modal share evolution - long distance 

Railways 

the  railway 

the  debt  of 

The  French  State  has 
some  difficulty 
overcoming contradictions between its multiple 
objectives as shareholder, as pointed out by the 
French court of auditors. For instance, despite a 
strengthened  financial  framework  established  in 
2014, 
infrastructure 
operator, SNCF Réseau, has continued to grow. As 
a result, in December 2016 net debt reached EUR 
44.9  billion  (62).  Moreover,  it  is  expected  to 
increase  in  the  next  decade  in  spite  of  the 
performance  contract  signed  for  2017-2026  with 
the  State  in  April  2017.  In  a  less  optimistic 
scenario  than  that  considered  by  the  government, 
loss  of  modal  share  for  rail  due  to  competition 
from other modes of transport (which was actively 
promoted by the State, notably with the reform of 
the  coach  sector)  may  have  a  negative  impact  on 
the  evolution  of  the  debt  of  SNCF.  Moreover, 
according to the report issued by the French Court 
of  auditors –see  Cour  des  Comptes  (2017d)  — 
SNCF  Mobilités's  main  freight  subsidiary  Fret 
SNCF  is  also  a  source  of  concern  because  of  its 
rising debt (63).  

Market competition is having an impact on the 
railway  incumbent  (SNCF  Mobilité),  due  to 
competition  arising  from  different  transport 
modes. The recent liberalisation of the market for 
intercity  coach  services  adopted  with  the  Macron 
Law (in 2015 coach transportation was liberalised 
for  distances  beyond  100  kilometres)  has  been 
successfully implemented. In particular, it has had 
large  effects  on  passenger  mobility:  in  2016  an 
estimated  20 %  increase  in  additional  journeys 

(62)  According to the French transport regulator ARAFER, the 
net debt of the railway infrastructure operator might reach 
EUR  63  billion  by  2026,  a  40  %  increase  compared  to 
2016. 

(63)  Debt  is  expected  to  increase  from  EUR  4  billion  to  EUR 

5.2 billion between 2015 and 2020, a 27 % increase. 

Source: ARAFER 

and 

network 

competing 

Resource  constraints  and  the  prevalence  of 
some objectives to the detriment of others raises 
concerns  regarding  the  capacity  to  implement 
the announced railway reforms. Examples as the 
above  raise  concerns  regarding  the  capacity  of 
SNCF  Réseau  to  undertake  future  investments  to 
maintain  and  renew  the  existing  network,  as 
underlined  in  the  Spinetta  Report  of  15  February 
2018. In the rail freight sector, resource constraints 
as regards the cost of maintaining the existing low-
traffic 
objectives 
(improving  competitiveness  on  the  one  hand,  and 
preserving  favourable  social  conditions  on  the 
other)  raises  concerns  regarding  the  capacity  to 
the 
deliver  an  effective  reform.  As  regards 
forthcoming  opening  of 
rail 
the  domestic 
passenger  market,  the  Prime  Minister  launched  a 
sector-wide  consultation,  which  will  feed  into  a 
framework law in spring 2018. The reform aims to 
reap  the  benefits  of  competition  and  make  the 
sector  more  dynamic.  This  reform  is  meant  to 
cover  how  to:  (i)  further  open  up  the  sector  to 
competition;  (ii)  overhaul 
its  economic  and 
financial  model,  comprising  legacy  assets,  high 
labour  costs  and  unbalanced  investments  (with 
maintenance backlogs that need to be addressed to 
avoid  potential  safety  concerns);  (iii)  address 
SNCF  Réseau  indebtedness;  (iv)  define  a  freight 
strategy to support a modal shift to promote the de-
carbonisation of transport in France; and (v) define 
a model for high speed lines to support sustainable 

52 

20152016Private car68.3 %67.5 %Coach2.4 %3.8 %Train16.8 %16.2 %Plane9.3 %9.3 %Other3.2 %3.2 % 
                                                           
 
 
 
4.4. Sectoral policies 

Table 4.4.2: 

Financial soundness indicators - all banks in France 

* ECB aggregated balance sheet: loans excluding to government and MFI deposits. 
** Only annual values are presented for comparability purposes. 
Source: ECB CBD 

intermodal  competition 
distance coaches and car-sharing). 

(low-cost  air, 

long-

Financial sector 

(including  via 

The  French  banking  sector,  which  is  strongly 
based on the universal banking business model, 
presents good and steadily improving solvency, 
funding  and  credit  quality  ratios.  The  four 
largest  French  banks  are  typical  universal  banks, 
with  both  strong  geographical  and  activity 
diversification.  They  have  developed  significant 
cross-border  activities 
foreign 
subsidiaries, especially in the EU) and offer a large 
range of services to their customers, from deposits 
and  loans  to  investment  advice. With  a  return-on-
equity  of  6.5  %  in  2016,  their  profitability  is 
moderate  but  has  remained  quite  stable  over  the 
years.  Their  capital  adequacy  ratio  continuously 
rose from 14.6 % in June 2014 to 17.7 % in June 
2017, and their non-performing loan ratio reached 
3.4  %  in  June  2017.  Significant  progress  has  also 
been  accomplished  on  the  funding  side  with  a 
loan-to-deposit ratio that now stands at 103.8 % in 
September 2017. 

risk, 

French banks are exposed to risks that are also 
common  to  other  banks  in  the  Euro  area.  An 
abrupt  rise  of  interest  rates  could  have  an  impact 
the  most 
on  French  banks.  This  represents 
significant 
possible 
together  with 
international  regulatory  fragmentation,  after  the 
consistent  drive 
improve  and  strengthen 
regulation after the financial crisis. Moreover, and 
contrary  to  European  peers  (see  Section  1),  they 
private 
are 
indebtedness  of  both  non-financial  corporations 
(especially  large  ones)  and  households.  In  the 

confronted 

growing 

also 

to 

to 

insurance  sector,  the  loss  of  the  life  insurance  tax 
advantage  for  the  new  contracts  above  EUR 
150 000  may  have  an  impact,  as  high  net  worth 
investors might choose to opt for funds instead of 
life  insurance  contracts.  With  a  view  to  attract 
financial sector activity from future third countries, 
payroll  taxes  on  the  highest  salary  band  will  be 
removed. Finally, other distortions remain, such as 
the 
the 
exoneration  of  the  Livret  A  (equity  and  bonds), 
capital  market 
penalise 
tend 
which 
intermediation 
the  benefit  of  banking 
intermediation (loans), while the non-deductibility 
of  banks'  contributions  to  the  Single  Resolution 
Fund has an opposite effect. 

transactions  and 

financial 

tax  on 

to 
to 

to 

the 

increase, 

Risks  to  an  abrupt  adjustment  are  limited.  In 
2015  debt  service  to  gross  disposable  income 
reached  a  trough  (0.8 %)  and  the  percentage  of 
new mortgage generation at variable rates remains 
very low  in  recent vintages, falling from  8.9 %  in 
2012 to 2.3 % in 2016. Hence, even if interest rates 
impact  should  remain 
were 
contained.  Moreover,  wealth 
effects  have 
traditionally  been  very  limited  in  France.  Finally, 
banks  non-performing 
(NPLs)  as  a 
percentage  of  loans  to  non-financial  corporate 
(NFC)  loans  remain  stable  at  low  levels  (around 
6 %).  However,  this  requires  close  monitoring, 
given the large share of loans at a variable rate and 
with  shorter  maturities.  In  this  regard,  the  French 
High Council for Financial Stability (Haut Conseil 
de stabilité financière) has recently announced that 
it will restrict systemic banks' exposure to the most 
indebted  NFCs  at  5 %  of  own  funds,  subject  to 
approval  by  European  authorities  in  accordance 
with  current  regulations,  and  stands  ready  to  take 
additional  preventive  measures  at  any  time  in 

loans 

53 

(%)20102011201220132014201520162017Q2Non-performing debt4.54.64.54.63.63.53.23.0Non-performing loans----4.24.03.63.4Non-performing loans NFC----6.25.85.85.5Non-performing loans HH----4.44.24.14.0Coverage ratio40.843.842.048.751.351.151.450.3Loan to deposit ratio*118.0113.4111.2107.8106.7102.7102.7102.9Tier 1 ratio10.810.913.313.213.113.815.015.1Capital adequacy ratio12.612.214.015.015.216.417.617.7Return on equity**8.35.63.46.04.46.86.5-Return on assets**0.40.30.20.30.20.40.4- 
 
 
 
4.4. Sectoral policies 

2018,  should  the  cyclical  risks  be  maintained  at 
their current level (HCSF, 2017). 

The agricultural and agri-food sectors 

The  French  agricultural  and  agri-food  sectors 
are going through important challenges due to a 
lack  of  competitiveness.  Comext  data  highlight 
that  the  French  trade  balance  decreased  by  more 
than 10 % in the last 10 years while EU agri-food 
trade  balance  expanded  by  more  than  EUR  20 
billion over the same period, switching from a net-
importer  to  a  net-exporter  position.  France  lost 
more  than  2  percentage  points  in  market  share  to 
reach  12 % of EU-28 (intra- and  extra-  exports  in 
2016),  mainly  due  to  a  deterioration  of  the  trade 
balance  with  EU  partners.  In  2017,  the  average 
income  of  French  farmers  increased  by  6 %  since 
2010, while it increased by about 30 % on average 
in the EU. 

The drivers of this transformation are multiple. 
Labour  costs,  additional  taxes  and  regulations  as 
well  as  a  lack  of  innovation  of  production 
processes  and  training  can  explain  this  sector's 
trade  balance  losses.  Other  factors  are  specific  to 
the  agri-food  sector;  the  difficult  relationships  in 
the  food  supply  chain  exacerbated  in  the  food 
sectors  where  the  processing  industry  is  very 
atomised;  a  supply  not  always  responding  to  the 
features of consumers’ demand, overinvestment in 
agriculture and lack of independent advice.  

launched 

Measures  to  improve  the  performance  of  the 
agricultural and agri-food sectors are currently 
under  discussion.  The  États  Généraux  de 
l'Alimentation  were 
in  July  2017, 
large  number  of  stakeholders. 
involving  a 
Measures  to  improve  the  distribution  of  value 
along the chain between farmers, food processors, 
retailers  and  consumers  and  to  search  for  better 
ways  to  deliver  healthy,  safe,  sustainable  and 
universally  accessible  food  are  currently  under 
discussion.  

54 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.4. Sectoral policies 

Box 4.4.1: Policy highlights on environment and climate 

The single environmental permit: simplified approaches 

From 1 March 2017 the various procedures and decisions required for the authorisation of industrial projects 
and projects covered by the Water Act are merged. The reform of the environmental permit was undertaken 
in the context of the modernisation of environmental law and simplification of administrative procedures. It 
will  simplify  and  streamline  the  procedures,  by  introducing  a  single  permit  without  reducing  the  level  of 
environmental protection, provide a better overview of all environmental issues and enhance legal certainty 
for  the  project  promoter.  For  a  project,  a  single  file,  a  single  contact  person  and  a  single  environmental 
permit  are  needed,  where  before  the  reform  a  project  could  be  subject  simultaneously  to  a  number  of 
environmental permits. The reform will allow reduced timeframes and deadlines, i.e. 9 months, against 12-
15 months before, while respecting the substantive rules and protecting the fundamental interests covered by 
the applicable legislation.  

The  concept  of  a  single  permit  system  also  applies  for  renewable  energy  projects.  Since  January  2017, 
project operators have a single contact point within the administration and only need to apply for one permit. 
The  Ministry  for  Ecology  also  issued  a  decree  on  1  April  2016  requiring  grid  operators  to  connect  new 
renewable projects to the grid within 18 months. If they fail to meet this obligation they will be subject to 
penalties (Decree No 2016-299).  

Shared responsibility in waste management 

The  EU  Waste  Framework  Directive  (Directive  2008/98/EC)  regulates  the  responsibility  for  waste 
management  (Art.  15)  and  provides  that  Member  States  may  specify  the  conditions  of  responsibility  and 
decide  in  which  cases  the  original  producer  is  to  retain  responsibility  for  the  whole  treatment  chain  or  in 
which cases the responsibility of the producer and the holder can be shared or delegated among the actors of 
the treatment chain. 

In  the  case  of  France,  the  producer  is  responsible  for  the  waste  until  the  final  treatment,  even  if  there  are 
intermediate  actors  (e.g.  traders,  dealers).  The  control  of  the  waste  management  chain  is  followed  via  a 
consignment  note  covering  all  movements  from  the  initial  waste  producer  to  the  final  operator  of  the 
treatment.  Penalties  are  laid  down,  on  the  one  hand  for  the  producer  and  on  the  other  hand  for  all  other 
actors involved in the management chain of the waste, if the treatment is not achieved correctly. The French 
legislator has decided that until the final treatment of the waste, the responsibilities would be shared among 
all the actors in the management chain, which has proven very effective. This system provides more control 
over the fate of waste streams, which is of particular importance in the case of hazardous waste. 

The 2017 Climate Plan – focus on energy efficiency 

In  July  2017  the  newly  elected  government  presented  a  Climate  Plan  setting  the  framework  for  France’s 
climate  change  policies  for  the  next  five  years  at  both  domestic  and  international  levels.  Subsequently, 
several legal projects were launched to implement and concretise the Climate Plan’s upgraded objective to 
achieve  carbon  neutrality  by  2050.  The  key  ones  include:  a  bill  to  end  the  domestic  exploitation  of  fossil 
fuels by 2040; a Climate Solidarity Package focusing on support for low-income households; and a plan for 
the energetic renovation of buildings.  

A special effort is being made on energy efficiency, an area where France lags behind the EU average. There 
is  still  significant  potential  for  energy  savings  in  the  building  sector,  which  currently  accounts for  around 
45 %  of  final  energy  consumption  and  27 %  of  GHG  emissions.  On  24  November  2017,  the  French 
government presented a plan for the energetic renovation of buildings. The plan involves EUR 14 billion of 
investment  over  five  years.  It  targets  up  to  500 000  homes  renovated  each  year  from  2018,  including 
250 000  specifically  targeted  to  low-income  households,  notably  with  the  help  of  tax  credits  and  energy-
saving certificates.  

55 

 
ANNEX A: OVERVIEW TABLE 

Commitments 

Summary assessment (64) 

2017 country-specific recommendations (CSRs) 

the  Council 
CSR  1:  Ensure  compliance  with 
recommendation  of  10  March  2015  under 
the 
excessive  deficit  procedure.  Pursue  a  substantial 
fiscal effort in 2018 in line with the requirements of 
the preventive arm of the Stability and Growth Pact, 
taking  into  account  the  need  to  strengthen  the 
ongoing  recovery  and  to  ensure  the  sustainability  of 
France’s  public  finances.  Comprehensively  review 
expenditure  items  with  the  aim  to  make  efficiency 
gains that translate into expenditure savings. 

  Ensure 

the 

compliance  with 

Council 
recommendation  of  10  March  2015  under  the 
excessive  deficit  procedure.  Pursue  a  substantial 
fiscal effort in 2018 in line with the requirements 
of the preventive arm of the Stability and Growth 
Pact, 

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 2017 will be 
available. 

 

taking  into  account  the  need  to  strengthen  the 
ongoing recovery and to ensure the sustainability 
of France’s public finances. 

  Limited  progress  has  been  made 

in 
ensuring  the  sustainability  of  France’s 
public  finances.  According  to  the  2017 
Commission autumn forecast, the headline 
deficit  is  projected  to  reach  2.9%  of  GDP 
in  2018  and  the  structural  balance  is 

(64)  The following categories are used to assess progress in implementing the 2017 country-specific recommendations (CSRs): 

No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a 
number  of  typical  situations,  to  be  interpreted  on  a  case-by-case  basis  taking  into  account  country-specific  conditions.  They 
include the following: 
 

no  legal,  administrative,  or  budgetary  measures  have  been  announced  in  the  national  reform  programme,  in  any  other 
official  communication  to  the  national  Parliament/relevant  parliamentary  committees  or  the  European  Commission, 
publicly (e.g. in a press statement or on the government's website);  
no non-legislative acts have been presented by the governing or legislative 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 to be taken (unless the CSR explicitly asks for orientations or exploratory actions). 
However, it has not proposed any clearly-specified measure(s) to address the CSR. 

 
 

Limited progress: The Member State has: 

 
 

 

announced certain measures but these address the CSR only to a limited extent; and/or 
presented legislative acts in the governing or legislative body but these have not been adopted yet and substantial further, 
non-legislative work is needed before the CSR is implemented;  
presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 

 
 

Some progress: The Member State has adopted measures  
that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to address the CSR fully as only a few of the measures 
have  been  implemented.  For  instance,  a  measure  or  measures  have  been  adopted  by  the  national  Parliament  or  by 
ministerial decision, but no implementing decisions are in place. 

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

have been implemented. 

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

56 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
 
 
 
  Comprehensively  review  expenditure  items  with 
the  aim  to  make  efficiency  gains  that  translate 
into expenditure savings. 

CSR  2:  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  statutory  corporate-income 
rate. 

  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. 

A. Overview Table 

projected  to  deteriorate  by  0.4%  of  GDP. 
The  worsening  of  the  structural  balance 
increases  sustainability  gap.  The  fiscal 
impulse  on  the  other  hand  may  have  a 
positive impact on economic performance. 

public 

  Limited  progress  has  been  made  in  in 
reviewing  expenditure  items.  The  2018-
2022  multiannual 
finances 
programming  law  sets  the  principles  of 
Public  Action  2022.  The  process  seeks  to 
address  this  sub  CSR,  by  commissioning 
the  Comitee  Action  Publique  2022 
(CAP2022)  to  set  the  roadmap  by  April 
2018 and to analyse possible measures that 
would  need  to  be  taken.  Clearly-specified 
measures  to  address  the  CSR  have  not 
been  proposed 
though.  The  spending 
reviews  in  place  since  2014  will  be 
discontinued. 

France has made some progress in addressing 
CSR 2: 

  Some  progress  has  been  made 

the 

tax  burden  on 

and  maximising 

in 
consolidating 
the 
efficiency of measures reducing the cost of 
labour.  Some  progress  has  been  made  to 
reduce 
labour. 
According to the 2018 Budget Plan, the tax 
credit for employment and competitiveness 
(Crédit  d’impôt  pour  la  Compétitivité  et 
l’Emploi  or  CICE)  would  be  converted  as 
of  2019  into  permanent  reductions  in 
employers'  social  security  contributions 
and  accompanied  with  a  further  reduction 
of these latter for wages up to 1.6 times the 
minimum  wage.  The 
this 
transformation  in  terms  of  employment  is 
expected  to  be  positive  but  limited,  and 
equal  to  35  000  jobs  in  2019  and  70  000 
jobs  in  2020  according  to  government's 
projections. 

impact  of 

  Broaden  the  overall  tax  base  and  take  further 
action  to  implement  the  planned  decrease  in  the 
statutory corporate-income rate. 

  Some  progress  has  been  made 

in 
broadening  the  overall  tax  base  and  in 
decreasing  the  corporate  income  tax  rate. 

57 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

Some  progress  has  been  made  in  the 
implementation  of  the  decrease  in  the 
statutory  corporate  income  rate.  The  2018 
finance  law  confirmed  that  it  will  reach 
25%  for  all  companies  in  2022.  No 
progress has been made on broadening the 
overall  tax  base  on  consumption  as  the 
2018 finance law does not limit or remove 
the  use  of  reduced  rates  on  VAT.  By 
contrast,  employees'  social  contributions 
for  health  and  unemployment  insurance 
will  be  gradually eliminated  and offset  by 
a  1.7%  increase  in  the  general  social 
contribution 
sociale 
généralisée)  payable  by  employees  and 
retirees.  This  measure  contributes 
to 
rebalance part of the tax burden away from 
workers  to  retirees  and  broaden  the  tax 
base financing social security. 

(contribution 

France has made some progress in addressing 
CSR 3: 

CSR  3:  Improve  access  to  the  labour  market  for 
jobseekers,  in  particular  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. 

 

Improve  access 
for 
the 
jobseekers,  in  particular  less-qualified  workers 
and people with a migrant background,  

labour  market 

to 

58 

  Some  progress  has  been  made 

for 

job-seekers  with 

in 
improving  access  to  the  labour  market  for 
jobseekers.  Launched  in  September  2017, 
the  Grand  Plan  d'Investissement  2018-
2022 
includes  EUR  13.8  billion  of 
investment  in  training  and  skills.  This 
initiative,  called  Plan  d'investissement 
compétences  (PIC),  targets  low-qualified 
young  people  facing  particular  difficulties 
in finding a job and low-skilled long-term 
unemployed.  It  aims  to  fund  1  million 
trainings 
low 
qualifications  and  1  million  early-school 
leavers over a time horizon of five years. It 
contains  reinforced  support  measures  for 
young (pursuit of the generalisation of the 
Youth  Guarantee,  increase  of  places  in 
second-chance  schools,  and  improvement 
in  tracing  and  tracking  of  young  not  in 
training 
education, 
(NEETs)  beyond  the  support  for  young 
early-school leavers). Initiatives for a total 
amount  of  EUR  1.5  billion  (including 
external  financing)  have  been  included  in 
the finance law for 2018. A specific hiring 
premium  for  increasing  hires  of  deprived 
territories inhabitants will be tested into 10 

employment 

or 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

of  these  territories  starting  from  April 
2018.  

In  December  2017,  the  Government  has 
invited  social  partners  to  negotiate  for  a 
reform  of  unemployment  insurance.  The 
government  has  then  set  out  a  roadmap 
concerning  a  reform  to  ensure  access  to 
and 
resigning 
compensation 
to  fight  against 
independent  workers, 
precariousness 
permanent 
intermittency  (permittance).  Negotiations 
among  social  partners  are  planned  to  end 
in February 2018.  

and 

for 

  As 

regards  persons  with  a  migrant 
background,  little  progress has  been  made 
in  2017.  A  revision  of  the  integration 
policy  is  planned  for  spring  2018.  This 
revision  is  meant  to  focus  on  trainings  to 
learn  French  (especially  for  professional 
the  mobilisation  of 
purposes) 
economic actors to favour the access to the 
labour  market  for  people  with  a  migrant 
background 
closer 
recognition  of 
monitoring  and  better 
qualifications 
professional 
and 
experiences). 

(inter 

alia 

and 

by 

  Limited  progress  has  been  made 

of 

the 

in 
revising 
vocational 
system 
education and training. On 15 November, a 
policy  orientation  document  prepared  by 
the  Government  has  been  sent  to  social 
partners  with  a  view  to  establishing  a 
diagnosis  of  the  challenges  faced  by  the 
vocational  education  and  training  system 
as well as to formulate options for reform. 
Inter-professional  negotiations  started  in 
November  2017  and  should  be  completed 
by 
the  end  of  February  2018.  The 
Government  has  presented  first  measures 
to  reform  the  apprenticeship  system  on  9 
February 2018. 

 

including  by  revising  the  system  of  vocational 
education and training. 

  Ensure  that  minimum  wage  developments  are 
consistent with job creation and competitiveness. 

  Some progress has been made in ensuring 
minimum  wage  developments  consistent 
with job creation and competitiveness. No 
ad-hoc  hike  of  the  minimum  wage  has 
been  adopted  since  2012.  On  1  January 
2018, the minimum wage was increased by 
1.23%  on  the  basis  of  its  automatic 
indexation  formula  (Decree  2017-1719  of 

59 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

rate  of 

20  December  2017  on  the  increase  of 
minimum wage growth). At the same time, 
the  employment 
low  skilled 
workers  continues  to  be  lower  than  in  the 
EU  (in  2016  it  was  at  38.8%  in  France 
against  44.5%  in  the  EU)  and  to  decrease 
over time (-0.9 pp. from 2015 and -9.8 pps 
from its peak level in 2003). In their recent 
report,  the  group  of  experts  appointed  to 
monitor  minimum  wage  developments 
shows  the  need  to  reform  the  minimum 
wage 
formula, 
beyond limiting ad-hoc hikes.  

indexation 

automatic 

including  by  pursuing 

CSR  4:  Further  reduce  the  regulatory  burden  for 
firms, 
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. 

France  has  made 
addressing CSR 4: 

limited  progress 

in 

  Further  reduce  the  regulatory  burden  for  firms, 
simplification 
pursuing 

the 

by 

including 
programme. 

labour 

to  be 

the 
remains 

impact  of 
seen; 

  Some  progress  has  been  made  in  further 
reducing  the  regulatory  burden  for  firms. 
(i) In July 2017 the government has issued 
a  circulaire  to  limit  the  proliferation  of 
this 
norms,  but 
real 
circulaire 
(ii) 
simplification  measures  were  adopted  for 
the self-employed; (iii) the 2017 reform of 
to 
the 
simplify 
law 
(covered  under  a  separate  heading);  (iv) 
the  government  has  presented  a  bill  (loi 
pour  un  Etat  au  service  d'une  société  de 
confiance) 
simplify  administrative 
procedures  and  promote  the  exchange  of 
information  with  the  administration;  (v) 
simplification 
France  has  announced 
measures  under  the  PACTE,  but  those 
measures are not yet defined. 

the  application  of  such 

includes  measures 

law 

to 

  Continue  to  lift  barriers  to  competition  in  the 
services sector, including in business services and 
regulated professions. 

60 

in 

to  competition 

  No  progress  has  been  made  in  further 
lifting  barriers 
the 
services  sector.  Since  the  Macron  law 
(presented  in  October  2014,  adopted  in 
January  2015)  there  has  been  no  change 
(increase  or  decrease)  in  the  barriers  to 
competition  in  the  business  services  and 
regulated  professions  sectors. 
this 
regard, the French Ministry of Finance has 
provided  additional  information  of  the 
impact that the changes undertaken by the 
Macron law will have in the next round of 

In 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Simplify  and  improve  the  efficiency  of  public 

support schemes for innovation. 

A. Overview Table 

the  OECD's  Product  Market  Regulation 
indicators (2018 indicators to be published 
in  2019).  This  work  was  published  in 
August  2017.  However,  the  impact  refers 
to  the  Macron  law's  implications  and, 
hence, is not new. 

  Limited  progress  has  been  made 

in 
simplifying  and  improving  the  efficiency 
of  public  support  schemes  for  innovation. 
Several  evaluations  of  direct  and  indirect 
tax  credit,  "CIR")  public 
(e.g.  R&D 
funding  to  innovation  are  ongoing  under 
the leadership of the National Commission 
for  the  evaluation  of  Innovation  Policies 
(CNEPI)  and  the  Parliament.  However,  it 
remains  to  be  seen  how  these  evaluations 
will  be  translated  into  concrete  policy 
actions to simplify and improve the overall 
performance  of  the  public  support  to 
innovation.  In  parallel,  a  number  of  new 
initiatives  have  also  been  announced  such 
as  the  "Breakthrough  Innovation  Fund" 
the  Grand  Plan  d'Investissement. 
and 
their 
Further 
synergies  with 
is 
required. 

clarification 

regarding 

schemes 

existing 

Europe 2020 (national targets and progress) 

Employment rate target: 75 % of population aged 20 
to 64 

The employment rate for workers aged 20-64 
was 70.0 % in 2016, a 0.5 pp. rise since 2015.  

R&D target: 3.0 % of GDP 

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  is  at  2.22%,  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 rather stable 
over time, stabilising at 0.74% in 2015. 

61 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

National greenhouse gas (GHG) emissions target: 

-14 %  in  2020  compared  with  2005  (in  sectors  not 
included in the EU emissions trading scheme) 

-  Private  R&D  intensity  has  experienced  a 
steady  increase  since  2008,  and  it  stood  at 
1.44 % 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. 

gas 

emissions, 

Greenhouse 
however, 
increased  in  2015  and  the  respective  EU2020 
indicator passed from being equal to 84.6% to 
being  equal  to  85.4%  of  the  greenhouse  gas 
emissions in 1990.  

2020 renewable energy target: 23 %, with a share of 
renewable  energy  in  all  modes  of  transport  equal  to 
10 % 

With  a  renewable  energy  share  of  16  %  in 
2016,  0.9  pp.  higher  than  in  2014,  France 
could reach its target for 2020 provided it taps 
into its renewable energy potential.  

in 

the  18% 

target  set 

The  renewable  energy  share  is  getting  closer 
to 
its  National 
Renewable  Energy  Plan  for  2016.  Increased 
efforts are however needed, in particular in the 
heating  and  cooling  sector  and  in  electricity. 
Renewable  energy  developments  will  also 
need  to  be  significant  in  the  medium  term  to 
comply  with  the  ambitious  objectives  of  the 
Energy Transition Act.  

Energy efficiency target: 

France's 2020 energy efficiency target is 219.9 Mtoe 
expressed  in  primary  energy  consumption  (131.4  
Mtoe expressed in final energy consumption) 

in 

primary 

increased 

2016.  Final 

energy 
its 
France 
consumption  from  239.2  Mtoe  in  2015  to 
235.4  Mtoe 
energy 
consumption  also  increased  from  145.3  Mtoe 
in  2015  to  147.2  Mtoe  in  2015.  Although 
France  has  reduced  the  gap  towards  its 
indicative  national  2020  targets  (-  8.1%  for 
primary  energy  and  -10.4%  for  final  energy 
consumption  between  2005  and  2015),  it 
would  need  to  reduce  its  primary  and  final 
energy  consumption  further  in  order  to  reach 
these targets.  

Early school/training leaving target: 9.5 % 

The  French  early  school  leaving  rate  remains 
under the Europe 2020 target. In 2016, it even 
decreased to 8.8% from 9.2% in 2015. 

Significant regional disparities remain. Young 
those  with  an 
people,  mainly  among 
leave 
to 
tend 
immigrant  background, 

62 

 
 
 
 
 
A. Overview Table 

education  with  at  most  a  lower  secondary 
level  diploma  in  deprived  areas,  while  the 
labour  market  prospects  of  this  group  have 
significantly deteriorated. 

Tertiary  education  target:  50  %  of  population  aged 
17-33.  

In  2015,  49.2%  of  the  population  aged  17-33 
had attained tertiary education. 

the  population 

The  French  tertiary  education  attainment  rate 
aged  30-34  years 
for 
was 43.6% 
women 
2016 
outperforming  men  (48.8 %  against  38.1 %). 
This  rate  is  above  the  EU  tertiary  education 
target of 40%. 

with 

in 

Target  for  reducing  the  number  of  people  at  risk  of 
poverty  or  social  exclusion  target:  -1 900  000 in 
cumulative terms since 2007. 

The  number  of  people  at  risk  of  poverty  or 
social  exclusion  increased  in  2016,  from 
11 048 to 11 463 thousand, and is now above 
the 2007 reference figure (11 382 thousand).  

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

the  2020 

63 

 
ANNEX B: MACROECONOMIC IMBALANCE PROCEDURE 

SCOREBOARD 

Table B.1: 

The MIP scoreboard for France (AMR 2018) 

Flags: e:Estimated. p:Provisional.  
(1) This table provides data as published under the Alert Mechanism Report 2018, which reports data as of 24 Oct 2017. 
Please note that figures reported in this table may therefore differ from more recent data elsewhere in this document. 
(2) Figures highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism 
Report. 
Source: European Commission 2017, Statistical Annex to the Alert Mechanism Report 2018, SWD(2017) 661. 

64 

Thresholds201120122013201420152016Current account balance, % of GDP 3 year average-4%/6%-0.9 -1.0 -1.0 -1.1 -0.7 -0.7 Net international investment position% of GDP-35%-8.7 -12.8 -16.6 -15.6 -15.7 -15.7 Real effective exchange rate - 42 trading partners, HICP deflator3 year % change±5% (EA) ±11% (Non-EA)-4.4 -7.8 -2.2 -1.3 -2.8 -3.1 Export market share - % of world exports5 year % change-6%-15.3 -18.3 -14.6 -14.2 -5.6 -2.4 Nominal unit labour cost index (2010=100)3 year % change9% (EA) 12% (Non-EA)5.5 4.3 4.6 4.6 2.2p1.4pHouse price index (2015=100), deflated 1 year % change6%4.0 -1.9 -2.6 -1.7 -1.8 1.0 Private sector credit flow, consolidated% of GDP14%6.4 4.4 2.1 3.3 4.9p6.2pPrivate sector debt, consolidated% of GDP133%135.3 138.5 137.7 141.9 143.7p146.9pGeneral government gross debt% of GDP60%85.2 89.6 92.4 95.0 95.8 96.5 Unemployment rate3 year average10%9.2 9.4 9.8 10.1 10.3 10.3 Total financial sector liabilities, non-consolidated1 year % change16.5%6.7 1.2 0.4 5.3 1.7 4.3 Activity rate - % of total population aged 15-643 year change in pp-0.2 pp0.3 0.5 0.9 1.4 1.0 0.7 Long-term unemployment rate - % of active population aged 15-743 year change in pp0.5 pp1.1e0.8e0.5e0.5 0.5 0.2 Youth unemployment rate - % of active population aged 15-243 year change in pp2 pp3.7 0.8 1.6 1.5 0.3 -0.3 External imbalances and competitivenessInternal imbalancesEmployment indicators 
 
 
 
 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2017. 
(2) Latest data Q2 2017. 
(3) As per ECB definition of gross non-performing debt instruments 
(4) 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). 

65 

201220132014201520162017Total assets of the banking sector (% of GDP)(1)387.0372.6380.7371.4373.8374.5Share of assets of the five largest banks (% of total assets)44.646.747.647.246.0-Foreign ownership of banking system (% of total assets)(2)3.33.05.95.45.05.0Financial soundness indicators:2)              - non-performing loans (% of total loans)(3)4.54.63.63.53.23.0              - capital adequacy ratio (%)14.015.015.216.417.617.7              - return on equity (%)(4)3.46.04.46.86.53.5Bank loans to the private sector (year-on-year % change)(1)2.00.90.52.04.95.0Lending for house purchase (year-on-year % change)(1)2.83.6-2.83.24.94.9Loan to deposit ratio(1)111.2107.8106.7102.7102.7103.8Central Bank liquidity as % of liabilities--2.32.31.72.2Private debt (% of GDP)138.5137.7141.9143.7146.9-Gross external debt (% of GDP)(2) - public54.657.262.560.459.057.1    - private51.749.752.854.356.158.6Long-term interest rate spread versus Bund (basis points)*104.263.450.334.737.750.3Credit default swap spreads for sovereign securities (5-year)*85.738.931.024.422.714.4 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

(*) The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States 
performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and 
"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible 
alternatives will be discussed in the relevant Committees. 
(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI). 
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks. 
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2018. 
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation). 
(5) Average of first three quarters of 2017 for the employment rate and gender employment gap. 
"Sources: Eurostat" 

66 

201220132014201520162017 (5)Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)11.89.79.09.28.8:Gender employment gap (pps)8.88.17.67.27.58.0Income inequality, measured as quintile share ratio (S80/S20)4.54.54.34.34.3:At-risk-of-poverty or social exclusion rate(1) (AROPE)19.118.118.517.718.2:Young people neither in employment nor in education and training (% of population aged 15-24)12.511.211.412.011.9:Dynamic labour markets and fair working conditions(*)Employment rate (20-64 years)69.469.569.369.570.070.5Unemployment rate(2) (15-74 years)9.810.310.310.410.19.5Gross disposable income of households in real terms per capita(3) (Index 2008=100) ::100.1100.5101.9:Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)40.843.944.643.142.4:Children aged less than 3 years in formal childcare40.039.039.541.748.9:Self-reported unmet need for medical care2.22.62.81.21.3:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):::57.056.057.0 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

(*) Non-scoreboard indicator 
(1) Long-term unemployed are people who have been unemployed for at least 12 months. 
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.   
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds. 
(4) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science. 
(5) Average of first three quarters of 2017, unless for the youth unemployment rate (annual figure).  
Sources: Eurostat, OECD 

67 

Labour market indicators201220132014201520162017 (5)Activity rate (15-64)70.771.171.171.371.4:Employment in current job by durationFrom 0 to 11 months13.611.411.712.112.7:From 12 to 23 months8.17.77.67.67.6:From 24 to 59 months14.114.014.214.013.6:60 months or over64.165.565.665.265.1:Employment growth(*) (% change from previous year)0.30.20.40.20.61.0Employment rate of women(% of female population aged 20-64)65.165.565.666.066.366.6Employment rate of men (% of male population aged 20-64)73.973.673.273.273.874.6Employment rate of older workers(*) (% of population aged 55-64)44.545.646.948.749.851.1Part-time employment(*) (% of total employment, aged 15-64)::18.618.418.3:Fixed-term employment(*) (% of employees with a fixed term contract, aged 15-64)15.215.315.316.016.116.8Transition rate from temporary to permanent employment(3-year average)11.011.210.010.0::Long-term unemployment rate(1) (% of labour force)4.14.44.54.64.64.3Youth unemployment rate (% active population aged 15-24)24.424.924.224.724.622.6Gender gap in part-time employment::23.222.722.3:Gender pay gap(2) (in undadjusted form)15.615.515.515.8::Education and training indicators201220132014201520162017Adult participation in learning(% of people aged 25-64 participating in education and  training)5.717.818.418.618.8:Underachievement in education(3)22.4::23.5::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)43.344.043.745.043.6:Variation in performance explained by students' socio-economic status(4)22.5::20.3:: 
 
 
 
 
 
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

(*) Non-scoreboard indicator 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) 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. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(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) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard. 
Sources: Eurostat, OECD 

68 

201220132014201520162017Expenditure on social protection benefits(*) (% of GDP)Sickness/healthcare9.09.09.19.1::Disability2.02.02.12.0::Old age and survivors14.314.614.614.6::Family/children2.52.52.52.5::Unemployment2.02.02.02.0::Housing0.80.80.80.8::Social exclusion n.e.c.0.90.90.90.9::Total31.531.932.132.0::of which: means-tested benefits3.43.53.53.5::General government expenditure by function (% of GDP, COFOG)Social protection24.224.524.524.424.4:Health8.08.08.28.18.1:Education5.55.55.55.55.4:Out-of-pocket expenditure on healthcare (% of total health expenditure)7.47.16.96.8::Children at risk of poverty or social exclusion (% of people aged 0-17)(*)23.220.821.621.222.6:At-risk-of-poverty  rate(1) (% of total population)14.113.713.313.613.6:In-work at-risk-of-poverty rate (% of persons employed)8.07.88.07.57.9:Severe material deprivation rate(2)  (% of total population)5.34.94.84.54.4:Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan1.00.91.11.31.7:Tenant, rent at market price7.55.26.34.66.2:Proportion of people living in low work intensity households(4) (% of people aged 0-59)8.48.19.68.68.4:Poverty thresholds, expressed in national currency at constant prices(*)1132111248112831133011478:Healthy life years (at the age of 65)Females10.410.710.710.7::Males9.49.810.49.8::Aggregate replacement ratio for pensions(5) (at the age of 65)0.70.70.70.70.7:Connectivity dimension of the Digital Economy and Society Inedex (DESI)(6)::49.151.252.655.2GINI coefficient before taxes and transfers(*)49.249.048.449.049.6:GINI coefficient after taxes and transfers(*)30.530.129.229.229.3: 
 
 
 
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

(1) The methodologies, including the assumptions, for this indicator are shown in detail here: 
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 the SME received everything, one 
if it received most of it, two if it received a limited part of it, three if the application was refused or rejected and treated as 
missing values if the application is still pending or the outcome is not known. 
(3) Percentage of the population aged 15-64 having completed tertiary education. 
(4) Percentage of the 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 here: 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). 

69 

Performance Indicators2010201120122013201420152016Labour productivity (real, per person employed, year-on-year % change)Labour productivity in Industry4.152.711.322.591.071.752.73Labour productivity in Construction-0.95-2.97-4.501.96-1.88-0.041.91Labour productivity in Market Services1.121.460.280.851.380.350.61Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in Industry-0.93-0.821.11-0.310.33-1.25-0.94ULC in Construction2.393.995.850.912.57-0.74-0.25ULC in Market Services0.63-0.271.750.870.590.761.23Business Environment2010201120122013201420152016Time needed to enforce contracts(1) (days)390.0390.0390.0395.0395.0395.0395.0Time needed to start a business(1) (days)6.56.56.56.54.54.03.5Outcome of applications by SMEs for bank loans(2)0.540.460.590.600.530.510.32Research and innovation2010201120122013201420152016R&D intensity2.182.192.232.242.232.22:General government expenditure on education as % of GDP5.605.505.505.505.505.50naPersons with tertiary education and/or employed in science and technology as % of total employment43464747494950Population having completed tertiary education(3)26272829303031Young people with upper secondary level education(4)83848486888788Trade balance of high technology products as % of GDP0.600.420.680.760.800.95naProduct and service markets and competition200320082013OECD product market regulation (PMR)(5), overall1.771.521.47OECD PMR5, retail3.763.802.64OECD PMR5, professional services2.202.452.34OECD PMR5, network industries(6)3.372.772.51 
 
 
 
 
C. Standard Tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 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 % of total value added for the economy 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 EUR)  
Real unit energy costs for manufacturing industry excluding refining : real costs as % 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 GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG 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 2010 EUR) 
Transport carbon intensity: GHG 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 covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels 
* European Commission and European Environment Agency 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

70 

Green growth performance201120122013201420152016MacroeconomicEnergy intensity kgoe / €0.130.130.130.120.120.12Carbon intensity kg / €0.240.240.230.220.22-Resource intensity (reciprocal of resource productivity)kg / €0.400.380.380.370.360.34Waste intensity kg / €-0.17-0.16--Energy balance of trade % GDP-3.0-3.3-3.1-2.5-1.8-1.4Weighting of energy in HICP%9.299.939.459.859.418.97Difference between energy price change and inflation %8.03.32.91.3-0.7-1.8Real unit of energy cost% of value added10.811.210.910.9--Ratio of environmental taxes to labour taxesratio0.090.080.090.080.09-Environmental taxes% GDP1.92.02.02.02.22.2Sectoral Industry energy intensity kgoe / € 0.120.120.120.110.110.11Real unit energy cost for manufacturing industry excl. refining% of value added16.316.315.916.0--Share of energy-intensive industries in the economy% GDP6.096.146.316.266.386.38Electricity prices for medium-sized industrial users€ / kWh0.080.090.090.100.100.09Gas prices for medium-sized industrial users€ / kWh0.040.040.040.040.040.04Public R&D for energy % GDP0.050.050.050.040.050.04Public R&D for environmental protection% GDP0.010.010.010.010.020.01Municipal waste recycling rate%36.837.738.739.740.741.7Share of GHG emissions covered by ETS*%24.323.723.822.121.221.9Transport energy intensitykgoe / €0.560.550.560.560.580.56Transport carbon intensitykg / €1.531.491.511.511.54-Security of energy supplyEnergy import dependency%48.648.147.945.945.747.1Aggregated supplier concentration indexHHI7.47.98.68.88.2-Diversification of energy mixHHI0.320.310.300.330.320.30 
 
 
 
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