Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of France and delivering a Council opinion on the 2018 Stability Programme of France
Date: 2018-05-23
Institutions: European Commission, Secretariat-General
Subjects: France, budget deficit, economic policy, economic reform, educational reform, employment policy, innovation, pension scheme, stability programme, tax system

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   EUROPEAN COMMISSION  Brussels, 23.5.2018 COM(2018) 409 final  Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of France  and delivering a Council opinion on the 2018 Stability Programme of France  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2018 National Reform Programme of France 

and delivering a Council opinion on the 2018 Stability Programme of France 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 
Having regard to the recommendation of the European Commission3, 
Having regard to the resolutions of the European Parliament4, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

On  22  November  2017,  the  Commission  adopted  the  Annual  Growth  Survey, 
marking the start of the 2018 European Semester of economic policy coordination. It 
took  due  account  of  the  European  Pillar  of  Social  Rights,  proclaimed  by  the 
European Parliament, the Council and the Commission on 17 November 2017. The 
priorities of the Annual Growth Survey were endorsed by the European Council on 
22  March  2018.  On  22  November  2017,  on  the  basis  of  Regulation  (EU)  No 
1176/2011,  the  Commission  also  adopted  the  Alert  Mechanism  Report,  in  which  it 
identified France as one of the Member States for which an in-depth review would be 
carried out. On the same day, the Commission also adopted a recommendation for a 
Council  recommendation  on  the  economic  policy  of  the  euro  area,  which  was 

1 
2 
3 
4 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2018) 409 final. 
P8_TA(2018)0077 and P8_TA(2018)0078. 

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endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council 
the  euro  area 
the  recommendation  on 
adopted 
(‘recommendation for the euro area’). 

the  economic  policy  of 

As a Member State whose currency is the euro and in view of the close interlinkages 
between the economies in the economic and monetary union, France should ensure 
the  full  and  timely  implementation  of  the  recommendation  on  the  economic  policy 
for  the  euro  area,  as  reflected  in  the  recommendations  below,  in  particular  (1)  and 
(2).  
The  2018  country  report  for  France5  was  published  on  7  March  2018.  It  assessed 
France’s  progress  in  addressing  the  country-specific  recommendations  adopted  by 
the Council on 11 July 2017, the follow-up given to the recommendations adopted in 
previous years and France's progress towards its national Europe 2020 targets. It also 
included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the 
results of which were also published on 7 March 20186. The Commission’s analysis 
leads  it  to  conclude  that  France  is  experiencing  macroeconomic  imbalances.  In 
particular,  vulnerabilities  stem  from  high  public  debt  and  weak  competitiveness 
dynamics in a context of low productivity growth. The risk of an adverse effect on 
the French economy and, given its size, of negative spillovers to the economic and 
monetary union, is particularly important. 

On  25  April  2018,  France  submitted  its  2018  National  Reform  Programme  and  its 
2018  Stability/  programme.  To  take  account  of  their  interlinkages,  the  two 
programmes have been assessed at the same time. 

recommendations  have  been  addressed 

Relevant  country-specific 
the 
programming  of  the  European  Structural  and  Investment  Funds  for  the  2014-2020 
period. As foreseen in Article 23 of Regulation (EU) No 1303/2013 of the European 
Parliament and of the Council7, where it is necessary to support the implementation 
of relevant Council recommendations, the Commission may request a Member State 
to  review  and  propose  amendments  to  its  Partnership  Agreement  and  relevant 
programmes.  The  Commission  has  provided  further  details  on  how  it  would  make 
use  of  that  provision  in  guidelines  on  the  application  of  the  measures  linking  the 
effectiveness  of  the  European  Structural  and  Investment  Funds  to  sound  economic 
governance8.  

in 

[Following the timely and durable correction of the excessive deficit and the decision 
by the Council of [XX] June 2018 to abrogate the excessive deficit procedure, France 
is  in  the  preventive  arm  of  the  Stability  and  Growth  Pact  and  subject  to  the 
transitional  debt  rule.  In  its  2018  Stability  Programme,  the  government  plans  a 
gradual  improvement  of  the  general  government  balance  from  -2.6 %  of  GDP  in 
2017  to  +0.3 %  of  GDP  in  2022.  The  medium-term  budgetary  objective  —  a 
structural deficit of 0.4 % of GDP — is not planned to be achieved over the horizon 
covered by the Stability Programme. According to the 2018 Stability Programme, the 

SWD(2018) 208 final. 
COM(2018) 120 final. 
Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 
laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the  European  Social 
Fund, the  Cohesion Fund, the European Agricultural Fund for Rural Development and the European 
Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European  Regional 
Development  Fund,  the  European  Social  Fund,  the  Cohesion  Fund  and  the  European  Maritime  and 
Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320). 
COM(2014) 494 final. 

(2) 

(3) 

(4) 

(5) 

(6) 

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(7) 

(8) 

(9) 

general government debt-to-GDP ratio is expected to decrease from 97.0 % in 2017 
to  89.2 %  in  2022.  The  macroeconomic  scenario  underpinning  those  budgetary 
projections  is  plausible.  At  the  same  time,  the  measures  needed  to  support  the 
planned deficit targets from 2019 onwards have not been sufficiently specified. 

On  11  July  2017,  the  Council  recommended  France  to  ensure  that  the  nominal 
growth rate of net primary9 government expenditure does not exceed 1.2 % in 2018, 
corresponding to an annual structural adjustment of 0.6 % of GDP. At the same time, 
it  was  stated  that  the  assessment  of  the  2018  Draft  Budgetary  Plan  and  subsequent 
assessment  of  2018  budget  outcomes  will  need  to  take  due  account  of  the  goal  of 
achieving a fiscal stance that contributes to both strengthening the ongoing recovery 
and  ensuring  the  sustainability  of  public  finances.  Following  the  Commission's 
assessment of the strength of the recovery in France while giving due consideration 
to  its sustainability  challenges,  carried  out  in  the  context  of  its  opinion  on  France's 
Draft  Budgetary  Plan,  no  additional  elements  in  that  regard  need  to  be  taken  into 
account.  Based  on  the  Commission  2018  spring  forecast,  there  is  a  risk  of  a 
significant  deviation  from  the  recommended  adjustment  path  towards  the  medium-
term budgetary objective in 2018.  

In 2019, in view of France's general government debt ratio above 60 % of GDP and 
projected  output  gap  of  0.6 %,  the  nominal  growth  rate  of  net  primary  government 
expenditure should not exceed 1.4 %, in line with the structural adjustment of 0.6 % 
of  GDP  stemming  from  the  matrix  of  requirements  under  the  Stability  and  Growth 
Pact. According to the Commission 2018 spring forecast at unchanged policies, there 
is a risk of a significant deviation from that requirement in 2019 and over 2018 and 
2019  taken  together.  France  is  prima  facie  not  forecast  to  comply  with  the 
transitional debt rule in 2018 and 2019. Overall, the Council is of the opinion that the 
necessary measures should be taken as of 2018 to comply with the provisions of the 
Stability  and  Growth  Pact.  The  use  of  any  windfall  gains  to  further  reduce  the 
general government debt ratio would be prudent. 

The level of public expenditure in France is the highest in the EU. The expenditure 
ratio is projected to reach 56.0 % of GDP in 2018, 10.6 percentage points higher than 
the  EU  average.  While  the  consolidation  strategy  in  recent  years  has  mainly 
benefited from declining interest rates and cuts in public investment, the low interest 
rate environment is unlikely to prevail in the medium term and the cut in productive 
investment could harm future economic potential. The spending reviews since 2014 
did not render significant savings and efficiency gains were limited due to a lack of 
appropriate  follow-up  and  a  low  level  of  political  ownership.  The  most  recent 
spending  review  strategy  has  been  abandoned  and  will  be  replaced  by  Action 
Publique  2022,  the  principles  of  which  are  set  out  in  the  2018-2022  multiannual 
public  finances  programming  law.  The  Comité  Action  Publique  2022  is  due  to 
produce  a  roadmap  before  Summer  2018  and  to  analyse  what  measures  need  to  be 
taken.  However,  clearly  specified  measures  have  not  been  proposed  yet  and  new 
savings within this framework will only be delivered from 2020 onwards. Efforts to 

9 

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

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(10) 

(11) 

(12) 

(13) 

address the current fiscal consolidation needs over the short-to-medium term would 
benefit from the swift implementation of expenditure-saving measures. 

At present, 37 different pension schemes co-exist in France. These concern different 
groups  of  workers  and  function  according  to  different  sets  of  rules.  Progressively 
unifying  the  rules  would  improve  the  transparency  of  the  system,  increase 
intergenerational fairness, and facilitate labour mobility. Harmonising the calculation 
rules  would  also  contribute  to  better  control  public  expenditure.  While  the  pension 
reforms  already  adopted  are  expected  to  bring  down  the  level  of  public  pension 
expenditure ratio in the long run, a simpler and more efficient pension system would 
generate  further  savings  and  help  mitigate  public  finance  sustainability  risks  in  the 
medium  term.  According  to  a  recent  study,  the  alignment  of  different  pension 
schemes  in  the  public  and  private  sectors  would  bring  more  than  EUR  5  billion  of 
public expenditure savings at the horizon 2022. 

The  unemployment  rate  declined  from  10.4 %  in  2015  to  9.4 %  in  2017  and  is 
forecast to decrease further in the coming years, while the employment rate rose to 
70.6 %  in  2017.  However,  labour  market  conditions  for  young  people,  low-skilled 
workers  and  people  with  a  migrant  background  (both  first  and  second  generations) 
remain relatively more difficult. In 2016, only 54.5 % of non-EU born people (aged 
20-64)  were  in  employment,  which  is  17.5  percentage  points  lower  than  the  figure 
for those born in France. Inhabitants of most deprived areas (Quartiers de la politique 
de la ville), including people with a migrant background, continue to face difficulties 
on  the  labour  market.  Notwithstanding  policy  action,  the  impact  of  socioeconomic 
and  migrant  background  on  educational  performance  is  comparatively  high  and 
hampers labour market integration. There is also evidence of discriminatory practices 
in  the  labour  market.  Effective  active  employment  support,  including  language 
training,  intensive  job  counselling  and  recruitment  support,  and  firmer  action  on 
discriminatory  practices,  are  key  to  fostering  equal  opportunities  on  the  labour 
market. 

The  2016  law  on  labour,  modernising  social  dialogue  and  securing  professional 
pathways  aims  to  improve  firms’  capacity  to  adjust  to  economic  cycles  and  reduce 
the share of workers on temporary contracts. While more people are being recruited 
on  open-ended  contracts,  labour  market  segmentation  remains  a  challenge  and  the 
transition  to  more  open-ended  forms  of  employment  should  be  fostered.  In  this 
context,  it  is  important  to  finalise  the  implementation  of  the  ongoing  ambitious 
reform programme, which includes the recently adopted reform of the labour law, the 
planned  overhaul  of  the  unemployment  benefit  system  and  the  reform  of  the 
vocational education and training system, including apprenticeships.    

The  gradual  implementation  of  measures  to  reduce  the  labour  tax  wedge  have 
improved France's cost competitiveness since 2013, but accumulated past losses have 
not yet been fully recovered. At the average wage, in 2016, France still had one of 
the highest employers' social contribution rates as a proportion of total labour costs in 
the  EU.  Existing  policy  measures  to  reduce  labour  costs  are  expected  to  be  further 
consolidated and strengthened as of 2019, with the announced conversion of the tax 
credit  for  competitiveness  and  employment  (CICE)  into  a  generalised  reduction  of 
social  contributions  for  employers  and  the  introduction  of  further  rebates  for  lower 
wages to foster employment of the low-qualified. 

(14) 

Since 2013, the French minimum wage has followed its indexation rule, without any 
ad hoc hikes. As a result, it has grown more slowly than reference wages (1.23 % in 

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2017,  compared  to  1.31 %  for  average  wage),  in  a  context  of  weak  inflation  and 
subdued  wage  growth.  While  the  minimum  wage,  as  compared  with  the  average 
wage, is high in international terms, the cost of labour at the minimum wage has been 
significantly curtailed by reductions of social contributions. Such reductions will be 
intensified  and  made  permanent  as  of  2019.  While  the  indexation  of  the  minimum 
wage  is  important  to  preserve  workers'  purchasing  power,  the  current  mechanism 
(unique  in  the  EU)  might  limit  wage  adjustments  to  changing  conditions,  with 
potential negative consequences for competitiveness. A group of independent experts 
assesses  the  minimum  wage  annually  and  provides  non-binding  opinions  on  its 
development.  In  2017,  the  group  recommended  revising  the  indexation  rule,  for 
example by limiting it to inflation indexation only. 

The  current  initial  vocational  education  and  training  system  does  not  sufficiently 
support  labour  market  integration  in  particular  because  a  significant  proportion  of 
students is driven towards pathways with limited employment prospects. Moreover, 
French students in vocational education and training achieve much lower educational 
outcomes  than  the  EU  average,  while  those  in  general  education  perform  much 
better. In this context, measures to foster apprenticeships, which are associated with 
better employment prospects, along with measures to improve school-based results, 
are essential to support youth employment and promote equality of opportunity. At 
the same time, improving access to continuous training for the low qualified workers 
and  jobseekers  and  promoting  the  achievement  of  higher  qualifications,  backed  by 
appropriate training guidance, are also important. Reflecting these challenges and in 
particular  the  need  to  improve  the  governance  of  the  system,  ensure  labour  market 
relevance,  quality  and  access  to  training  and  secure  labour  market  transitions,  the 
government has presented on 27 April 2018 a draft law reforming the apprenticeship 
and  continuous  vocational  education  and  training  system.  Moreover,  the  2018 
National Reform Programme confirms the intention to implement a EUR 14 billion 
investment  plan  for  skills  and  opens  the  way  for  a  complementary  reform  of  the 
school-based initial vocational education. 

Overall, the social protection system delivers good results. Income inequalities after 
transfers  are  below  the  EU  average  and,  despite  a  recent  increase,  the  number  of 
people at risk of poverty and social exclusion remains relatively low. However, some 
groups,  in  particular  single-parent  families,  people  not  born  in  the  EU  and  people 
living  in  deprived  urban  areas,  face  a  higher  risk  of  poverty.  Access  to  adequate 
housing  for  people  living  in  poverty  remains  a  matter  of  concern.  Despite  recent 
improvements, social housing shortages remain in some areas. 

Despite  ongoing  reforms  to  reduce  the  tax  burden  on  companies  and  support 
productive investment, the French tax system continues to be characterised by a high 
level of complexity, with tax expenditures, inefficient taxes and taxes on production 
forming barriers to a well-functioning business environment. The high number of tax 
expenditures  (tax  credit,  exemptions,  tax  reductions)  puts  an  additional  burden  on 
businesses,  and  SMEs  in  particular,  in  the  form  of  increased  compliance  costs  and 
uncertainty.  It  also  creates  additional  control  costs  for  the  tax  administration.  Tax 
expenditures  will  increase  further  in  number  and  in  value  under  the  2018  Budget 
Law  and  are  set  to  reach  EUR  99.8  billion  in  2018  (4.5 %  of  GDP)  in  2018,  as 
compared with EUR 93 billion in 2017. In addition, around 192 taxes yielding low 
revenue  (less  than  EUR  150  million  a  year)  have  been  identified,  but  only  a  very 

(15) 

(16) 

(17) 

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limited  number  have  been  eliminated  since  201410.  Finally,  France  has    very  high 
taxes  on  production  in  the  EU11  (3.1 %  of  GDP  in  2016)  which  consist  mainly  of 
capital  and  labour  taxes  for  which  companies  are  liable  as  a  result  of  engaging  in 
production and regardless of their economic performance. 

(18)  Market services accounted for more than 50 % of value added, 40 % of employment 
and 20 % of the manufacturing industry's value added in exports in 2016. However, 
while competition in market services has an impact across the whole economy, it is 
still  hampered  by  regulatory  requirements  and  administrative  burden,  which  also 
impede  firms'  ability  to  grow.  If  sufficiently  ambitious  and  fully  implemented, 
reforms in the area of services could have a significant positive economic impact. In 
prioritising  reform  efforts,  it  is  important  to  take  into  account  the  economic 
importance and performance of the services subsectors. An indicator-based approach 
used  to  identify  priority  reforms  in  the  services  sectors  highlights  a  number  of 
business  services  (architectural  and  engineering  activities,  legal  and  accounting 
activities, administrative and support services), retail trade, accommodation and food 
services,  and  health.  In  the  specific  area  of  professional  services,  the  Growth, 
Activity  and  Equal  Economic  Opportunities  Act  (the  ‘Macron  law’)  of  6  August 
2015 eased restrictions in a limited number of professions, mostly legal professions. 
Moreover,  subsequent  acts  have  diluted  its  spirit,  which  also  limited  its  expected 
impact.  Further  reforms  could  target  specific  entry  and  exercise  restrictions  (e.g. 
reserves  of  activity,  voting 
restrictions, 
multidisciplinary restrictions and numerus clausus restrictions), which are considered 
excessive.  Reforms  to  address  key  impediments  to  firms'  growth  could  include 
removing threshold effects linked to size-related criteria in regulations and reducing 
the administrative burden on businesses. Finally, improving France's  coverage  with 
fast broadband would enhance its ability to benefit from the digital economy. 

shareholding 

restrictions, 

rights 

(19) 

(20) 

According to the European Innovation Scoreboard, France's innovation performance 
remains  below  that  of  EU  innovation  leaders,  despite  the  relatively  high  level  of 
public  support.    In  particular,  improving  the  efficiency  of  public  support  schemes 
(including  the  Crédit  d'Impôt  Recherche,  tax  credit  for  research  and  development) 
would  stimulate  better  innovation  output.  In  this  respect,  the  results  of  ongoing 
evaluations  need  to  be  fed  into  improvements  to  the  design  of  public  support  for 
innovation.  Knowledge  transfer  between  public  research  and  businesses  remains  a 
challenge and this limits the commercial exploitation of research results. Compared 
with  other  EU  countries,  France's  performance  is  low  in  public-private  co-
publications  and  public  R&D  financed  by  businesses.  There  is  some  potential  to 
strengthen  transfer  mechanisms  between  academia  and  industry  by  simplifying 
partnership research and incentivising researchers' mobility.  

 In  the  context  of  the  2018  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  France’s  economic  policy  and  published  it  in  the  2018 
country  report.  It  has  also  assessed  the  2018  Stability  Programme  and  the  2018 
National  Reform  Programme  and  the  follow-up  given  to  the  recommendations 
addressed to France in  previous years. The  Commission  has  taken into account  not 
only  their  relevance  for  sustainable  fiscal  and  socioeconomic  policy  in  France,  but 
also the extent to which they comply with Union rules and guidance, given the need 
to  strengthen  the  Union’s  overall  economic  governance  by  providing  Union-level 
input for future national decisions.  

10 
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Inspection Générale des Finances (2014), Les taxes à faible rendement.   
Taxes on production are to be understood as "other taxes on production" according to EUROSTAT (D29 category). 

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(21) 

(22) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  2018  Stability 
Programme and its opinion12 is reflected in particular in recommendation 1 below. 

In  the  light  of  the  Commission’s  in-depth  review  and  this  assessment,  the  Council 
has  examined  the  National  Reform  Programme  and  the  Stability  Programme.  Its 
recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in 
recommendations 1 to 3 below. 

HEREBY RECOMMENDS that France take action in 2018 and 2019 to: 

1. 

2. 

3. 

Ensure that the nominal growth rate of net primary government expenditure does not 
exceed 1.4 % in 2019, corresponding to an annual structural adjustment of 0.6 % of 
GDP. Use windfall gains to accelerate the reduction of the general government debt 
ratio.  Implement  expenditure  savings  in  2018  and  fully  specify  the  objectives  and 
new measures needed in the context of Public Action 2022, for them to translate into 
concrete  expenditure  savings  and  efficiency  gains  measures  in  the  2019  budget. 
Progressively  unify  the  rules  of  the  different  pension  regimes  to  enhance  their 
fairness and sustainability. 

Pursue the reforms of the vocational education and training system, to strengthen its 
labour  market  relevance  and  improve  access  to  training,  in  particular  for  low 
qualified workers and jobseekers. Foster equal opportunities and access to the labour 
market,  including  for  people  with  a  migrant  background  and  people  living  in 
deprived  areas.  Ensure  that  minimum  wage  developments  are  consistent  with  job 
creation and competitiveness.  

Simplify the tax system, by limiting the use of tax expenditures, removing inefficient 
taxes and reducing taxes on production levied on companies. Reduce the regulatory 
and administrative burden to increase competition in the services sector and to foster 
firms' growth. Step up efforts to increase the performance of the innovation system 
notably  by  improving  the  efficiency  of  public  support  schemes  and  strengthening 
knowledge transfer between public research institutions and firms. 

Done at Brussels, 

For the Council 
The President 

12 

Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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