COMMISSION STAFF WORKING DOCUMENT Country Report France 2019 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 EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 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: 2019-02-27
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, 27.2.2019  SWD(2019) 1009 final  COMMISSION STAFF WORKING DOCUMENT Country Report France 2019     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 EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 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(2019) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

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

4.  Reform priorities 

4.1.  Public finances and taxation 

4.2.  Financial sector 

4.3.  Labour market, education and social policies 

4.4.  Competitiveness reforms and investment 

Annex A: Overview Table 

Annex B: Commission Debt Sustainability Analysis and fiscal risks 

Annex C: Standard Tables 

4 

8 

18 

22 

27 

27 

38 

40 

50 

65 

74 

75 

Annex D: Investment Guidance on Cohesion Policy Funding 2021-2027 for France 

81 

References 

LIST OF TABLES 

Table 1.1: 

Non-cost competitiveness of the largest export sectors for France 

Table 1.2: 

Key economic and financial indicators 

Table 2.1: 

Assessment of 2018 CSR implementation 

Table 3.1: 

Outward spill-over heat map for France 

Table 3.2: 

MIP Assessment Matrix (*) – France 2019 

Table 1: 

Spillover effects of structural reforms — France closing half of the structural reform 

gaps 

Table 4.2.1: 

Financial soundness indicators – all banks in France 

Table 4.3.1: 

Employment growth by sector 

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 

1 

85 

12 

17 

20 

23 

24 

26 

38 

43 

75 

76 

77 

78 

 
 
 
Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

LIST OF GRAPHS 

Graph 1.1: 

Contributions to GDP growth (2011-2020) 

Graph 1.2: 

Potential GDP growth breakdown 

Graph 1.3: 

Trade balance breakdown 

Graph 1.4: 

Net lending/borrowing by sector 

Graph 1.5: 

Breakdown of unit labour cost rate of change 

Graph 1.6: 

French export potential by sectors 

Graph 1.7: 

Non-financial corporations' debt and benchmarks 

Graph 1.8: 

Housing —- Valuation gaps 

Graph 1.9: 

Change in GDP per head (percentage points), France 2007-2016 – Regional 

convergence 

Graph 2.1:  Overall multiannual implementation of 2011-2018 CSRs to date 

Graph 4.1.1:  Composition of government expenditure (% of total expenditure, 2017) 

Graph 4.1.2:  Contributions to the change in the public debt ratio in France 

Graph 4.1.3:  Projections of French public debt over the medium term under alternative scenarios 

Graph 4.1.4: 

Impact of the reclassification of SNCF of public debt projections 

Graph 4.1.5: 

Tax wedge on labour, single earner, average wage (2017) (in % of labour cost) 

Graph 4.2.1:  Annual growth rate of loans 

Graph 4.3.1: 

Trends in self-employment, part-time and temporary employment 

Graph 4.3.2:  Beveridge curve: 2003Q2-2018Q2 

Graph 4.3.3:  Wage benchmark 

Graph 4.3.4:  Nominal unit labour cost dynamics 

Graph 4.4.1:  Public, corporate and foreign investment in France 

Graph 4.4.2: 

Investment rate by firms 

Graph 4.4.3:  Business investment prospects in France 

Graph 4.4.4: 

Total factor productivity (TFP) growth decomposition 

Graph 4.4.5:  France: targets and emissions under the effort-sharing legislation (percentage 

change from 2005) 

Graph 4.4.6:  Evolution of Électricité de France S.A. (EdF) indebtedness from 2005 to 2017 

Graph 4.4.7:  Regional expenditure for R&D in France 

Graph 4.4.8:  France: SBA performance, state of play and development from 2008 to 2018 

79 

80 

8 

9 

10 

10 

11 

13 

14 

15 

16 

18 

27 

28 

29 

30 

36 

38 

40 

41 

42 

42 

50 

51 

51 

52 

58 

58 

61 

63 

2 

 
 
 
 
LIST OF BOXES 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to fostering 

growth and competitiveness in France 

Box 3.1: Spillovers of structural reforms — the case of France 

Box 4.1.1: Assessing the budgetary and distributional effects of alternative scenarios to reform the 

immovable property tax in France 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

Box 4.4.1: The Investment Plan for Europe - in France 

Box 4.4.2: Investment challenges and reforms in France 

21 

26 

37 

49 

54 

55 

3 

 
 
 
 
EXECUTIVE SUMMARY 

recovery 

in  2017, 

While economic activity slowed down in France, 
the reform process continued (1). After a year of 
strong  economic  growth 
temporary 
factors  weighed  on  economic  activity  at  the 
beginning of 2018 and social protests at the end of 
2018  hindered 
that 
the  economic 
occurred  over  the  summer.  At  the  same  time, 
policy  actions  that  had  been  undertaken  are 
expected to improve the performance of the French 
economy  by  better  linking  the  education  and 
training  system  to  labour  market  needs  and  by 
reducing  red  tape  for  firms.  Measures  to  simplify 
the  tax  system  are  ongoing  and  systemic  reforms 
of  the  healthcare  and  pension  system  have  been 
announced 
savings  on 
for  2019.  Planned 
government  spending  including  through  the  new 
spending review process launched in October 2017 
to  be 
(Action  Publique  2022) 
implemented.  The 
remains 
fragmented,  impeding  a  faster  improvement  in 
labour  market  conditions  for  all  categories  of 
workers.  Barriers  to  competition  in  the  services 
sector  continue  to  hamper  its  performance  and 
high taxes on production remain. The efficiency of 
public  support  to  innovation  could  be  further 
improved.  

labour  market 

still  have 

Economic growth is forecast to moderate, while 
remaining  above  potential.  After  expanding  at 
2.2 % in 2017, GDP growth decreased to 1.5 % in 
2018  and  is  forecast  to  expand  by  1.3 %  in  2019 
and by 1.5 % in 2020. The GDP growth rate would 
still remain above its potential, which is gradually 
recovering  after  having  dropped  from  an  average 
of  1.8%  from  2000  to  2008  to  just  1.0%  in  2009. 
Potential growth is now forecast to reach 1.3 % by 
2020, driven by slowly improving productivity and 
robust investment. 

Labour market conditions continue to improve, 
although  at  a  slower  pace  compared  to  the  EU 

(1)  This  report  assesses  France’s  economy  in  light  of  the 
European Commission’s Annual Growth Survey published 
on 21 November 2018. In the survey, the Commission calls 
on  EU  Member  States  to  implement  structural  reforms  to 
make the European economy more productive, resilient and 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  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. 

average.  The  employment  rate  continued 
to 
increase and reached 71.6 % in the third quarter of 
2018. The unemployment rate continued to decline 
gradually,  reaching  9.1 %  in  2018.  However,  it 
remains  well  above  the  EU  average  (7.0 %)  and 
the  euro  area  average  (8.2 %).  Segmentation  is 
entrenched  in  the  French  labour  market.  Almost 
85 % of new hires are on temporary contracts and 
the transition rate to permanent contracts is among 
the lowest in the EU. Involuntary part-time work is 
also very high, at 43.2 % of total part-time work in 
2017.  Labour  market  slack  (a  measure  of  the 
underemployed  that  includes  people  available  to 
work  but  not  seeking,  those  seeking  work  but  not 
immediately  available  and  all  involuntary  part-
time  employed)  coexists  with  a  structural  skills 
mismatch,  as  skills  shortages  are  emerging, 
especially in some sectors.  

In 

2018, 

private 

Growth  in  consumption  is  expected  to  recover 
consumption 
gradually. 
rebounded  somewhat  over  the  summer  after  three 
quarters of sluggish growth. Demonstrations at the 
end  of  2018  had  a  negative  impact  on  the 
the  positive  effects  on 
economy,  mitigating 
consumption  of  fiscal  measures  that  had  been 
adopted. Private consumption is set to continue its 
gradual 
in  2019-2020  backed  by 
improving labour market conditions.  

recovery 

a 

at 

high 

remains 

Investment 
level, 
accompanied  by  the  Great  plan  for  investment 
2018-2022. Investment represented 22.5 % of GDP 
in  2017.  After  several  years  of  contraction, 
government  investment  increased  again  in  2016 
and is expected to continue increasing up to 2020. 
Business  investment  should  ease  gradually  while 
investment,  by 
remaining  dynamic.  Housing 
contrast, slowed down markedly in 2018 and is set 
to  remain  subdued.  Under  the  Great  plan  for 
investment 
plan 
d’investissement  2018-2022),  France  has  also 
planned measures for a total of EUR  57 billion to 
sustain the greening of the economy, address skills 
mismatch,  foster  innovation  and  digitise  public 
services.  

2018-2022 

(Grand 

Net exports contributed to growth over the last 
two  years,  but  the  net  international  investment 
position  continued  to  deteriorate.  In  2017,  net 
exports  contributed  to  growth  for  the  first  time 
since  2012.  However,  the  value  of  trade  balance 
slightly declined for two main reasons: (i) dragged 

4 

 
 
                                                           
is 

international  position  (that 

by its energy component and (ii)  worsened by the 
net  export  of  manufactured  goods.  At  the  same 
time,  the  current  account  improved,  but  remained 
below  the  value  needed  to  stabilise  the  net 
investment 
the 
difference  between  external  financial  assets  and 
liabilities)  in  10  years.  As  a  result,  the  net 
international  investment  position  weakened  by 
more  than  5  percentage  points  and  reached  -20 % 
of  GDP.  In  2018,  net  exports  also  strongly 
contributed  to  growth.  Exports  remained  robust 
albeit  less  dynamic  than  in  2017,  while  import 
growth decreased sharply. The value of the current 
account is set to stabilise. 

The picture on competitiveness is mixed. Export 
market shares increased in 2017 compared to 2012, 
as  France  has  benefited  from  a  more  favourable 
geographical  positioning  of  its  exported  goods: 
imports from  France’s  main trading partners grew 
faster  than  the  world  average.  Nevertheless,  in 
comparison  with  2016,  export  market  shares 
deteriorated  by  3.2  %  in  value  and  0.8  %  in 
volume.  In  terms  of  cost  competitiveness,  unit 
labour  cost  increases  have  been  contained  by  the 
moderation  of  wage  developments.  However, 
In 
productivity  dynamics 
addition,  non-cost  competitiveness 
indicators 
suggest  that  quality  can  still  be  improved  in  high 
revenue sectors.  

sluggish. 

remain 

General  government  debt  remains  high.  At 
above  98 %  of  GDP  in  2018,  it  reduces  the  room 
for fiscal  manoeuvre in order to respond to future 
shocks. This combined with a high level of private 
debt  (or  debt  accumulated  by  households  or 
businesses) weighs on long-term growth prospects. 
Efforts  to  consolidate  government  finances  have 
brought  about  an  only  modest  reduction  of  the 
public  expenditure  ratio  which,  at  56 %  in  2018, 
remained the highest in the EU. 

The  government  adopted  some  budgetary 
measures  to  increase  low  income  households’ 
purchasing  power  in  response  to  recent  social 
protests. Despite a relatively positive evolution of 
the  real  disposable  income  in  recent  years  for  all 
segments  of 
the 
government’s  announcement  to  increase  carbon 
and  diesel  taxes  as  of  2019  has  triggered  a 
movement of strong social protest (‘gilets jaunes’). 
In  response  to  the  movement  and  the  ensuing 
unrest,  the  government  decided  to  cancel  the 

income  distribution, 

the 

Executive summary 

planned  increase  in  fuel  tax  and  adopt  further 
measures to increase the purchasing power of low-
income households. The authorities have estimated 
that  introducing  these  measures  in  this  year’s 
budget  will  lead  the  general  government  headline 
deficit  to  reach  3.2 %  in  2019,  thus  reducing  to 
zero the associated planned structural effort.   

skills, 

improve 

investments  need 

Public  and  private 
to 
prioritise  actions  to  strengthen  research  and 
innovation,  facilitate  the  energy  and  climate 
transition, 
tackle 
unemployment,  and  adapt  to  the  future  of 
work,  as  well  as  to  respond  to  inequalities 
within the country. Improving education, training 
and 
innovation  performance  could  stimulate 
potential  growth  over  the  medium  term.  In  a 
context  of  emerging  skills  mismatch,  vocational 
training,  together  with  appropriate  employment 
support  and  active  inclusion,  can  improve  labour 
market  conditions,  especially  for  disadvantaged 
groups.  At  the  same  time,  the  French  authorities 
have  adopted  plans  to  promote  investment  in  the 
energy  sector,  which  would  also  contribute  to 
for  private 
exploit 
investments that remains in renewable energy and 
buildings’  energy  efficiency. 
to 
housing, 
improve 
in  more 
healthcare  and 
disadvantaged  areas,  would  help 
to  address 
inequalities within the country.  Annex D identifies 
key  priorities  for  support  under  the  European 
Regional  Development  Fund  and  the  European 
Social  Fund  Plus  for  the  2021-2027  period  in 
France,  building  on  the  analysis  of  investment 
needs and challenges outlined in this report. 

affordable 
transport,  especially 

the  untapped  potential 

connectivity, 

Investments 

Overall,  France  has  made  some  progress  in 
addressing 
country-specific 
the 
recommendations.  

2018 

There has been substantial progress in pursuing the 
reform of vocational education and training. 

There  has  been  some  progress  in  the  following 
areas:   

  moderating  developments  in  the  minimum 

wage;  

  simplifying the tax system; and 
 

reducing red tape.  

5 

 
 
Executive summary 

There  has  been  limited  progress  in  the  following 
areas: 

functioning 
administration.  

of 

the 

national 

public 

 
 

 
 

reforming the pension system; 
improving access and equal opportunities in the 
job market; 
increasing competition in services; and 
increasing efficiency of the innovation system. 

There  has  been  no  progress  in  further  developing 
and  implementing  a  spending  review  through  the 
Public action 2022 programme. 

the  Europe  2020  strategy,  France 

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

is  effective 

France  performs  relatively  well  on  most  of  the 
indicators  of  the  Social  Scoreboard  supporting 
the  European  Pillar  of  Social  Rights.  Overall, 
the  social  protection  system 
in 
reducing  poverty  and  access  and  quality  of 
reduce 
services  are  good.  Social 
monetary  poverty  and  limit  material  deprivation. 
However,  despite  recent  improvements,  access  to 
the 
in 
particular for disadvantaged groups, and pockets of 
poverty persist for some groups of the population. 

remains  a  challenge, 

labour  market 

transfers 

findings  of 

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

in-depth 

the 

  A steady decrease in public debt will depend 
on  the  government’s  ability  to  curb  its 
spending.  Since  2017,  the  government  has 
rolled  out  a  renewed  fiscal  consolidation 
strategy over the five-year presidential term. Its 
success  will  depend  on  meeting  planned 
expenditure  targets  defined  for  the  central  and 
the  healthcare 
local  governments  and  for 
system. 
strategy  also 
this 
requires  the  execution  of  the  still  not  fully 
defined  Public  action  2022  programme,  aimed 
at  delivering  substantial  efficiency  gains  for 
government  spending  while  improving  the 

Implementing 

6 

  Sustainability  risks  for  general  government 
debt  remain  high  in  the  medium  term.  The 
high  general  government  debt  and  structural 
general  government  deficit  pose  sustainability 
challenges,  especially  in  the  medium  term.  A 
fiscal  effort  that  translated  into  a  decisive 
improvement  in  France’s  structural  primary 
balance  would be essential to avert such risks. 
Reducing  the  general  government  debt  ratio 
would  also  improve  growth  prospects  and  the 
resilience of the French economy. The planned 
could 
pension 
healthcare 
contribute 
general 
decreasing 
government  debt  over  the  medium  term  and 
therefore reducing debt sustainability risks.  

reforms 
the 

and 
to 

  Continued  effort  is  needed  to  simplify  the 
tax  system  and  lower  taxes  on  production. 
Recent reforms aim to alleviate the tax burden 
on labour but taxes on production remain high. 
The  complexity  and  lack  of  stability  of  the 
French  tax  system  weighs  on  businesses  and 
the  economy  as  a  whole.  The  number  of  tax 
expenditures  remains  high  as  do  low-yield 
taxes.  

  The  solvency  of  French  banks  is  stable  and 
macro-prudential policies aim at addressing 
risks stemming from high private debt. Bank 
funding and credit quality ratios remain stable. 
Banks’ profitability remains modest in relation 
their  cost  of  capital.  Macro-prudential 
to 
policies  (mitigating  risks 
the  financial 
system  as  a  whole)  have  been  rolled  out  to 
prevent risks for the financial sector stemming 
from high private debt.  

to 

  Integrating the most vulnerable categories of 
workers  into  the  labour  market  remains 
challenging.  Several 
reforms  have  been 
adopted in recent years to reduce labour market 
fragmentation  and  favouring  moves 
from 
temporary to permanent contracts. People with 
a  migrant  background  still 
to  be 
disadvantaged  during  the  recruitment  process 
and  their  geographical  concentration  in  poor 
neighbourhoods  is  a  matter  of  concern.  Low 
skilled  and  young  people  also  remain  at  a 
disadvantage in the labour market. 

tend 

 
 
Executive summary 

the  2018  reform  of 

the 
launched,  while 
vocational  education  and 
training  system 
changed  its  governance  and  contributed  to 
make the apprenticeship system more attractive 
and  relevant  for  the  labour  market.  These 
reforms  are  to  be  complemented  by  measures 
on  school-based  vocational  education  and 
improving teacher training to ensure that well-
trained  teachers  are  placed  in  disadvantaged 
schools. 

  A socio-economic divide exists between some 
regions  and  the  rest  of  the  country.  Only  3 
regions are attracting skilled workers in sectors 
producing higher value added to the economy, 
while  in  the  rest  of  the  country  —  mainly  the 
outermost regions  —  gains in employment are 
concentrated  in  sectors  producing  lower  value 
added. Major differences among regions can be 
noted  in  terms  of  regional  investment  in 
innovation 
research  and  development  and 
performance, 
energy 
consumption  and  waste  management  where 
outermost regions face specific challenges. 

as  well 

for 

as 

et 

loi  relatif  à 

firms  growth 

la 
should 

law  (projet  de 

transformation 
further 

  Improvements  in  the  business  environment 
have  been  so  far  moderate,  but  the  new 
la 
PACTE 
des 
croissance 
entreprises) 
reduce 
unnecessary  red  tape.  Measures  have  been 
taken  to  improve  the  relations  between  public 
administration  and  businesses.  The  draft 
PACTE  law  aiming  to  overhaul  red  tape  that 
hinders private initiative, improve the business 
environment,  and  help 
is 
currently  under  discussion  in  parliament.  The 
and 
Competition  Authority’s 
recommendations  have  helped  to  improve  the 
functioning  of  key  markets  in  recent  years. 
However, the level of regulatory restrictiveness 
remains  higher  in  France  than  in  other  EU 
Member  States,  particularly  for  some  services 
sectors.  In  professional  services,  the  main 
barriers came from restrictive requirements for 
regulated 
entering  and  carrying  out  a 
profession 
requirements, 
reserves of activities, shareholding, and  voting 
rights 
face 
requirements).  Retailers  also 
restrictions on daily operations of shops. 

(authorisation 

opinions 

  Despite  recent 

initiatives,  the  gap  with 
respect  to  EU  innovation  leaders  is  not 
closing. France is making artificial intelligence 
a  national  priority  and  is  emerging  as  a  major 
start-up  hub  notably  for  companies  in  the 
digital  sector.  However,  private  investment  in 
research  and  development  has  remained  stable 
since  2015 
companies  have 
difficulties  to  grow.  In  addition  to  the  recent 
measures 
the  mobility  of 
researchers  to  firms,  furthering  links  between 
science  and  business  could  help  to  spread 
innovation.  The  efficiency  of  public  schemes 
and 
that  sustain  research, 
development  and  innovation  could  be  further 
evaluated and improved. 

and  new 

incentives 

facilitate 

tax 

to 

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

  Differences  in  educational  outcomes  remain 
high at all levels of education. Measures have 
been  taken  to  raise  basic  skills  in  primary 
education.  Complementary  reforms  of  upper 
secondary  and  tertiary  education  have  been 

7 

 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

Economic growth 

After  a  strong  year  in  2017,  GDP  growth  in 
France moderated in 2018. GDP growth stood at 
1.5 % in 2018, after registering 2.2 % in 2017 (2). 
Temporary factors, such as strikes in the transport 
sector, school holidays or unusually warm weather, 
weighed  on  French  activity  at  the  beginning  of 
2018.  Economic activity accelerated slightly in the 
second  half  of  2018,  but  was  impacted  by  social 
protests  at  the  end  of  the  year.  In  this  context, 
private consumption stagnated in the fourth quarter 
despite  several  fiscal  measures  favourable  to 
purchasing power enacted before  the social unrest 
(a  decrease  in  social  contributions,  a  cut  in  the 
housing  tax  and  increases  in  social  benefits). 
Investment  remained  dynamic  overall,  although 
less  buoyant  than  in  2017.  Housing  investment 
slowed  down  markedly  following  very  high 
growth in 2017,  while corporate  investment eased 
more 
eased 
somewhat.  Import  growth  decreased  sharply  in 
2018,  while  exports  remained  robust, 
though 
somewhat  less  so  than  in  2017.  As  a  result,  the 
contribution  of  net  exports 
to  GDP  growth 
increased to 0.6 percentage point. 

gradually.  Public 

investment 

Graph 1.1:  Contributions to GDP growth (2011-2020) 

Source: European Commission, 2018 winter forecast 

GDP  growth  rate  is  set  to  decrease  in  the  near 
future, while remaining above potential. Private 
consumption growth is forecast to slowly recover. 

(2)  The annual GDP growth figures are non-calendar adjusted. 
In 2017, calendar adjusted GDP growth  reached 2.3 %. In 
2018  and  2019,  calendar  adjusted  GDP  growth  remains 
unchanged while it reaches 1.4 % in 2020. 

8 

Fiscal  measures,  including  the  new  measures 
adopted at the end of 2018, should provide support 
to  purchasing  power.  Nevertheless,  their  overall 
effect  on  private  consumption  could  be  limited  in 
the  first  few  months,  translating  instead  into 
precautionary  savings,  in line  with the persistence 
of  low  consumer  confidence  levels.  Investment 
growth  is  set  to  cool  down  in  2019  and  2020,  as 
spare  capacities  are  gradually  reabsorbed.  Public 
investment  is  set  to  keep  increasing.  Corporate 
investment  is  forecast  to  cool  down  gradually 
although  staying  at  a  high  level,  while  housing 
investment  is  expected  to  remain  subdued.  In 
addition, net exports are  expected to be neutral in 
2019 and 2020, in line with a rebound in imports. 
GDP  growth  is  expected  to  reach  1.3 %  in  2019 
and  1.5 %  in  2020  (see  Graph 1.1).  Inflation  is 
forecast to reach 1.4 % in 2019 and 1.7 % in 2020, 
after  registering  2.1 %  in  2018,  as  a  consequence 
of increases in oil price and in excise duties. 

favourable 

cyclical  position, 

Labour market conditions continue to improve, 
albeit  slowly  (see  Section  4.3).  In  line  with  a 
the 
relatively 
unemployment  rate  pursued  its  moderate  decline, 
to 9.1 % in 2018, but it is still significantly higher 
than the EU average (7.0 %). The employment rate 
(20-64) rose in 2017 to 70.6 %, still slightly below 
the  EU  average  (72.2 %).  In  2017,  the  youth 
unemployment  rate  decreased  to  22.3 %  and  the 
long-term  unemployment  rate  decreased  for  the 
first  time  since  2008,  at  4.2 %  in  annual  terms. 
However,  the  unemployment  rate  of  low-skilled 
young  people  (15-24)  remains  very  high,  at 
37.8 %. In addition, the situation of people with a 
migrant background and from deprived urban areas 
continues  to  be  marked  by  significant  challenges. 
The  employment  rate  for  non-EU  born,  at  55.6 % 
in 2017, is one of the lowest in the EU. The labour 
market 
segmented,  marked  by  a 
predominant  share  of  recruitment  and  extensions 
on very short-term contracts, despite an increase of 
recruitment  on  permanent  contracts  since  mid-
2015.  The  transition  rate  between  temporary  and 
permanent  contracts,  at  11.7 %,  is  also  one  of  the 
lowest 
in 
comparison  to  the  rest  of  the  EU,  the  share  of 
open-ended  contracts  has  been  eroding.  While 
some slack in the labour market persists, indicators 
such  as  the  labour  shortage  index  and  recruiting 
difficulties in several sectors point to the presence 
of skills shortages and skills mismatches. 

the  EU.  Although  still  high 

remains 

in 

-10123111213141516171819 (f)20 (f)Changes in inventoriesNet exportsInvestmentGovernment consumptionPrivate consumptionReal GDP (y-o-y%)%, pps.  
 
 
 
                                                           
1. Economic situation and outlook 

prevents a  faster recovery of  cost competitiveness 
(see  below).  The  deceleration  in  potential  GDP 
also  makes  it  more  difficult  for  France  to  bring 
its  public  debt  without  greater  fiscal 
down 
consolidation (see Section 4.1). 

Potential  growth  can  be  affected  by  a  low 
responsiveness  of  labour  and  product  markets. 
Promoting  labour  market  mobility  among  sectors 
and  regions  may  facilitate  resource  reallocation, 
with a positive impact on total factor productivity. 
Several  indicators  point  to  the  presence  of  skills 
mismatches  in  France,  suggesting  the  need  of 
future  investment  for  supporting  the  professional 
reskilling  and  upskilling  of  the  workforce  (see 
Section  4.3).  Labour  market  segmentation  may 
also  have  a  negative  effect  on  human  capital 
accumulation  (see  Section  4.3).  Inequality  of 
opportunity, 
strong 
dependence  of  educational  and  labour  market 
outcomes  on  socio-economic  and  migration 
background (see Section 4.3), may be associated to 
suboptimal  investment  in  human  capital.  Total 
factor  productivity  growth  may  also  be  hampered 
(see  Section  4.1)  and 
by 
weaknesses  in  the  business  environment,  which 
can weigh on firms’ growth, hinder innovation and 
internationalisation of firms (see Section 4.4). 

tax  complexity 

through 

seen 

the 

as 

Measures  to  boost  productivity  and  therefore 
potential  growth  have  been  adopted  or 
announced.  Those  reforms  encompass  the  labour 
law  (‘ordonnances’),  measures  on  vocational 
training, the skills investment plan, the educational 
system,  as  well  as  public  service 
reforms. 
Measures to alleviate the burden of regulations on 
firms are also part of a draft PACTE law currently 
in  discussion  in  parliament.  However,  time  is 
needed  to  see  the  full  effects  of  those  reforms, 
especially 
the  educational 
system. Their effects on productivity might also be 
difficult to quantify beforehand (see Section 4.4).  

those  concerning 

External position 

A  somewhat  more  favourable  picture  of  the 
French  external  sector  emerged  as  a  result  of 
the revision of the national accounts data (3). A 

(3)  The  revision  of  the  national  accounts  data  (new  base 
system)  brought  closer  balance  of  payments  and  national 
accounts data. The figures from the two methodologies are 
now almost identical (Insee, 2018a). 

Risks  are  slightly  titled  to  the  downside. 
Persistent  uncertainties  on 
the  external  side 
(European  Commission,  2018a)  could  weigh  on 
the 
export  performance  and 
domestic  side,  the  weakness  of  the  consumer 
confidence  indicator  could  translate  into  lower 
private  consumption  growth.  On  the  other  hand, 
the  impact  of  the  measures  announced  by  the 
government  at  the  end  of  2018  could  materialise 
faster than expected.  

investment.  On 

Potential growth 

Potential  growth  has  declined  since  the  2008 
financial  crisis.  The  annualised  growth  rate  of 
potential  GDP  decreased  from  1.8 %  on  average 
from 2000 to 2008 to just 1.1 % between 2009 and 
2018.  It  is  projected  to  recover  gradually  and  to 
reach  1.3 %  in  2020.  But  this  is  not  specific  to 
France.  A  slowdown  of  potential  GDP  has  been 
observed  in  most  major  euro  area  economies.  In 
the case of France, this slowdown can be attributed 
to  a  reduction  in  the  contribution  of  total  factor 
productivity  (see  Graph 1.2).  Despite  a  gross 
investment  rate  of  the  non-financial  corporations 
relatively  resilient  to  the  crisis  (see  Section  4.4), 
potential total factor productivity growth in France 
remains  below  potential  total  factor  productivity 
growth in Germany and is now lower than in Spain 
(European Commission, 2018b). 

Graph 1.2: 

Potential GDP growth breakdown 

Source: European Commission, 2018 autumn forecast 

The  sluggish  total  factor  productivity  growth 
contributes  to  the  weak  competitiveness  and 
exacerbates the challenges linked to high public 
debt. The slowdown of labour productivity, partly 
due  to  a  deceleration  of  total  factor  productivity, 

9 

0.0%0.5%1.0%1.5%2.0%2.5%000102030405060708091011121314151617181920Total labour (hours) contributionCapital accumulation contributionTotal factor productivity contributionPotential GDP growth 
 
                                                           
1. Economic situation and outlook 

2018  autumn  forecast,  the  trade  balance  should 
slightly  improve  in  2018,  as  imports  grew  at  a 
slower pace than exports, especially in services. 

The  current  account  marginally  improved  in 
2017 and posted a small deficit. Compared to the 
previous  year  and  the  trough  in  2011,  the  current 
account balance improved but remains negative, at 
-0.6 %  of  GDP  in  2017,  after  having  registered  -
0.8 % in 2016. This is mainly due to the growth of 
net  income  from  abroad,  as  the  trade  balance 
deteriorated  in  2017.  The  level  of  the  current 
account balance in 2017 is essentially close to the 
cyclically-adjusted  one.  Nevertheless,  it  remains 
below  the  current  account  balance  predicted  by 
fundamentals,  which  is  a  surplus  of  around  0.5 % 
of  GDP  (5).  The  current  account  balance  is  set  to 
remain  broadly  unchanged  according  to  the  2018 
autumn forecast. 

The current account deficit results from saving 
and  investment  decisions  at  the  sectoral  level. 
Net  borrowing  by  non-financial  corporations  and 
public sector remains too high to be fully financed 
by households’ net lending (see Graph 1.4). France 
is currently 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. 

Graph 1.4:  Net lending/borrowing by sector 

Source: Eurostat 

(5)  For  details  regarding  the  estimation  of  current  accounts 
based on fundamentals, see Coutinho and al. (2018). 

new  methodology  has  been  adopted,  which  better 
takes  into  account  export  and  import  of  services, 
tourism expenditure from developing countries and 
property income. As a result, the trade deficit stood 
at  -1.1  %  of  GDP  in  2017,  compared  to  -2.5 % 
using the previous base (base, 2010).  

Graph 1.3: 

Trade balance breakdown 

Source: Insee, national accounts 

The  trade  balance  has  been  on  a  mild  but 
protracted  deteriorating  trend  and  slightly 
deteriorated  in  2017  (see  Graph 1.3).  The  trade 
balance  in  goods  started  deteriorating  again  in 
2016.  The  energy  component  always  weighed  on 
the  trade  balance  and  is  subject  to  oil  price 
volatility.  Excluding  energy  products,  the  trade 
balance in goods has been on a slow but protracted 
deteriorating trend, only temporarily interrupted in 
earlier  years  of  this  decade.  This  trend  is  mostly 
explained  by  manufactured  goods  net  exports 
(Insee, 2018b). Net exports of manufactured goods 
kept  on  deteriorating  since  the  early  2000s  and 
have  switched  from  positive  in  the  mid-1990s  to 
negative  in  2007.  The  year  2017  is  no  exception: 
the  trade  deficit  in  manufactured  goods  worsened 
by almost EUR 7 billion (4). On the other hand, the 
trade  balance  in  services  slightly  improved  in 
time  since  2012,  while 
2017,  for 
remaining positive in 2000-2017. According to the 

the  first 

the  demand  of 

(4)  The widening trade deficit in manufactured goods is mostly 
explained  by 
the  households  and 
administration  sectors,  despite  the  higher  volatility  of 
corporate  investment.  Specific  sub-sectors,  like  equipment 
goods  and  other  industrial  goods,  show  a  considerable 
deficit  due  to  limited  production  capacity  and  dynamic 
domestic demand. 

10 

-4%-3%-2%-1%0%1%2%3%4%000102030405060708091011121314151617ServicesGoods excl. energyCIF/FOB correctionEnergyTotalTotal excl. energy% of GDP-8-6-4-202468000102030405060708091011121314151617% of GDPHouseholdsGeneral governmentFinancial corporationsNon-Financial corporationsTotal Economy 
 
                                                           
 
                                                           
1. Economic situation and outlook 

the  competitiveness 

Growth in unit labour costs remained moderate 
over  the  past  years  but  is  set  to  increase. 
Nominal unit labour costs grew by only 1.3 % over 
result,  cost 
to  2017.  As  a 
the  3  years 
competitiveness  has  improved,  thus  helping  to 
absorb  part  of 
losses 
accumulated  over  the  past  years  towards  the 
country’s  main  trading  partners.  However,  unit 
labour  costs  in  non-agricultural  market  sectors, 
which have been growing since the third quarter of 
2016,  are  set  to  accelerate  further  (see  Graph 1.5) 
(10).  This  is  the  result  of  gross  wages  per  person 
increasing,  in  response  to  a  gradually  improving 
labour  market  and  higher 
the 
meantime,  labour  productivity  growth  is  expected 
to remain moderate, preventing a faster recovery of 
cost competitiveness. 

inflation. 

In 

Graph 1.5: 

Breakdown of unit labour cost rate of change 

Source: European Commission, 2018 autumn forecast 

in 

the  upcoming  years, 

Wage  growth  is  expected  to  gradually  pick  up 
as labour market slack decreases. Nominal wage 
expanded  at  a  moderate  pace  between  2013  and 
2016  and  accelerated  in  2017.  It  is  set  to  further 
accelerate 
albeit 
moderately, in line  with  higher inflation. Nominal 
compensation per employee should broadly follow 
the  same  pattern  and  grow  by  2.3  %  in  2018.  It 
would 
from  wages 
evolution  in  2019  due  an  accounting  artefact (11), 
growing  at  0.4 %,  before  resuming  an  annual 
growth  rate  of  2.2 %  in  2020.  Minimum  wage 

exceptionally  decouple 

(10)  Except in 2019, see next paragraph and footnote (11). 
(11)  The  government  has  decided  to  replace  the  tax  credit  for 
competitiveness  and  employment  (CICE),  recorded  as  a 
subsidy, by a direct reduction in employers’ social security 
contributions  as  of  2019.  The 
labour  cost  should 
nevertheless remain broadly unchanged on aggregate. 

international 

The  net 
investment  position 
remains  negative  and  deteriorated  in  2017. 
Government  bonds  account  for  most  of 
the 
investment  position 
international 
negative  net 
(almost  -50 %  of  GDP),  while  other  financial 
institutions  (6)  show  a  strong  positive  position 
(more  than  50 %  of  GDP).  The  net  international 
investment  position  went  from  around  -15 %  to  -
20 % of GDP between 2016 and 2017, mostly due 
to valuation effects (7). Therefore, it remains below 
the  value  that  could  be  expected  based  on  the 
fundamentals  (around  9 %  of  GDP)  but  is  not 
raising  prudential  concerns  (8).  At  the  same  time, 
and  excluding  valuation  effects, 
the  current 
account outcomes described above seem sufficient 
to  stabilise 
investment 
position  at  its  current  levels.  Yet,  they  seem 
insufficient to bring it to its fundamentals, notably 
to halve the gap to fundamental in a decade. 

international 

the  net 

Competitiveness 

Export  market  shares  increased  over  the  five 
years to 2017 but decreased in 2017 on a year-
on-year  basis.  In  recent  years,  France  has 
benefited  from  a  more  favourable  geographical 
positioning: imports from its main trading partners 
grew  faster  than  the  world  average.  Nevertheless, 
despite a pick-up in export growth, France’s export 
market  shares  deteriorated  by  3.2 %  in  2017  on  a 
year-on-year  basis (9) 
in  volumes). 
Regarding 
France 
good 
underperformed  in  2017  and  lost  export  market 
shares  in  sectors  other  than  chemical  products 
sector  and  vehicles,  aircraft  and  vessels  sector.  In 
addition,  cyclical  conditions  weighed  on  export 
market  shares  of  goods  within  EU,  especially  in 
the vehicles, aircraft and vessels sector.  

sectors, 

(-0.8 % 

the 

(6)  Institutions  other 

than  government,  private 

sector, 
‘monetary and financial institutions’ and central banks. For 
example,  mutual  funds,  insurance  companies  or  pension 
funds.  

(7)  The value  of  French assets owned by  foreigners increased 
in relation to the external assets owned by French residents.  
(8)  The  net  international  investment  position  level  explained 
by fundamentals represents the net international investment 
position  that  would  result  if  a  country  had  run  its  current 
account in line with fundamentals since 1995. The country-
specific  prudential  threshold  denotes  the  net  international 
investment  position  level  beyond  which  an  external  crisis 
becomes likely (see Turrini and Zeugner, 2019).  

(9)  Among the highest deteriorations in value observed in the 

euro area in 2017. 

11 

-3-2-101234503040506070809101112131415161718(f)19(f)20(f)Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in EU28 
                                                           
 
                                                           
1. Economic situation and outlook 

overall  position  in  relation  to  other  countries  is 
rather  stable.  Nonetheless, 
the  country  ranks 
consistently behind Japan, Germany, the US, Italy, 
and has been recently surpassed by China. 

Focusing  on  the  most  economically  significant 
export sectors for France, quality is often lower 
than  that  of  its  main  competitors. The  5  largest 
sectors  (each  representing  more  than  5 %  of 
French  export  revenues),  namely  aeronautics, 
mechanical  machinery,  motor  vehicles,  electrical 
equipment,  and  pharmaceuticals  together  account 
for  about  46.7 %  of  total  French  exports.  In  these 
key economic sectors, France outperforms its main 
competitors  only  in  aeronautics  in  which  it  ranks 
second. In the other key sectors, France’s position 
in quality index of exports reaches between the 6th 
and  10th  rank  (among  the  39  countries  under 
review) (see Table 1.1), while its main competitors 
rank first, namely Germany and the US, as well as 
the  case  of  pharmaceuticals. 
Switzerland 
Moreover,  the  quality  index  of  French  exports  in 
these  sectors 
time,  more 
is  declining  over 
strikingly in the case of pharmaceuticals and  with 
the exception of motor vehicles that remain stable. 
France’s 
is  also 
deteriorating  over  time  due  to  some  competitors’ 
improving their performance. 

ranking 

sectors 

these 

in 

in 

Table 1.1: 

Non-cost competitiveness of the largest export 
sectors for France 

Source: BACI 2016 and European Commission 

Traditional  French  specialisation  products  and 
specific high-tech niches continue nonetheless to 
be  of  very  high  quality.  France  specialises  in  6 
sectors  (14):  (i)  aeronautics,  (ii)  beverages,  (iii) 
cosmetics, (iv) dairy products, (v) leathercraft and 
(vi)  cereals.  Except  for  cereals,  the  country  ranks 
in the top 4 for the quality index of exports in these 
sectors  that  represent  22.5 %  of  French  export 
revenues (only 10.9 % if aeronautics is excluded). 
Specifically,  in  the  aeronautics  and  cosmetics 

(14)  Sectors  where  the  part  in  revenue  for  France  is  at  least 

twice the world’s average. 

increases  and  real  wage  growth  are  expected  to 
remain moderate. 

capital 

extent,  by 

is  mostly  explained  by 

Labour  productivity  growth  increased  in  2017 
but  is  set  to  remain  below  pre-crisis  trend.  
Labour productivity rose steadily, by around 1.3 % 
per  year  on  average,  between  1990  and  2007  and 
slowed  down  to  0.9 %  between  2010  and  2016. 
The  contribution  of 
industrial  branches 
the 
accounts for almost 90 % of the slowdown in post-
crisis  labour  productivity.  In  industrial  branches, 
this  decrease 
the 
deceleration  of  total  factor  productivity  and,  to  a 
lesser 
intensity. 
lower 
Construction and market services contributed only 
marginally  to  the  overall  post-crisis  slowdown  in 
labour productivity (Insee, 2018c). A less efficient 
allocation  of 
labour 
productivity  growth 
in  market  services  (see 
Section 4.4). It was nevertheless compensated by a 
higher  contribution  of  total  factor  productivity 
(Insee, 2018c). The increase in self-employed jobs 
in low pay sectors following the crisis (see Section 
4.3) might also have contributed to the decrease in 
labour  productivity  in  market  services.  Labour 
productivity  picked  up  to  1.1 %  in  2017,  as 
economic  activity  remained  buoyant  during  the 
whole  year,  while  job  creation  progressed  in  the 
second part of 2017. Labour productivity growth is 
set  to  slightly  decrease  in  the  future  and  remain 
below its pre-crisis level.  

capital  weighed  on 

ranks  6th  among  39  advanced 
France 
economies  for  the  overall  quality  of  exported 
goods  in  2016  (12).  An  in-house  study  to  assess 
non-cost  components  of  exports 
(‘quality’), 
comparable  to  the  strategy  applied  by  Bas  et  al. 
(2015)  (13),  confirmed  that  French  exports  are 
globally  of  good  quality.  France  ranks  above 
average  in  almost  every  aggregated  sector  (as 
defined  by  the  Harmonised  System  at  2-digit 
level),  giving  it  a  solid  top  10  position  in  export 
quality  in  70 %  of  these  sectors.  Although  the 
global  quality 
in 
absolute  value  between  2003  and  2016,  France’s 

index  deteriorates  slightly 

(12)  EU,  other  Organisation  for  Economic  Co-operation  and 
for 

Development  countries  and  China 
Luxembourg). 

(no  data 

(13)  Evaluation  of  export  products’  quality  at  Harmonized 
System  6-digit  level,  using  bilateral  flows  data  from    the 
databases  BACI  and  Trade  Unit  Values    (Centre  d’études 
prospectives  et  d'informations  internationales)  from  2003 
to 2016.  

12 

20032016Machinery3.011.50.650.568DEAeronautics21.511.50.710.792USMotor vehicles3.710.20.520.536DEElectrical equipment1.67.20.880.826DEPharmaceuticals6.16.30.420.2910CHPlastics3.53.80.310.2212USBeverages16.63.60.400.753USCosmetics15.63.50.890.794US1stSectorWorld market share (%)Part in total French exports (%)Non-cost competitiveness indexRank 
                                                           
 
 
 
                                                           
1. Economic situation and outlook 

strong  potential  demand  in  Europe,  the  Middle 
East  and  Asia.  There  is  also  a  strong  worldwide 
potential  demand  for  French  cosmetics  and 
beverages  (with  40 %  and  42 %  of  export 
potential).  Nevertheless, 
largest  potentials 
could be in pharmaceuticals (61 %) and chemicals 
(39 %).  The  automotive  (36 %)  and  machinery 
(31 %)  sectors  could  also  generate  additional 
exports  by  focusing  on  the  dynamic  markets  of 
North  America,  China,  and  India;  given  that  the 
European  market  has  reached  full  potential  for 
these French products. 

the 

of 

small 

French  exports  are  concentrated  in  a  limited 
number  of  firms.  Exporting  firms  in  France  are 
mostly large or intermediate-sized firms, while the 
and  medium-sized 
contribution 
enterprises to export is particularly low in France. 
Only  15 %  of  French  small  and  medium-sized 
enterprises  export  against  an  average  of  29 %  in 
the  5  largest  EU  Member  States (Bpifrance  et  al., 
2018). When asked about the main export barriers 
(European  Commission,  2015),  French  small  and 
medium-sized  enterprises  primarily  consider  that 
the  financial  investment  is  too  heavy  and  the 
administrative  procedures  too  complex  (61 %  and 
61  %  of  French  small  and  medium-sized 
enterprises against 37 % and 32 % of EU small and 
respectively). 
enterprises 
medium-sized 
Representatives  of 
small  and  medium-sized 
enterprises  also  point  to  the  difficulty  of  finding 
staff  with  the  suitable  skills,  including  foreign 
languages, to develop exports. Measures have been 
adopted to increase the number of exporting firms 
in  France. 
the  French 
In  February  2018, 
government  presented  a  plan  to  improve  the 
efficiency of policy schemes to support exports. It 
intends  to  do  so  by  disseminating  export  culture 
among  small  and  medium-sized  enterprises, 
streamlining public support schemes for export and 
reforming financing for export. 

Private debt 

The level of private debt has steadily increased 
since  1998,  reaching  148.2 %  of  GDP  in  2017. 
Both  the  debt  of  households  and  non-financial 
corporations  has  continued  to  grow  somewhat 
rapidly 
the  crisis  and  until  now 
(European  Commission,  2018c).  By  contrast,  in 
the  rest  of  the  euro  area,  private  debt  has  been 
falling  since  2009.  While  households’  debt  was 
slightly  above  the  euro  area  average,  the  debt  of 

throughout 

sectors,  France  ranks  2nd  and  4th  in  terms  of  the 
quality of exports. Both sectors are also associated 
to  a  high  trade  performance  as  France  claims 
21.5 %  and  16.6 %  of  the  world  market  share, 
respectively. At the product level, France ranks 1st 
for  the  quality  of  its  perfumes  and  make-up 
products. The beverages sector, where France is by 
far the world’s leading exporter (17 % of the world 
exports),  also  shows  a  good  quality  performance 
overall (France ranks 3rd behind the US and Italy), 
with  an  outstanding  1st  position  for  wines  and 
mineral  waters.  In  addition,  France  ranks  1st  in 
other  highly  specialised  sub-sectors  such  as 
cheese,  musical  instruments,  rail  locomotives, 
wagons, high-thrust turbojets, nuclear reactors and 
luxury  leather  articles.  These  French  specialist 
products  are  notably  associated  to  a  low  price 
elasticity,  which  makes  them  strong  stands  of 
French exports. 

Graph 1.6: 

French export potential by sectors 

Source: International Trade Centre 

sectors 

(see  Graph 

Untapped  export  potential  remains  in  French 
1.6). 
specialisation 
Methodologies  assessing  export  potential  (15) 
reveal  that  France  could  still  exploit  an  untapped 
export  potential  in  several  specialisation  sectors. 
According to International Trade  Centre estimates 
(16),  of  the  total  export  potential  in  aeronautics 
from  France,  25 %  is  still  to  be  exploited  with  a 

(15)  Export  potentials  calculated  by  the  International  Trade 
Centre  are  evaluated  using  a  gravity-type  model  based  on 
the  exporter’s  supply,  the  market’s  demand  and  market 
access parameters. See Decreux and Spies (2016). 

(16)  https://exportpotential.intracen.org 

13 

0102030405060708090Exports (bn USD)PotentialRealised (2014-16) 
 
                                                           
1. Economic situation and outlook 

consequence  of  the  possible  monetary  policy 
normalisation.  However,  the  stock  of  credits  is 
mostly  signed  with  fixed  interest  rates,  which 
should  limit  the  impact  of  a  potential  rise  in 
interest rates (see Section 4.2). 

Graph 1.7:  Non-financial corporations' debt and 

benchmarks 

Source: European Commission 

to 
France 

time,  according 
indicators, 

Still, households’ private debt mostly consists in 
mortgage  credits  and  the  evolution  of  the 
housing  market  should  be  closely  monitored. 
The growth of the mortgage stock was particularly 
rapid  (above  5%  over  the  previous  year)  in  2017 
(European  Commission,  2018c).  As  regards  the 
cycle  of  investment  in  houses  in  volume,  the  gap 
compared  to  trend  turns  positive  in  2017  and  the 
first  three  quarters  of  2018,  recovering  from  a 
trough in 2015 (Bricongne and Pontuch, 2017). At 
the  European 
the  same 
Commission’s 
presents 
convergent  signs  of  overvaluation  of  house  prices 
since 2005 (see Graph 1.8). Overvaluation gaps are 
on  a  downward  trend  since  2011  but  slightly 
increased in 2017. Indeed, real house prices started 
to  rise  again  in  2016  after  4  years  of  decline. 
Overall,  according to the European Commission’s 
indicators,  the  house  price  gap  signals  a  potential 
overvaluation  of  around  10 %  in  France  in  2017 
(see  Graph  1.8).  However,  other  analysis 
integrating  the  evolution  of  mortgage  rates  reach 
the  opposite  conclusion  of  no  overvaluation 
(Lalliard,  2017).  Heterogeneous  developments  in 
house  prices  can  be  observed  across  cities  and 
property  types,  pointing  to  the  need  to  monitor 
house  prices  at  a  regional  level.  Like  in  other 
European countries, real house prices in the capital 

French  non-financial  corporations  exceeded  the 
euro area average by 10 pps in 2017. 

in  a  context  of  very 

increasing  debt 
Non-financial  corporations’ 
signals  deleveraging  needs  and  could  become  a 
potential  source  of  concern,  should  the  non-
adjustment persist. France is among the countries 
with  a  positive  debt  gap  and  not  adjusting 
(European  Commission,  2018c).  Credit  growth 
further  accelerated  in  2017,  outpacing  nominal 
GDP 
loose  monetary 
conditions.  At  89.7 %  of  GDP  in  2017,  non-
than 
financial  corporations’  debt  stood  more 
17 pps  above  what  fundamentals  would  suggest 
and above a level that justifies prudential concerns 
(see  Graph 1.7)  (17).  The  additional  increases  in 
indebtedness of recent years have also been above 
what  fundamentals  would  predict  for  that  extra 
borrowing.  However,  non-financial  corporations’ 
interest  payments  compared  to  value  added  are  at 
their  lowest  in  decades,  even  if  they  remain  well 
above  the  euro  area  ratio.  Risks  tend  also  to  be 
mitigated  by  the  fact  that  the  proportion  of  short-
term debt over total debt (18) has decreased slowly 
but  constantly  since  the  start  of  the  crisis,  from 
34.3 %  in  2007  to  29.4 %  in  2017.  The  High 
Council  for  Financial  Stability  (‘Haut  Conseil  de 
stabilité  financière’)  is  monitoring  the  situation 
and introduced two new macroprudential measures 
given  the  sustained  growth  in  private  debt  (see 
Section 4.2). 

has 

households’ 

debt-to-GDP 

Increasing households’ debt does not seem to be 
a  source  of  concern  in  the  near  future.  Since 
1998, 
kept 
increasing,  uninterrupted  by  the  crisis.  The  net 
borrowing flows of recent years have often been in 
excess  of  what  would  be  warranted  by  those 
fundamentals.  Nevertheless,  the  current  debt  level 
(58.6 %  of  GDP)  seems  aligned  with  what 
fundamentals would suggest. Interest payments are 
also  at  a  low  level  and  in  line  with  the  euro  area 
levels  but  they  could  increase  in  the  future  as  a 

(17)  Synthetic  debt  gaps  have  been  defined  as  the  distance  to 
the  prudential  benchmark.  Prudential  thresholds  represent 
the  debt  threshold  beyond  which  the  probability  of  a 
banking crisis is relatively high, minimising the probability 
of missed crisis and that of false alerts. Fundamental-based 
benchmarks  are  derived  from  regressions  capturing  the 
main determinants of credit growth and taking into account 
a  given  initial  stock  of  debt.  See  European  Commission 
(2017) and (2018d). 

(18)  Defined as short-term loan and securities other than shares; 

source: European Commission based on Eurostat. 

14 

0102030405060708090100959799010305070911131517%GDPNFC debt, consolidated, unadjusted,  % of GDPFundamentals-based benchmark for consolidated unadjustedNFC debt, %GDPPrudential benchmark for consolidated NFC debt, %GDP 
                                                           
 
have  tended  to  grow  faster  than  prices  at  the 
national level in recent years (ECB, 2017a, Box 3). 
For  houses,  cities  such  as  Marseille,  Lyon, 
Toulouse, Bordeaux and Montpellier seem to have 
higher  price-to-income  ratios  and  lower  rental 
yields  than  the  country  as  a  whole  in  2017.  For 
apartments,  Paris,  Bordeaux  and  Strasbourg  have 
the lowest rental yields (Durre, 2018).  

Graph 1.8:  Housing —- Valuation gaps 

1. Economic situation and outlook 

factor  in  the  effects  of  the  measures  approved  at 
the  end  of  2018.  These  should  have  no  material 
impact  on  the  projected  change  in  the  structural 
balance for 2020.  

Some reduction in the general government debt 
is  envisaged  by  the  end  of  2020.  After  the 
reclassification  of  one  division  of  the  French 
National  Railway  Company  (‘SNCF  Réseau’) 
under  the  general  government  as  of  2016,  the 
public  debt-to-GDP  ratio  reached  98.5 %  of  GDP 
in  2017,  compared  with  88.9 %  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  will  only  start  to  decline  in  2020  by 
limited 
around  1 %  of  GDP.  The  projected 
progress  in  public  debt  reduction  by  the  end  of 
2020  is  mainly  due  to  the  persistently  high 
structural  deficits  and  the  lack  of  fiscal  effort. 
However, sovereign yields remain very low thanks 
to  the  accommodative  monetary  policy  of  the 
European Central Bank. 

(1) Long-term values are computed over 1995-2016 
Source: European Commission 

Social developments 

Public finances 

The  deficit fell below 3 % of GDP in 2017, but 
no  improvement  in  the  structural  deficit  is 
envisaged  in  the  short  term.  According  to  the 
Commission  2018  autumn  forecast,  the  general 
government deficit is expected to stand at 2.6 % of 
GDP  in  2018,  due  to  the  envisaged  lack  of  fiscal 
effort  and  the  downward  revision  to  growth 
projections. It is set to increase to 2.8 % of GDP in 
2019  as  a  result  of  the  one-off  deficit-increasing 
impact of 0.9 % of GDP of the replacement of the 
tax  credit  for  employment  and  competitiveness 
(Crédit d’Impôt pour la Compétitivité et l’Emploi, 
CICE)  by  a  permanent  cut  in  social  security 
contributions,  without  which  the  deficit  would  be 
1.9 %  of  GDP.  However,  the  measures  approved 
by the end of 2018 imply by themselves an upward 
revision of the deficit by around 0.3 % of GDP and 
a negative fiscal effort in 2019, which compares to 
the  initially  projected  improvement  by  0.2 %  of 
GDP  at  the  time  of  the  autumn  forecast.  At 
unchanged  policies,  the  deficit  was  projected  to 
decline  to  1.7 %  of  GDP  in  2020,  with  almost  no 
structural  improvement.  This  forecast  did  not 

Social  indicators  are  relatively  good  overall  in 
comparison  to  the  rest  of  the  EU  (see  Section 
4.3).  In  2017,  the  share  of  people  at-risk-of-
poverty  or  social  exclusion  reached  a  historical 
low at 17.1 %, significantly below the EU average 
of  22.4 %.  The  impact  of  social  transfers,  in 
particular tax and benefits, on poverty reduction is 
one  of  the  highest  in  the  EU.  However,  between 
2016  and  2017,  the  rate  of  severe  material 
deprivation  of  people  at  risk  of  poverty  increased 
from  19.1 %  to  20.3 %  (EU  level  2017  at  23 %). 
Moreover, some groups face additional difficulties. 
For 
instance,  single  parents  with  dependent 
children, often women, face a 32.6 % poverty rate 
in  2017  (versus  35.2  % 
in  2016).  Income 
inequality remained slightly below the EU average 
but well above pre-crisis levels with the Gini index 
at 29.3 % in 2017 and the S20/S80 ratio at 4.4. 

in 

educational 
Socio-economic  disparities 
outcomes remain strong (see Section 4.3). Inter-
generational  social  mobility  is  hampered  by  the 
strong  influence  of  socio-economic  and  family 
background on educational outcomes. Educational 
outcomes  are  even  less  favourable  for  non-EU 
born  pupils,  in  spite  of  slight  improvements  in 
recent years.  

15 

-40-30-20-100102030979899000102030405060708091011121314151617% deviation of current priceModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap 
 
 
1. Economic situation and outlook 

to 

Hauts-de-France,  Occitanie,  Auvergne-Rhône-
Alpes and Grand Est (Antunez and al., 2017). Big 
agglomerations  concentrate  a  large  part  of  the 
growth  but  face  higher  prices,  which  exacerbate 
inequalities,  especially  in  the  city  centre.  This 
contributes 
the  persistence  of  pockets  of 
poverty.  Particular  challenges  affect  the  urban 
structure of small and medium-sized towns, which 
have  been  the  backbone  of  a  balanced  territorial 
development.  As  employment  now 
to 
concentrate 
the 
population  ages,  urban  centres  of  small  and 
medium-sized  towns  chiefly  located  in  an  arch 
covering the North, East and Centre of France  are 
experiencing  reduced  economic  activity  (small 
businesses  and  shops  closures)  and  depopulation 
(increasing rates of housing vacancies). 

tends 
the  major  cities  and  as 

in 

In the outermost regions, several vulnerabilities 
persist,  despite  some  convergence  in  terms  of 
GDP  per  head  in  Martinique,  La  Réunion  and 
Mayotte.  Nearly  one  quarter  of 
the  active 
population  is  unemployed.  Unemployment  is  the 
highest  among  the  young  population,  which  also 
difficulties. 
faces 
Deteriorated  living  conditions,  high  number  of 
occupants  per  dwelling  and  poorer  health 
outcomes  are  characteristic  of 
the  outermost 
regions. 

integration 

particular 

Regional disparities 

Socio-economic regional disparities between the 
capital  region  and  the  rest  of  the  country  have 
widened  over  the  past  decade.  In  terms  of  GDP 
per head French regions are quite heterogeneous in 
level  compared  to  the  EU  average,  the  capital 
region  being  the  leader  (see  Graph  1.9).  In  2016, 
the GDP per head ranges from 175 % in the capital 
region to 76 % in Languedoc-Roussillon. Only two 
regions 
(Ile-de-France  and  Auvergne-Rhône-
Alpes)  stand  above  the  EU  average.  Over  the 
Ile-de-France, 
period  2007-2016,  except 
Corsica  and  some  outermost  regions,  all  regions 
have seen their GDP per head decline significantly 
compared  to  the  EU  average.  Employment,  R&D 
investment  rate  and  innovation  performances  are 
also  quite  heterogeneous  among  regions  (see 
Section  4.4).  Nevertheless,  thanks  to  resilient 
investment, 
labour  productivity  remains  15 % 
above the EU average. 

for 

Graph 1.9:  Change in GDP per head (percentage points), 

France 2007-2016 – Regional convergence 

(1) EU real GDP per head growth = 3.4 %. The values below 
the name of the regions are the values of the GDP per head 
of the regions relatively to the EU in 2007 and 2016. 
Depending on the date of statistical data, the names of the 
regions are still the ones existing in the former administrative 
organisation of the country. 

Source: Eurostat, European Commission own calculations. 

sub-regional 

show 
level, 
At 
contrasting  situations  and  face  new  challenges. 
Socio-economic  disparities  at  sub-regional  level 
remain  a  concern  in  new  French  regions  such  as 

territories 

16 

 
 
 
1. Economic situation and outlook 

Table 1.2: 

Key economic and financial indicators 

(1) NIIP excluding direct investment and portfolio equity shares         
(2) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches.         
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation. 
Source: Eurostat and ECB as of 25-1-2019, where available; European Commission for forecast figures (Winter forecast 2019 for 
real GDP and HICP, Autumn forecast 2018 otherwise). 

17 

2004-072008-122013-1520162017201820192020Real GDP (y-o-y)2.30.40.91.22.21.51.31.5Potential growth (y-o-y)1.81.11.01.11.21.21.21.3Private consumption (y-o-y)2.30.60.92.11.0...Public consumption (y-o-y)1.71.51.31.41.3...Gross fixed capital formation (y-o-y)3.9-0.90.12.84.5...Exports of goods and services (y-o-y)4.51.23.31.54.5...Imports of goods and services (y-o-y) 6.01.24.43.04.0...Contribution to GDP growth:Domestic demand (y-o-y)2.50.50.82.11.8...Inventories (y-o-y)0.2-0.10.4-0.40.2...Net exports (y-o-y)-0.40.0-0.4-0.50.1...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.50.30.20.30.30.20.20.3Capital accumulation (y-o-y)0.80.60.40.50.50.50.60.6Total factor productivity (y-o-y)0.60.30.30.30.40.40.40.5Output gap2.0-0.8-1.5-1.3-0.30.10.50.8Unemployment rate8.79.010.310.19.49.08.88.4GDP deflator (y-o-y)2.11.10.80.20.70.91.41.5Harmonised index of consumer prices (HICP, y-o-y)1.91.90.60.31.22.11.41.7Nominal compensation per employee (y-o-y)2.92.41.30.81.92.30.42.2Labour productivity (real, person employed, y-o-y)1.50.20.60.51.1...Unit labour costs (ULC, whole economy, y-o-y)1.52.00.70.40.61.2-0.61.4Real unit labour costs (y-o-y)-0.50.9-0.10.20.00.2-1.9-0.1Real effective exchange rate (ULC, y-o-y)0.8-0.4-0.20.01.21.2-3.4-0.7Real effective exchange rate (HICP, y-o-y)0.0-1.2-0.91.40.62.6-1.4-0.7Savings rate of households (net saving as percentage of net disposable income)9.210.08.68.28.5...Private credit flow, consolidated (% of GDP)8.65.63.37.07.0...Private sector debt, consolidated (% of GDP)110.9131.7140.6146.6148.2...of which household debt, consolidated (% of GDP)42.953.055.857.258.6...of which non-financial corporate debt, consolidated (% of GDP)68.078.884.889.589.7...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)2.64.23.93.22.8...Corporations, net lending (+) or net borrowing (-) (% of GDP)0.90.90.00.1-0.5-0.5-0.2-1.1Corporations, gross operating surplus (% of GDP)18.017.417.317.617.417.117.716.9Households, net lending (+) or net borrowing (-) (% of GDP)2.33.73.02.62.62.62.42.3Deflated house price index (y-o-y)9.8-0.3-2.01.11.8...Residential investment (% of GDP)6.36.46.06.06.2...Current account balance (% of GDP), balance of payments0.2-0.7-0.6-0.8-0.6-0.5-0.6-0.4Trade balance (% of GDP), balance of payments0.1-1.3-0.6-0.8-0.9...Terms of trade of goods and services (y-o-y)-0.7-0.41.90.7-1.3-1.3-0.20.3Capital account balance (% of GDP)0.00.00.00.10.0...Net international investment position (% of GDP)-4.8-11.9-15.0-14.9-20.1...NIIP excluding non-defaultable instruments (% of GDP) (1)-6.7-23.8-29.2-31.4-33.5...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)175.3239.1237.4242.6232.5...Export performance vs. advanced countries (% change over 5 years)-4.3-8.4-6.5-6.0-1.9...Export market share, goods and services (y-o-y)..1.22.4-3.2...Net FDI flows (% of GDP)1.71.50.51.10.3...General government balance (% of GDP)-3.0-5.5-3.9-3.5-2.7-2.6-2.8-1.7Structural budget balance (% of GDP)..-3.0-2.7-2.4-2.5-2.3-2.2General government gross debt (% of GDP)65.683.194.698.298.598.798.597.2Tax-to-GDP ratio (%) (3)44.644.947.647.748.448.247.447.2Tax rate for a single person earning the average wage (%)28.627.928.629.1....Tax rate for a single person earning 50% of the average wage (%)18.418.820.218.4....forecast 
 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

69 % 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  addressed  to  France  have 
recorded  at  least  ‘some  progress”  (19).  31 %  of 
these  CSRs  recorded  ‘limited’  or  ‘no  progress’ 
(see  Graph  2.1).  Looking  at  the  multiannual 
assessment  of  the  implementation  of  the  CSRs 
since these were first adopted, major reforms have 
been adopted in the field of taxation, as well as to 
improve  the  functioning  of  the  labour  market  and 
the business environment. 

Graph 2.1:  Overall multiannual implementation of 2011-

2018 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 

Despite  significant  efforts  to  consolidate  public 
finances,  the  level  of  public  expenditure  has 
remained  very  high  and  broadly 
stable 
compared to both the euro area and the EU as a 
whole. In 2017 France maintained the highest ratio 
of government expenditure in the  EU at 56.5% of 
GDP,  which is 9.4 pps higher than the average in 
the  euro  area  (47.0  %  of  GDP)  (20).  Such 
divergence increased by 2.4 pps between 2011 and 
2017  as  the  French  ratio  slightly  increased  by  0.2 
pps  over  the  period,  while  resolute  expenditure-
based  fiscal  consolidation  action  by  the  other  EU 
Member States brought the aggregate ratio for the 

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

past, see in particular section 4. 

(20)  France  is  also  projected  to  keep  this  position  up  to  2020, 
over the forecast horizon of the Commission 2018 autumn 
forecast,  although  with  a  reducing  gap  compared  to  the 
average for the euro area and for the EU as a whole. 

euro area down by 2.2 pps (21). Concrete measures 
under  the  new  spending  review  (Action  Publique 
2022) still need to be fully identified and defined, 
while  their  quantification  and  monitoring  will  be 
essential  to  ensure  that  the  objectives  in  terms  of 
public expenditure reduction can be met. 

items,  except 

intermediate 
All  expenditure 
consumption  and  interest  payments,  contribute 
to  increasing  the  expenditure-to-GDP  ratio  in 
France vis-à-vis the euro area. The difference is 
particularly  significant  for  items  such  as  social 
payments,  compensation  of  employees  and 
subsidies, with a ratio-to-GDP in 2017 higher than 
the  euro  area  average  by  3.0  pps,  2.8  pps  and 
to  other  EU 
1.1 pps.  In  addition,  compared 
Member  States,  France  has  been  characterised  in 
the past by a low selectivity in the evolution of its 
public  expenditure  items (22).  This  suggests  the 
need  for  more  prioritisation  while  seeking  to 
increase  public  expenditure’s  efficiency 
(see 
Section 4.1).   

In  the  field  of  taxation,  a  series  of  measures 
have  been  implemented  to  reduce  the  cost  of 
labour.  Reductions  in  employer's  social  security 
contributions were firstly focused on salaries close 
to the minimum wage level. Over time, magnitude 
and  exit  threshold  of  the  exemptions  in  social 
security  contributions  were  increased  to  extend 
labour  cost  reductions  to  exporting  firms  and 
therefore  boost  competitiveness.  The  adoption  in 
2013  of  the  tax  credit  for  competitiveness  and 
employment (CICE) tried to reflect this objective, 
permitting  substantial  tax  savings  on  the  payroll 
excluding  salaries  above  2.5  times  the  minimum 
wage.  Available  evaluations  (Ducoudré  and  Yol, 
2018,  Bozio  et  al.  2018,  INSEE  2018d)  on  its 
effects  point  to  an  impact  on  employment  whose 
size  varies  across  studies,  but  there  is  no  visible 
impact  on  investment  and  exports  yet  (L'Horty, 
Martin,  Mayer,  2019) (23).  The  effects  of  the 

(21)  Amongst  all  member  states  France  recorded  by  far  the 

lowest reduction over the period assessed. 

(22)  Overall, calculations based on latest available Eurostat data 
data  on  the  classification  of  government  expenditure  by 
function (COFOG) and the selectivity indicator by  Lorach 
and  Sode  (2015)  reveals  that  the  composition  of  France's 
public  expenditure  has  remained  broadly  unchanged  over 
the period 2001-2016.  

(23)  See  also  p.  16  of  the  Rapport  Economique  Social  et 
Financier  2019,  annexed  the  draft  budget  law  for  2019 
(https://www.tresor.economie.gouv.fr/Articles/2018/10/02/

18 

3%28%55%14%Full Implementation; 0%No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
 
 
                                                           
                                                           
2. Progress with country-specific recommendations 

in 

social 

transformation  of  the  CICE  into  a  permanent 
reduction 
security 
employers’ 
contributions,  as  of  1 January  2019,  are  also 
currently debated (Ducoudré and Heyer, 2018). As 
this  transformation  would  contribute  to  improve 
the  legibility  of  the  measure  by  firms,  it  may  be 
better  associated  with  a  reduction  in  the  cost  of 
labour,  thereby  leading  to  a  higher  impact  on 
employment  in  the  short  term.  Meanwhile,  its 
reinforcement  for lower  wages,  which is expected 
to  benefit  more  non-market  services  where  those 
salary  categories  are  concentrated,  could  translate 
on 
impact 
an 
into 
competitiveness, 
intermediate 
through 
consumption of exporting firms. 

positive 

indirect 

the 

system, 

reducing 

some  progress (24) 
2018 

in 
France  has  made 
addressing 
country-specific 
recommendations  (see  Table  2.1).  Substantial 
progress has been made in pursuing the reforms of 
the  vocational  education  and  training  system. 
Some  progress  has  been  made  in  simplifying  the 
tax 
and 
administrative  burden,  and  ensuring  minimum 
wage  developments  consistent  with  job  creation 
and  competitiveness.  Limited  progress  has  been 
made 
the 
innovation  system,  improving  access  and  equal 
opportunities  in  the  labour  market,  and  reforming 
the  pension  regime.  No  progress 
in  further 
developing and implementing Public Action 2022. 

the  performance  of 

increasing 

regulatory 

the 

in 

to 

improve 

social  dialogue 

the  vocational  and 

the 
taken 
Action  has  been 
functioning  of  the  labour  market  and  its  link 
training  system. 
with 
Collective  bargaining, 
and 
dismissal  procedures  have  been  revised  through  a 
series  of  reforms  of  the  labour  law  in  2016  and 
2017. Governance and financing of the  vocational 
education,  apprenticeship  and  training  systems 
have  been  modified  in  2018,  notably  to  increase 
employment  opportunities  of  young  and  low-
skilled  workers.  Integration  policies  for  newly 
arrived  migrants  have  started  to  be  strengthened, 
while measures aiming at improving opportunities 
for  people  with  a  migrant  background  are  in  an 
initial phase (see Section 4.3). 

simplify 

A  number  of  initiatives  have  been  launched  to 
improve  firms'  business  environment,  while 
room  for  improvement  remains  as  far  as 
competition  in  the  services  sector  and  public 
support  schemes  for  innovation  are  concerned. 
to 
Measures  undertaken  so  far  have  sought 
promote  entrepreneurship,  support  firms'  growth, 
and 
and 
complex 
administrative  requirements.  A  higher  degree  of 
competition  in  the  services  sector  would  help 
further 
the 
measures introduced by the 2015 Macron law and 
the  2018  railway  reform  (see  Section  4.4).  New 
innovation 
initiatives  supporting  research  and 
activities have also been launched, but there is still 
room  to  improve  the  efficiency  of  public  support 
schemes. 

its  performance,  beyond 

regulatory 

improve 

publication-du-rapport-economique-social-et-financier-plf-
pour-2019) 

(24)  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. 

19 

 
                                                                                   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Assessment of 2018 CSR implementation 

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

20 

France Overall assessment of progress with 2018 CSRs: Some  CSR 1: 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. (MIP relevant) Limited progress(1)  No progress in further developing and implementing Public Action 2022.  Limited progress in reforming the pension regime.  CSR 2: 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. (MIP relevant) Some progress   Substantial progress in pursuing the reforms of the vocational education and training system.  Limited progress in improving access and equal opportunities in the labour market.  Some progress in ensuring minimum wage developments consistent with job creation and competitiveness. CSR 3: 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 in particular by improving the efficiency of public support schemes and strengthening knowledge transfer between public research institutions and firms. (MIP relevant) Some progress  Some progress in simplifying the tax system.  Some progress in reducing the regulatory and administrative burden.  Limited progress in increasing the performance of the innovation system.   
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to 
fostering growth and competitiveness in France 

France is one of the largest beneficiaries of the European Structural and Investment Funds 
(ESI  Funds).  Financial  allocation  from  the  ESI  Funds,  aimed  to  support  France  in  facing 
development  challenges,  amounts  to  up  to  EUR 27  billion  in  the  current  Multiannual  financial 
framework,  equivalent  to  around  0.1 %  of  the  GDP  annually  or  around  2.9 %  of  all  public 
investment per year on average. As of the end of 2018, some EUR 15.6 billion (around 57 % of the 
total)  has  already  been  allocated  to  specific  projects.  Furthermore,  numerous  French  research 
institutions,  innovative  firms  and  individual  researchers  benefited  from  other  EU  funding 
instruments, notably Horizon 2020 which provided EUR 4.14 billion. 

EU  funding  has  helped  to  address  policy  challenges  identified  in  the  2018  CSRs.  EU  Funds 
supported closer collaboration between business and research institutions, and R&D  investments 
in  the  private  sector.  By  the  end  of  2018,  ESI  Funds  supported  3 171  enterprises  working  with 
Regional  Innovation  Strategies  and  317  million  private  match  investments  were  made.  17 383 
start-up enterprises were supported. France is the 4th largest country for participations (10 042) to 
Horizon 2020, covering a very broad thematic spectrum of areas, from energy to smart, green and 
integrated  transport.  Close  to  EUR  6.5  billion  from  the  European  Social  Fund  and  the  Youth 
Employment  Initiative  (23 %  of  the  ESIF  budget  in  France)  is  notably  used  to  improve 
employability of people furthest away from the labour market, in particular the young, and to help 
workers  adapt  to  change,  among  others  through  a  better  training  offer,  improved  access  to 
apprenticeship  or  active  inclusion  support.  By  the  end  of  2017,  over  2  million  participants  had 
benefitted  from  actions  financed  by  the  European  Social  Fund  and  the  Youth  Employment 
Initiative. 

EU  funding  contributes  to  mobilisation  of  private  investment.  ESI  Funds  alone  mobilise 
additional private capital by allocating about EUR 647 million in the form of loans, guarantees and 
equity. This is expected to leverage additional private investment amounting to EUR 1.7 billion. In 
addition, structural funds have allocated EUR 16 billion to projects in France. Altogether, 4.3 % of 
the ESI Funds allocation was paid in the form of financial instruments.  

Around EUR 5.5 billion (21 % of the overall budget) will be allocated to investments needed for 
supporting the shift to a low-carbon economy, including in energy efficiency, the development of 
renewable energies and clean urban transport. In addition, about EUR 3 billion will help France to 
prevent and mitigate the effects of climate change. 

EU actions strengthen national,  regional and local authorities and the civil society. EUR 20 
million  has  been  allocated  for  strengthening  the  capacity  of  public  administrations  at  different 
levels by prompting close cooperation with stakeholders. The pilot project on industrial transition 
seeks to improve socio-economic and technological transformation processes in 3 French regions 
in  particular  on  the  impact  of  new  technologies,  decarbonisation,  the  promotion  of  inclusive 
growth  and  the  adaptation  of  the  labour  forces  in  Hauts-de-France,  Centre-Val-de-Loire  and 
Grand-Est. 

The overall volume of approved operations by the European Investment Bank with EFSI backing 
amounts  to  EUR 11.6  billion,  which  is  set  to  trigger  a  total  of  EUR 60.6  billion  in  additional 
private  and  public  investments  (December  2018).  France  has  managed  to  mobilise  EFSI  on  its 
priorities  —  innovation,  digital,  energy  transition.  France  benefits  the  most  in  volume  from  the 
Fund, while it ranks 11th as to the overall volume of approved operations as a share of GDP. Three 
regions  (Ile-de-France,  Hauts-de-France  and  Grand-Est)  represent  more  than  half  of  the 
investments. For further details, see Box 4.4.1. 

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

21 

 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE MIP IN-

DEPTH REVIEW 

in-depth  review 

The  2019  Alert  Mechanism  Report  concluded 
should  be 
that  a  new 
undertaken for France to assess the persistence 
or  unwinding  of  the  imbalances  (European 
Commission, 2018d). In spring 2018, France was 
identified  as  having  macroeconomic  imbalances 
(European  Commission,  2018l).  The  imbalances 
identified  related  in  particular  to  high  public  debt 
and  weak  competitiveness  dynamics  in  a  context 
of 
low  productivity  growth.  This  chapter 
summarises  the  findings  of  the  analyses  in  the 
context 
imbalance 
the  macroeconomic 
procedure (MIP) in-depth review that is contained 
in various sections in this report (25)*.  

of 

Imbalances and their gravity 

improved 

The picture on the evolution of competitiveness 
of French exports is  mixed. The current account 
balance  slightly 
in  2017,  reaching 
−0.6 %  of  GDP  (against  −0.8 %  in  2016) (26).The 
net  international  investment  position  (NIIP)  went 
on deteriorating to around -20% of GDP mainly on 
account of valuation effects. At the same time, the 
export  market  share  deteriorated  in  2017.  As  for 
the  quality  of  exported  goods,  France  has 
maintained  the  highest  quality  in  its  sectors  of 
specialisation, while it remained lower than that of 
the  main  competitors  in  high-revenue  sectors 
(Section 1).  

low 

in  a  context  of 

Unit  labour  cost  increases  continue  to  be 
moderate, 
labour 
productivity  growth.  The  evolution  of  the  unit 
labour  cost  in  2017  was  contained  thanks  to  a 
moderation  of  wage  developments,  including  the 
minimum  wage.  However,  labour  productivity 
growth  remains  sluggish  and  it  is  set  to  remain 
below its pre-crisis trend between 2018 and 2020. 
Low  labour  productivity  growth  appears  to  be 
structural  and  partly  due  to  a  deceleration  in  total 
factor productivity (see Section 1). 

(25)  Analyses relevant for the in-depth review can be found in 
the  following  sections:  Public  finances  (Section  4.1); 
Financial  sector  (Sections  4.2);  Labour  market  (Section 
4.3); and Investment (Section 4.4). An * indicates the parts 
of Section 4 that are relevant for the in-depth review. 
(26)  The  INSEE's  rebasing  of  the  French  national  accounts  in 
May  2018  led  to  a  strong  revision  of  current  account 
figures, and narrow the differences between the balance of 
payment and the national account data. 

Public  debt  remains  at  a  high  level  combined 
with  low  potential  GDP  growth.  The  French 
debt-to-GDP  ratio  is  above  98 %  and  its  decrease 
planned  for  2018  has  been  postponed  by  at  least 
one  year  (see  Section  4.1).    High  public  debt 
reduces  fiscal  space  to  respond  to  future  negative 
macroeconomic 
shocks,  weighs  on  growth 
prospects, and is accompanied by a  higher tax-to-
GDP  ratio.  The  very  gradual  and  overall  limited 
recovery  in  potential  GDP  growth  (see  Section  1) 
heightens the challenges linked to high public debt 
and  decreases  the  room  to  reduce  French  public 
debt without a reinforced fiscal consolidation. The 
combination  of  high  public  and  private  debt 
corporations) 
non-financial 
of 
(especially 
represents  an  additional  risk, 
the 
potential vulnerability of the economy. 

increasing 

The  strong  economic  and  financial  integration 
of the French economy with the rest of the euro 
area  can  create  spillovers  for  several  other  EU 
Member States. France shows particularly  strong 
linkages  with  neighbouring  euro  area 
trade 
countries  (see  Table  3.1).  Financial  and  banking 
links  are  also  important.  Box  3.1  illustrates  how 
structural  reform  measures  in  France  can  carry 
both domestic and cross-border positive effects on 
GDP.  The  simulations  presented  therein  can  be 
considered 
the  euro  area 
the  context  of 
recommendations (27).  

in 

Evolution, prospects and policy responses 

A reform of the labour law and a revision of the 
vocational  education  and  training  system  have 
accompanied tax measures reducing the cost of 
labour. Reforms adopted and announced in 2018, 
aimed  to  address  the  challenges  faced  by  the 
vocational education and training systems, while a 
new reform of the unemployment benefit system is 
under  discussion  (see  Section  4.3). These  reforms 
follow  the  2016  and  2017  labour  market  reforms, 
which 
legislation 
framework  and  collective  bargaining  system, 
allowing  social  partners  to  negotiate  working 
conditions  better  fitting  the  sectors’  or  firms’ 
economic  situation.  A  new  type  of  collective 

employment 

revised 

the 

(27)  Commission 

Recommendation 

Council 
Recommendation on the economic policy of the euro area. 
COM(2018) 759 final 

for 

a 

22 

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

Table 3.1: 

Outward spill-over heat map for France 

(1) Cross-border figures for France, expressed as a % of the GDP of the partner country. The darkest shade of red corresponds 
to percentile 95 and the darkest shade of green to percentile 5. The percentiles were calculated for each variable based on 
the full available sample of bilateral exposures among EU countries. The blank spaces represent missing data. Data refer to: 
Imports - 2016, Imports (in value added) - 2014, Financial liabilities - 2015, Financial assets - 2015, Liabilities (to banks) - 2018-Q2, 
Bank Claims - 2018-Q2. 
Source: UN, OECD, WIOD, BIS and Commission services 

agreement  was  introduced  to  allow  companies  to 
adapt  wages,  working  time  and  mobility  to  meet 
their  operational  needs  or  develop  employment. 
The  first  effects  of  all  these  reforms  were  already 
visible  in  2018  and  are  expected  to  strengthen  in 
2019 (European Commission, 2019b).  

A  series  of  initiatives  have  been  undertaken  to 
improve  the  business  environment  and  R&D 
and  innovation  performance.  A  law  to  improve 
the  interactions  between  the  private  sector  and 
public  administration  was  adopted  in  July  2018 
(‘loi  pour  un  État  au  service  d'une  société  de 
confiance’). A draft law to support the growth and 
transformation  of  firms  (‘projet  de  loi  relatif  à  la 
croissance  et  la  transformation  des  entreprises’, 
the 
is  currently  being  debated 
PACTE) 
parliament.  This law aims at reducing the  number 
of  size-related  legal,  social  and  fiscal  thresholds 
that  hinder  business’  growth.  It  also  includes 
measures to better link R&D activities carried out 
by  the  public  sector  with  the  activities  of  the 
private sector (see Section 4.4). 

in 

Measures  to  decrease  public  expenditures  as 
planned  by  the  government  are  still  not 
sufficiently  defined.  In  2017,  the  government 
replaced previously existing spending reviews with 
Public  Action  2022  (‘Action  Publique  2022’),  a 
new  strategy  with  three  objectives,  namely  (i) 
increasing the quality of public services provided, 
the  working  environment  and 
(ii)  enhancing 
performance  of  public  officers, 
(iii) 
contributing  to  the  decrease  in  public  spending. 
However, the relative importance of each of these 
objectives  has  not  been  defined  and  actions  for 
reducing  public  spending  have  not  been  fully 
clarified  yet.  It  remains  to  be  seen  to  what  extent 
actions  planned  under  the  umbrella  of  Public 
Action  2022  will  translate  into  a  fully-fledged 
spending review, while the bulk of the adjustment 

and 

in terms of public spending tends to be left at  the 
end  of  the  government  mandate  when  electoral 
considerations  might  make  these  objectives  more 
difficult to be reached (see Section 4.1).  

Overall assessment 

Public  debt  remains  high  and  competitiveness 
dynamics  is  weak.  Export  market  share  losses 
observed  in  the  past  have  not  been  fully  regained 
yet.  Wage  increases  are  moderate  and  the  cost  of 
labour  is  reduced  by  fiscal  measures.  Low  labour 
productivity  growth,  however,  prevents  a  faster 
recovery  of  competitiveness.  General  government 
debt  continued  to  increase  slightly,  although  its 
maturity  structure  and  diversified  investor  base 
mitigate  risks  stemming  from  its  high  level. 
Coupled  with  high  and  increasing  private  debt, 
high public debt remains a source of concern and a 
potential source of vulnerability.  

reforms 

Reforms have gained momentum, but their full 
implementation  remains  crucial  and  further 
reforms  are  warranted.  Labour  market  reforms 
have  been  undertaken  and  are  currently  under 
to 
implementation.  Their  effects  are  starting 
materialise  and  are  expected  to  become  more 
prominent  over  time  (see  Section  4.3).  Some 
the  business 
additional 
regulatory 
environment, 
environment and increasing the competition in the 
services  sector,  have  been  adopted  (see  Section 
4.4). Other measures included in the French reform 
their  effect.  Notably, 
agenda  could  amplify 
meaningful  actions  continue  to  be  warranted  to 
ensure  the  timely  implementation  of  planned 
expenditure savings in order to put public debt on 
a steady downward trajectory. 

to 
simplifying 

improve 

the 

23 

ATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUKImports1.711.23.21.11.24.41.71.71.23.61.24.45.32.912.313.35.552.94.53.25.33.14.11.71.7Imports (in value added)1.34.81.70.91.82.01.41.21.02.31.42.61.82.01.11.36.41.92.31.72.51.82.11.62.91.41.7Financial liabilities9.754.44.31.518.15.410.82.91719.521.383.415.73.81.71288.734.655.159.10.41.95.112.34.628.9Financial assets14.771.85.86.211.82.410.41.514.010.02.63.264.025.71.21.9899.029.664.17.817.25.11.93.827.010.019.7Liabilities (to banks)2.13.10.93.70.51.139.42.34.226.7Bank claims346.98.41.110.818.73.30.33.24.40.71.412.615.10.20.6218.18.312.77.46.65.81.97.45.74.510.5EU partner 
 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Table 3.2: 

MIP Assessment Matrix (*) – France 2019 

(Continued on the next page) 

24 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risk) Competitiveness  Indicators for the external sector have broadly stabilised over the recent past. However, competitiveness, including in its non-cost dimension, remains an issue of concern notably in a context of low productivity growth and high indebtedness.  The NIIP of France was at -20% of GDP in 2017, a level that is still above the prudential threshold (35 %). Yet it worsened by 5 pps over a year on account of detrimental valuation effects. Moreover, it is still below the value suggested by macroeconomic fundamentals (at some 9 % of GDP). Small but continued current account deficits have been recorded in France for a number of years, coming at an average of -0.6 % in the three years to 2017. While those patterns are still sufficient to stabilise the NIIP, they are below the value required to bring the NIIP closer to the level warranted by its fundamentals over a 10-year horizon.  French products are often perceived as too pricy for the quality proposed in out-of-specialisation sectors. Notably, the non-cost components of exported French goods in high-revenue sectors (mechanical machinery, vehicles, electrical equipment, and pharmaceutical products) are weaker than its main competitors, leaving a margin for quality upgrade (Section 1). The current account is expected to remain around its 2017 level this before slightly improving in 2020 in line with the evolution of energy prices according to the COM autumn 2018 forecast.  Unit labour cost growth remained modest in some years up to 2017 (1.3% cumulated between 2015 and 2017) against a setting of wage moderation but also low labour productivity growth. Yet some acceleration in wages and unit labour cost took place in 2018 and some more is forecast for 2020. The French export market share declined in 2017 by one of the largest margins in the EU and the outlook is one for broadly stable shares in 2018-2020. Implemented measures to reduce the cost of labour are planned to be followed by the transformation of the tax credit on competitiveness and employment (CICE) into a permanent reduction in employers' social security contributions as of 2019. Additional reductions of employers' social security contributions for employees below 1.6 time the minimum wage are expected to take place in October 2019 (Section 4.1).  French authorities have also taken labour market reforms in 2016 and 2017, as well as measures to improve the business environment and firms' ability to grow and adapt more swiftly to a changing macroeconomic environment. Notably, the draft law PACTE (Plan d'action pour la croissance et la transformation des entreprises) aims to revise most important aspects regulating a firm's life. This draft law also enhances transfer of knowledge between public research and business companies. This could help to better diffuse public research results and fasten their commercialisation (Section 4.4). First effects of these reforms could be observed by the end of 2018, while they are expected to become more prominent over the medium-term. A reform of the vocational training and apprenticeship systems was adopted in summer 2018 to improve the link between training, labour market and firms' needs in terms of hiring (Section 4.3).   
 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Table (continued) 

(1)  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. 

25 

Public debt A high debt level – at 98.5% of GDP in 2017 – raises vulnerabilities for the economy as it reduces the fiscal space available to respond to future negative macroeconomic shocks. Over the medium term public debt is assessed to be highly sensitive to the evolution of interest rates and to GDP growth. Moreover high public debt weighs on growth prospects as, unless public expenditure is reduced, it will require a higher tax burden in the future. Low GDP growth will in turn hamper the room the economy will have to deal with risks to its macroeconomic stability. Debt management plays the role of a mitigating factor. Average maturity of total outstanding debt has been lengthened to almost 7.9 years, while the French debt investor base in terms of type of investors as well as geographically remains very diversified. The combination of high public and private debt, however, may constitute a source of risk, increasing the vulnerability of the economy, weighing on growth, and reducing the capacity to counter negative shocks. General government debt has steadily increased over the last decade. According to the Commission 2018 autumn forecast it was expected to peak at 98.7 % of GDP in 2018.  However, the measures approved by the government since mid-November 2018 will entail a higher deficit by around 0.4 pps. of GDP in 2019, which will put off any public debt reduction until 2020.   In spite of the high debt-to-GDP ratio, no sustainability challenges are witnessed in the short term. Yet, high sustainability risks remain in the medium-term based on a simulated debt trajectory at horizon 2033, mainly due to insufficient fiscal effort until then. Higher interest rates or lower-than-projected annual GDP growth over the medium term could potentially lead to significantly higher debt ratios over a 10-year timespan. France may face medium fiscal sustainability risk over the long-term as debt is projected to stabilise at relatively high levels, therefore increasing the exposure to future negative macroeconomic shocks. Furthermore, additional risks could arise under more adverse scenarios involving lower total factor productivity growth or more dynamic healthcare expenditures. The government plans to reduce public expenditure by more than 3 pps. of GDP over five years by 2022 while increasing its efficiency, along with a reduction of the public debt-to-GDP ratio by more than 5 pps. (see Section 4.1). However, the bulk of the structural adjustment on the expenditure side is back-loaded until the last years of the term, which entails additional risks associated with the electoral and economic cycle. The budgetary strategy of France implies risks as it largely relies on cyclical factors. The projected structural efforts over the five-year presidential term are insufficient to put debt on a steady reduction path. Moreover, the initially planned effort in the draft budgetary plan for 2019 will most likely not be delivered in view of the deficit-increasing measures announced at the end of 2018.  While the government has engaged in an ambitious plan for transforming the public administration (Public Action 2022) the quantification and timing of expected results in terms of efficiency gains and expenditure savings are yet unclear (see Section 4.1). 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 are starting to regain points. The current account slightly improved in 2017, while the NIIP worsened. Wage moderation continues, but it is coupled with low productivity growth preventing a faster improvement of cost competitiveness. A number of elements of the business environment weigh on the non-cost competitiveness, regulatory impediments continue to hamper firms' growth and the degree of competition in the services sector remains low. Although decreasing, the unemployment rate remains relatively high and the labour market continues to be segmented. In autumn 2018, the public debt-to GDP ratio was projected only to decrease as of 2019 with the plans at that time being for fiscal consolidation to be back-loaded.  Policy measures have been taken in recent years, in particular to reduce the labour cost, to reform the labour law and to improve the functioning of the vocational education and training system. The Plan d'action pour l'investissement et la croissance des entreprises (PACTE) has been announced to foster initiatives in the private sector in France and the resulting PACTE law is now under discussion in the Parliament. Despite an ambitious plan for transforming the public administration, the quantification and timing of expected results in terms of improvement of public spending efficiency and ultimately fiscal consolidation remain unclear. A number of deficit-increasing measures were adopted in late 2018. Reforms to revise further the unemployment benefit system and othe pension system are under discussion. The possibility to reform the minimum wage automatic indexation rule equally deserves further attention.   
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Box 3.1: Spillovers of structural reforms — the case of France 

Based  on  the  European  Commission’s  QUEST  model  (1),  this  box  shows  the  effect  of  the  full 
implementation  of  a  comprehensive  set  of  structural  reforms  on  French  GDP.  In  a  model  simulation 
exercise, the impact of the set of reforms is quantified in a harmonised way. This exercises  constitutes an 
update of Varga and in ’t Veld (2014), including data up to 2016 (2). For a large set of structural indicators, a 
benchmark  is  constructed  as  the  average  of  the  three  best  performing  countries.  Gaps  with  respect  to  this 
hypothetical benchmark are closed by half for all indicators together. For France the largest ‘reform gaps’ 
identified  are  in  the  tax  wedge  (as  captured  by  the  relative  share  of  labour  tax  revenues  compared  to 
consumption tax revenues) and lower labour force participation, in particular of low skilled and early retired. 
The  set  of  reforms  implemented  do not  exactly  correspond  to past  country-specific  recommendations, but 
illustrate  the  potential  impact  that  this  theoretical  package  of  structural  reforms  covering  different  areas 
(product  market  regulation  and  entry,  labour  market  participation,  taxation  structure  and  R&D  subsidies) 
could have  on  the  French  economy.  Altogether  and  assuming  no  budgetary  impact,  this  ambitious  reform 
package could boost GDP by 7 % after 10 years, rising to almost 13 % after 20 years.  

Structural reforms would also have a small but positive effect on the rest of the euro area. Spill-overs 
from structural (supply-side) reforms are generally found to be positive but limited. Indeed, the 2 dominant 
spillover  channels,  demand  and  competitiveness,  are  counterbalancing  each  other.  Contrary  to  positive 
demand shocks, for which the domestic demand effect and real appreciation complement each other in the 
impact on import demand, supply shocks trigger offsetting effects, i.e. more imports due to higher domestic 
demand and less (net) imports due to increasing competitiveness of the domestic economy. The model also 
accounts for international financial flows and knowledge spillovers. Increasing the rate of return on capital 
can  lead  to  capital  inflows  until  rates  of  return  are  equalised  internationally.  Exchange  rate  changes 
associated  with  international  capital  flows  can  hence  induce  further  trade  flows.  Knowledge  spillovers 
resulting  from  the  international diffusion  of  innovations  can  also  lead  to  positive  spillovers  via  intangible 
capital  formation.  Nevertheless,  the  spillovers  effects  stemming  from  those  channels  tend  to  be  limited. 
Overall, the net spillover of the comprehensive set of reforms simulated in France to the rest of the euro area 
is small but positive, and total euro area GDP would increase by 0.5 % after 10 years. 

Table 1: 

Spillover effects of structural reforms — France closing half of the structural reform gaps 

REER = real effective exchange rate; its increase can be interpreted as a depreciation. The year t corresponds to 
the baseline scenario and hence the moment in which the package of structural reforms in implemented. 
Source: European Commission 

(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 Papers no. 541. 
http://ec.europa.eu/economy_finance/publications/economic_paper/2014/pdf/ecp541_en.pdf 

26 

Franceyear t+1year t+2year t+3year t+4year t+5year t+10year t+20GDP1.21.82.33.03.77.112.5REER-1.2-1.3-0.60.31.34.69.1Trade balance (% GDP)-0.9-1.4-1.4-1.1-0.8-0.5-0.3Rest of euro area GDP0.00.00.10.10.10.10.1Euro area GDP0.00.10.20.20.30.50.8 
 
 
 
 
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

time 

the  first 

in  10  years, 

The  general  government  deficit  of  France  has 
time  although  a 
steadily  decreased  over 
temporary rebound is expected in 2019. In 2017, 
for 
the  general 
government  deficit  was  brought  back  down  under 
the  threshold  of  3 %,  to  2.7 %.  However,  the 
structural deficit stood at 2.4 % of GDP, implying 
a considerable distance with respect to its Medium 
Term Objective of  -0.4 % of GDP. The additional 
measures adopted late in the budgetary process by 
the  government  in  urgent  response  to  the  social 
protests  of  the  yellow  vests  (‘gilets  jaunes’) 
movement are expected to lead public deficit again 
above  the  threshold  of  3%  of  GDP  in  2019.  Yet, 
the  breach  is  expected  to  be  temporary,  not  least 
also because of the impact of the transformation of 
the tax credit for employment and competitiveness 
(CICE)  into  a  permanent  reduction  in  employers’ 
social contributions. 

interest 

declining 

The  consolidation  strategy  up  to  2017  has 
strongly  relied  on  tax  and  revenue-increasing 
payments 
measures, 
associated  with  low  interest  rates  and  cuts  in 
public  investment.  Between  2011  and  2017  the 
ratio  of  total  government  revenues  over  GDP 
increased  by  2.7  pps,  while  the  ratio  of  interest 
payments and of public investment declined by 0.8 
pps and 0.6 pps, respectively. 

(ECB, 

growth 

Over the same period the composition of public 
expenditure  has  remained  relatively  stable  in 
particular  for  items  that,  provided  a  proper 
degree  of  efficiency,  are  important  drivers  for 
2017b).  Social 
long-term 
protection  remains  the  most  important  spending 
item,  accounting  in  2017  for  more  than  43%  of 
total government expenditure (see Graph 4.1.1), up 
by  1  pp.  compared  to  2011.  Expenditure  on 
healthcare  and  education,  which  are  important  in 
order to raise the level of human capital, remained 
stable and account in 2017 for 14.2 % and 9.6 % of 
the  total,  respectively.  Expenditure  on  general 
public  services  and  on  economic  affairs  recorded 
opposite  trends,  decreasing  and  increasing  by 
almost  2  pps  since  2011,  respectively.  The  latter 
item 
infrastructure, 
notably  transport  and  energy,  which  is  associated 
with  the  need  for  increasing  the  level  of  physical 
capital. The share of the two components of energy 

includes  expenditure  on 

and  transport  over  total  expenditure  increased 
between  2011  and  2017,  although  by  less  than  1 
pp. altogether.  

The  fiscal  consolidation  strategy  rolled  out  by 
the  government  over  the  5-year  presidential 
term is likely to be adapted in light of renewed 
political priorities. The multiannual programming 
law  for  2018-2022  quantifies  four  objectives  in 
terms  of  GDP,  namely:  (i)  cutting  the  general 
government  deficit  by  more  than  2  percentage 
points,  (ii)  reducing  the  government  expenditure 
rate-to-GDP by more than 3 percentage points, (iii) 
taxes  and  social  security 
cutting  aggregate 
contributions  by  1  percentage  point,  and  (iv) 
reducing  public  debt  by  more  than  5  percentage 
points. While the overall strategy is expected to be 
broadly maintained in terms of ultimate objectives 
and  trends,  the  current  strategy  would  possibly 
take  into  account  the  outcome  of  the  national 
public  consultation  (‘Grand  debat’)  launched  by 
the  government  between  mid-January  and  March 
2019,  seeking  to  build  public  consensus  on  the 
economic  and  social  priorities  to  address  over  the 
remainder of the presidential term. 

Graph 4.1.1:  Composition of government expenditure (% of 

total expenditure, 2017) 

Source: INSEE 

Compared  to  the  initial  approach  presented  in 
the 2019 Draft Budgetary Plan, the government 
might be called to strike a new balance between 
revenues  and  financing  means.  The  outcome  of 

27 

Social protection43%Health14%General public services11%Economic affairs10%Education10%Defence, Public order and safety6%Other6% 
 
 
4.1. Public finances and taxation 

2019.  Therefore,  public  debt  should  only  start  to 
decrease  as  of  2020.  This  trend  keeps  implying  a 
widening gap with respect to the euro area, where 
overall public debt is projected to decline by some 
6  pps  to  82.8 % of  GDP  between  2018  and 2020. 
Such  a  difference  is  explained  by  the  relatively 
high French primary deficits  projected until 2019, 
whereas  the  declining  interest  burden  is  expected 
to stabilise as of 2019. 

Graph 4.1.2:  Contributions to the change in the public debt 

ratio in France 

the  national  public  consultation  cannot  be 
anticipated at present. In January 2019  the French 
authorities  confirmed  the  objective  defined  in  the 
2019  Draft  Budgetary  Plan  to  contain  public 
expenditure growth in real terms to an average rate 
of  0.3 %  per  year  over  the  five-year  term.  While 
this would be an unprecedented result compared to 
the 
past  efforts, 
underlying  yearly  milestones  will  need  to  be 
assessed in light of the latest policy developments 
and the eventual adjustments to the fiscal strategy.  

the  overall  objective  and 

Overall,  adhering  to  the  fiscal  consolidation 
strategy will strongly depend on complying with 
the  expenditure  ceilings  defined  for  the  central 
government,  the  healthcare  system  and  for  the 
local  level.  In  the  latter  case  this  implies  the 
effective  implementation  and  functioning  of  the 
new  contractual  approach  introduced  between  the 
State  and  the  322  biggest  local  authorities.  Not 
least,  the  announced  reduction  of  3  percentage 
points of the expenditure-to-GDP ratio by 2022 is 
also  expected  to  be  driven  by  the  effective 
implementation  of 
the  Public  Action  2022 
initiative  which  following  recent  political  and 
budgetary  developments  has  become  even  more 
pressing (see below). 

Debt sustainability analysis and fiscal risks (28)*  

Source: European Commission 

General government debt continued to increase 
in  2017  and  2018,  while  it  is  projected  to  start 
decreasing  only  as  of  2020.  On  6  September 
2018, 
institute 
the  French  national  statistical 
(INSEE)  revised  the  level  of  public  debt  in  2016 
and  2017  following  the  reclassification  of  ‘SNCF 
Réseau’ into the general government. This implied 
an increase in the public debt ratio by 1.6 and 1.7 
pps.  in  2016  and  2017,  to  98.2%  and  98.5%  of 
GDP, respectively compared to previous estimates. 
According 
the  Commission  2018  autumn 
forecast, the public debt ratio is projected to peak 
at  98.7 %  of  GDP  in  2018  (see  Graph  4.1.2). 
However, 
the 
government  in  response  to  the  ‘yellow  vests’ 
movement  will  imply  an  upward  revision  to  the 
general  government  deficit  and  public  debt  in 

the  measures  put  forward  by 

to 

(28)  This section is based on the 2018 Ageing Report (European 
Commission,  2018e)  and  the  2018  Fiscal  Sustainability 
Report (European Commission, 2019a).  

*  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). 

is  assessed  by 

There  are  no  sustainability  challenges  in  the 
short term in spite of the high public debt ratio. 
the 
Short-term  sustainability 
indicator  S0  (29).  As  in  previous  years,  the  short-
term  fiscal  sub-index  indicates  some  short-term 
vulnerabilities,  notably  driven  by  the  cyclically-
adjusted deficit and the high net government debt. 
However,  the  overall  S0  indicator  does  not  flag 
any  significant  risk.  This  low  short-term  risk  is 
confirmed  by  the  ‘AA  stable’  rating  given  by  the 
three  major rating agencies to French  government 
debt.  

(29)  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. 

28 

-4.0-2.00.02.04.06.0-4.0-2.00.02.04.06.0201220132014201520162017201820192020Stock flow adjustmentsInflation effectGrowth effectInterest expenditurePrimary balanceChange in the debt ratio 
                                                           
 
                                                           
4.1. Public finances and taxation 

increased 

to  almost  7.9  years 

The average maturity and the diversification of 
the  investors’  base  reduce  the  short-term  risks 
linked  to  high  public  debt.  As  French  debt  is 
denominated  in  euro  there  is  no  currency  risk.  In 
turn, the average maturity of total outstanding debt 
has 
in  2018 
compared to 7.8 years in 2017 (average maturity is 
above  8  years  for  medium  and  long-term  debt). 
Also,  the  French  debt  remains  an  investment 
sought  for  complying  with  capital  and  liquidity 
requirements  as  well  as 
for  diversification 
purposes, even if the share of non-resident holders 
of  negotiable  government  debt  has  continued  to 
decrease over time, to reach around 54 % in 2018, 
which  is  broadly  evenly  distributed  between  euro 
area and other countries. 

Graph 4.1.3:  Projections of French public debt over the 
medium term under alternative scenarios 

Source: European Commission 

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  is  projected  to  rise  again  to 
above  99.8 % of GDP in 2029, the last projection 
year  (see  Annex  B).  This  increase  in  public  debt 
stems  from  the  projected  high  primary  deficits 
aggravated  by 
in  age-related 
expenditure.  The  favourable  snowball  effect  (e.g. 
the difference between the implicit interest rate on 
government  debt  and  the  nominal  growth  rate  of 
the  economy) is expected to fade  out in 2026 and 
would  turn  negative  thereafter  due  to  the  rising 
interest 
sustainability 
indicator, which measures sustainability risks over 

rate  burden.  The  S1 

increase 

the 

implies 

the  medium  term,  indicates  a  high  medium-term 
risk,  mainly  due  to  insufficient  fiscal  effort.  This 
indicator 
that  a  cumulative  gradual 
improvement  in  the  French  structural  primary 
balance of 4.2 pps. of GDP, relative to the baseline 
scenario,  would be required over 5  years (starting 
from  2021)  to  reduce  the  debt  ratio  to  60 %  of 
GDP by 2033. Specifically, 2.8 pps of the required 
fiscal  adjustment  would  be  due  to  the  debt  ratio’s 
distance from the 60 % reference value, 1.0 pp. to 
the  unfavourable 
initial  budgetary  position 
(defined as the  gap to the debt-stabilising primary 
the 
balance)  and 
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 (see Graph 4.1.3). 

the  remaining  0.4 pps. 

to 

The  reclassification  of  ‘SNCF  Réseau’  into  the 
general  government  had  only  a  limited  impact 
on fiscal sustainability. The increase in the public 
debt ratio by 1.7 pps. in 2017 and the projection of 
SNCF  deficits  up  until  2029  entail  an  almost 
parallel  trajectory  of  debt  projections  (see  Graph 
4.1.4) that imply a modest increase, by 0.2 pps, in 
the  medium-term  sustainability  indicator.  This 
deterioration  is  mainly  due  to  the  rise  in  the  debt 
ratio's  distance  from  the  60 %  reference  value  by 
0.1  pp.  and  by  the  slightly  more  unfavourable 
initial budgetary position by an additional 0.1 pp. 

However, over the long-term, France is deemed 
to  be  at  medium  fiscal  sustainability  risk.  The 
long-term  fiscal  sustainability  indicator  S2  (30) 
shows  that  no  improvement  of  the  structural 
primary balance would be required to stabilise the 
debt-to-GDP  ratio  over  the  long-term  (a  slightly 
negative fiscal gap at -0.1 pp. of GDP). This result 
is  due  to  the  projected  decrease  of  ageing  costs 
(contribution  of  -1.5  pps.  of  GDP),  mitigated  by 
the  unfavourable  initial  budgetary  position  (1.4 
pps.  of  GDP).  It  is  in  particular  the  projected 
decrease of public pension expenditure that drives 
down  ageing  costs  (contribution  of  -2.0  pps.  of 
GDP) and is mainly due to the indexation of public 
pensions  to  inflation  as  measured  by  consumer 

(30)  The  S2  indicator  is  used  to  assess  the  fiscal  sustainability 
challenges  in  the  long  term  under  a  baseline  no-policy 
change scenario by gauging the necessary improvement of 
the structural primary balance to stabilise the debt-to-GDP 
ratio over the long term. 

29 

85.090.095.0100.0105.0110.0Baseline no-policy change scenarioStandardized (permanent) negative shock (-0.5p.p.)on GDP growthStandardized (permanent) positive shock (+1p.p.) tothe short- and long-term interest rates on newlyissued and rolled over debt 
 
                                                           
trends,  below 

is  not  expected 

prices,  which  means  that  pensions  would  grow 
more  slowly  than  wages  on  average.  Healthcare 
expenditure 
to  contribute 
significantly  to  long-term  fiscal  risks,  growing  by 
0.5  pps  of  GDP  up  to  2070  due  to  favourable 
demographic 
the  EU  average 
increase  of  0.9.  Notwithstanding  the  low  S2 
indicator, the implied fiscal adjustment might lead 
to  debt  stabilising  at  relatively  high  levels  for 
which  this  indicator  should  be  taken  with  some 
caution for high debt countries. Therefore, despite 
the  slightly  negative  sustainability  gap  S2 
indicator, the vulnerabilities linked to the high debt 
burden  as  captured  by  the  debt  sustainability  risk 
assessment  suggest  that  French  public  debt  might 
be  facing  a  medium  sustainability  risk  over  the 
term.  Moreover,  under  more  adverse 
long 
scenarios  involving  more  dynamic  healthcare  and 
long-term care expenditures, the sustainability gap 
S2  indicator  would  increase  to  1.9  pps.  of  GDP, 
thus pointing to higher long-term fiscal risks (31). 

Graph 4.1.4:  Impact of the reclassification of SNCF of public 

debt projections 

4.1. Public finances and taxation 

annual  report  by  the  Pensions  Advisory  Council  
(Conseil  d’orientation  des  retraites,  2018),  they 
are  projected  to  reach  13.5 %  in  2022,  before 
remaining  in  a  range  between  11.6 %  and  14.4 % 
by 2070 depending on the growth rate assumed for 
the evolution of  GDP and employment over time. 
The  balance  of  the  system  is  expected  to  worsen 
up to 2022 reaching -0.2 % of GDP. On the longer 
term, the system could be in equilibrium in 2035 if 
the GDP growth rate will be equal to 1.8 %, while 
it would be in deficit in case the GDP growth rate 
is  assumed  to  be  equal  the  current  potential  GDP 
growth rate (1.3 %). 

equity 

system 

A pension reform has been announced for 2019. 
More than 40 different pension schemes co-exist in 
France. These schemes apply to different groups of 
workers and function according to different sets of 
rules.  A  law  is  planned  to  be  adopted  in  2019  to 
progressively  unify  the  rules  of  these  schemes, 
with  a  view  to  simplifying  the  functioning  of  the 
to 
notably 
pension 
its 
improve 
transparency, 
efficiency.  This 
and 
comprehensive law would contain all details of the 
the  10 
new  pension  system.  According 
principles  announced    by  the  High  Commissioner 
for  the  pension  reform  on  10  October  2018,  the 
new system would be points-based, take the whole 
career  into  account  to  define  pension  rights, 
include  a  reference  age  to  ensure  the  adequacy  of 
pension  entitlements  with 
living 
conditions,  and  follow  the  golden  rules  to  avoid 
any  transfer  of  the  current  debt  of  the  system  to 
future generations. The new system will not apply 
to  pensioners  nor  to  workers  retiring  within  the 
next 5 years. The transition will be progressive and 
preserve the rights acquired in the current system.  

respect 

to 

to 

Source: European Commission 

Pension* 

The  budgetary  equilibrium  of  the  pension 
system  is  highly  dependent  on  macroeconomic 
assumptions.  Pension  expenditure  situated  at 
13.8 %  of  GDP  in  2017.  According  to  the  latest 

(31)  For  a  detailed  discussion  of  the  approach  to  the  overall 
long-term  sustainability  challenges  and  the  sensitivity 
analysis  of  the  S2  sustainability  indicator  see  the  2018 
Fiscal  Sustainability  Report 
(European  Commission, 
2019a). 

Healthcare* 

Expenditure  on  healthcare  has 
steadily 
increased  over  time.  Total  expenditure  was 
estimated  at  11.5 %  of  GDP  in  2017,  the  highest 
level  within  the  EU  countries  adhering  to  the 
OECD.  In  terms  of  per  capita  spending  (about 
EUR 3 572) the country ranked only 8th in the EU, 
while  spending  on  the  governance  of  the  system 
was  3  times  higher  than  the  average  in  the  other 
EU  countries.  Healthcare  expenditure  financed  by 
the  government  and  compulsory  schemes  was 
estimated  at  9.5 %  of  GDP  in  the  same  year,  the 
highest  along  with  Germany  (9.6 %)  (OECD, 
2018). 

30 

90.092.094.096.098.0100.0102.0AF_2018Without SCNF 
 
                                                           
4.1. Public finances and taxation 

increased  up  to  2.5  %  in  the  draft  budgetary  plan 
for  2019  (33).  This  will  reflect  to  some  extent  the 
additional  expenses  to  be  incurred  by  'Ma  santé 
2022'.  

High cost originator medicines and the low use 
of  generics  remain  a  significant  challenge, 
notwithstanding  some  achieved  efficiency  gains 
in  pharmaceutical  spending.  Between  2006  and 
2016,  the  generic  market  share  in  volume  nearly 
doubled  in  France,  rising  from  14.5 %  to  27.6 %. 
Relatively few categories of drugs have so far been 
opened to generic substitution and competition, so 
that  the  generic  market  share  remains  below  the 
EU  average.  The  law  on  the  financing  of  social 
security  for  2019  requires  that,  as  of  2020,  a 
be 
substitutable 
reimbursed  only  at  the  price  of  a  generic,  unless 
objective medical reasons exist. This may save up 
to EUR 100 million in the short term. Moreover, a 
working  group  will  present  its  results  in  spring 
2019  addressing  the  challenges  deriving  from  the 
high cost of originator medicines. 

originator  medicine  will 

Housing* 

the  private  sector  ("aides  à 

Public spending on housing amounts to 1.8% of 
GDP  in  2017  (Comptes  du  logement,  2017).  A 
to 
recent  reform  changes  housing  policy 
improve its efficiency. In 2017, EUR 23.3 billion 
have  been  spent  on  housing  benefits  in  public 
housing  or 
la 
personne")  and  around  EUR  19  billion  on  
subsidised  loans  and  tax  incentives  ("aides  à  la 
pierre").  Personalised  housing  allowances  (Aide 
Personnalisé  au  Logement,  APL)  have  decreased 
in 2018 in social housing, alongside a reduction of 
rents, and are planned to decrease in real terms (for 
all  beneficiaries)  in  2019  and  2020.  The  social 
security  financing  law  for  2019  provides  that 
personalised 
(APL) 
allowances will be based on a household’s current 
income (last 12 months), and not on its income of 
the  two  previous  years.  This  measure  to  be 
implemented  in  2019  should  generate  EUR  700 
million of savings this year. In parallel, since 2018 
some of the tax expenditures that encourage rental 
housing  investment  have  been  reduced  in  non-
tense areas, to target specific areas where housing 
supply  is  insufficient  (e.g.  the  Paris  area,  cities 

allowances 

housing 

(33)  Source: 'Ma santé 2022. Un engagement collective, Dossier 

de presse 18/09/2018. 

traditionally 

hospital-centred 

A new reform of the healthcare system has been 
announced in the autumn of 2018. The plan 'Ma 
santé  2022'  represents  an  additional  step  to  shift 
healthcare 
the 
systems towards strengthened primary care and to 
increase the quality of services (32). It also aims at 
introducing  a  better  cooperation  among  health 
professions  and  a  smoother  coordination  among 
primary,  outpatient  specialist,  hospital  care,  and 
long-term  care.  It  should  further  facilitate  the 
access to care in underserved regions (see Section 
4.3)  and  takes  account  of  the  care  needs  of  an 
ageing  population,  including  the  growing  number 
of people living with chronic diseases.  

(i) 

to  be 

framework 

local  health  care, 

Success  will  depend  on  a  clear  legal  and 
set  up, 
organisational 
providing  the  right  incentives  and  fostering 
collaboration  between  public  and  private 
actors.  Hospitals  in  France  will  be  classified  in 
(ii) 
three  categories: 
specialized  care  and  (iii)  ultra-specialised  care. 
Between 500 and 600 local hospitals (hôpitaux de 
proximité)  should  become  operational,  offering 
local 
basic  services 
hospitals would continue to be integrated with the 
territorial 
(groupements 
hôspitaliers de territoire) that were created by the 
2016  law  to  improve  the  cooperation  between 
hospitals within a defined geographic area. It is not 
clear  if  the  new  system  of  local  hospitals  will  be 
coordinated  with  the  existing  private  hospitals  to 
facilitate  access  to  healthcare  while  reducing  the 
cost of the healthcare system. 

in  hospital  care.  Public 

hospital 

groups 

The announced reform of the healthcare system 
does not include a revision  of the growth norm 
for healthcare expenditure (Objectif National de 
Dépenses  d'Assurance  Maladie,  ONDAM).  This 
spending  norm  covers  a  third  of  social  security 
spending. It is divided in 6 categories, but some of 
them  are  fungible  (e.g.  hospital  care  or  primary 
care).  Although  this  objective  has  been  respected 
since  2010,  the  ONDAM  target  was  already 
increased 3 times since 2017. Notably, it was made 
less demanding for the period 2018-2020, from an 
initial target of 2.1 % growth, to a revised target of 
2.3%  in  budget  law  for  2018,  which  was  further 

(32)  The  number  of  hospital  beds  in  France,  even  on  decline 
since  2000,  remains  still  above  the  EU  average  (6.1 per  1 
000  population  in  2016  compared  to  5.1  for  the  EU 
average). 

31 

 
                                                           
                                                           
4.1. Public finances and taxation 

in  case  the  public  finance  programming  law  is 
amended  by  Parliament,  the  assessment  of  the 
High Council  for Public Finances is  made against 
the  new  objectives  set  in  the  programming  law, 
which is a structural weakness of the French fiscal 
framework. In case of departure from the targets, it 
can trigger the correction  mechanism. Finally,  the 
for  Public  Finances  provides 
High  Council 
endorsement  of 
forecast 
underlying the budgetary documents. 

the  macroeconomic 

Local administration 

targets 

Local  spending  exceeded  the  planned  growth 
target  in  2017.  Since  2014,he  public  expenditure 
of  the  local  administration  in  France  is  guided  by 
an expenditure norm indicating yearly non-binding 
growth 
for  both  operating  public 
expenditure  and  financing  needs  at  local  level 
(‘Objectif  d'évolution  de  la  Dépense  Locale’, 
ODEDEL).  The  link  between  local  investments 
and  the  electoral  cycle  as  well  as  the  limited 
reduction  in  the  number  of  municipalities,  led  the 
expenditure  norm  not  to  be  respected  in  2017.  In 
2018,  this  norm  has  been  accompanied  by  legally 
binding contract agreements between the state and 
71  %  if  the  322  biggest  local  authorities,  valid  in 
2018-2020 (34).  While  this  contractual  approach 
may  help  to  better  plan  both  operational  and 
investment  spending  it  is  to  be  seen  how  this 
approach  will  help  the  rationalisation  of  the  local 
administration  started 
the 
territorial  reform  of  2014-2016  cut  by  half  the 
number  of  regions  but  the  number  of  communes 
only  slightly  decreased,  which  remains  above 
35 000  by  far  the  highest  in  the  EU  (DG  Trésor, 
2015). In addition, systematic information on local 
investment  projects  may  be  still  lacking,  along 
with  clear  criteria  guiding  local  authorities  to 
select  investment  projects  on  the  basis  of  their 
long-term impact (Cour des Comptes, 2015). 

in  2014. 

Indeed, 

Action Publique 2022 

The  implementation  of  the  government's  plan 
for  transforming  the  public  administration 
continues.  In  October  2017 
the  government 
launched  the  ‘Public  Action  2022’  programme, 

(34)  Rapport économique, social et financier (RESF), document 
loi  de  finances  2019 

général  annexé  au  projet  de 
https://www.performance-
publique.budget.gouv.fr/sites/performance_publique/files/f
arandole/ressources/2019/pap/pdf/RESF19.pdf 

than  250  000 

with  more 
inhabitants).  This 
responds  to  the  observations  made  by  the  French 
Court  of  Auditors  on  schemes  supporting  rental 
housing  investment  (worth  EUR  1.7  billion  in 
2016) which are believed to have a limited impact 
on  housing  supply  and  in  particular  tense  areas 
(Cour des Comptes, 2018a).  

Fiscal framework* 

The  fiscal  framework  is  centred  on  the  public 
finance  programming  laws  setting  budgetary 
objectives  over  the  medium  term.  The  French 
Constitution was amended in 2008 to introduce the 
public  finance  programming  laws  (PFPL)  and  the 
overarching  objective  of  a  balanced  budget  of 
public  administrations.  The  2012  constitutional 
bylaw ‘Organic Law’- sets the principles of public 
finances governance and defines the content of the 
public  finance  programming  laws.  According  to 
the  Organic  Law,  annual  budgets  should  be 
consistent  with 
the  multiannual  budgeting 
approach of the public finance programming laws. 
The  public  finance  programming  law  outlines  the 
targets  for  general  government  balances  for  the  3 
years  ahead  in  structural  and  nominal  terms  and 
sets targets for the state budget in detail and for the 
social security administrations at aggregate level. 

the  respect  of 

The  French  fiscal  framework  is  complemented 
by  expenditure  rules  and  supervised  by  the 
independent  monitoring  institution,  the  High 
(HCPF). 
for  Public  Finances 
Council 
Expenditure rules are in place at the state level and 
a  cap  on  the  growth  of  healthcare  spending 
facilitates 
the  social  security 
spending  targets.  In  addition,  the  public  finance 
programming law provides indicative growth rates 
for expenditure by local governments. The French 
Court  of  Auditors  issues  reports  on  the  situation 
and  trends  in  public  finances,  including  on  state 
expenditure  compared  to  the  expenditure  rules  in 
force  and  an  alert  committee  is  in  charge  of 
monitoring  the  growth  of  healthcare  expenditure. 
Enforcement  is  weaker  at  local  government  level 
less 
and  certain  social  security 
monitored.  Established  by  the  2012  ‘Organic 
Law’, the  High Council for Public Finances plays 
a central role in the oversight of the fiscal strategy 
as  it  monitors  the  respect  of  the  numerical  fiscal 
targets  and  assesses  compliance  of  the  budgetary 
objectives  set  in  the  annual  budgets  with  the 
objectives  of  the  programming  laws.  Nonetheless, 

funds  are 

32 

 
                                                           
4.1. Public finances and taxation 

Moreover,  implementation  risks  seem  also  high 
when  looking  at  the  track  record  of  spending 
reviews in France and the relatively limited results 
produced.  The  assessment  of  the  implementation 
and  of  the  expected  impacts  of  ‘Public  Action 
2022’ will continue in the following months on the 
basis  of  the  quarterly  state  of  advancement  of  the 
programme to be released by the authorities. 

General tax structure * 

France’s  tax  structure  is  skewed  to  labour  and 
capital. The level of the tax-to-GDP ratio is one of 
the  highest  in  the  EU  (46.5%  of  GDP  in  2017  v. 
39.1  %  in  EU  on  average)  and  more  than  half  of 
total  tax  revenues  comes  from  labour  taxation 
(23.7%  of  GDP  v.  19.3%  in  EU  on  average  in 
2016). The implicit tax rate on labour is one of the 
highest  in  the  EU  and  exceeds  the  EU  average 
(41.2 % compared to the EU-28 average of 36.1 % 
in  2016).  Tax  reforms  are  ongoing  since  2017  to 
lower  in  particular  taxes  on  labour.  In  addition, 
revenues  from  capital  taxes,  including  recurrent 
property  taxes,  are  among  the  highest  in  the  EU 
(10.7 %  of  GDP  v.  8.4 %  in  EU  on  average). 
Revenues  from  consumption  taxes  as  %  of  GDP 
are close to the EU average. France’s tax structure 
is  one  of  the  topics  being  discussed  during  the 
national public consultation (‘Great debate’). 

Complexity of the tax system* 

tax 

and 

systems 

The  complexity  and  lack  of  stability  of  the 
French 
system  weighs  on  business 
environment. The tax code encompasses multiple 
rates 
expenditures.  This 
tax 
complexity often aims at achieving specific policy 
goals,  like  alleviating  the  tax  burden  on  the  most 
vulnerable  households  and 
incentivising  or 
correcting  specific  behaviours.  However,  it  bears 
the  risk  of  losing  readability,  thus  increasing 
compliance costs and legal uncertainty detrimental 
to France’s attractiveness while creating loopholes. 
In  addition,  according  to  Eurobarometer  survey, 
changes  brought  to  the  tax  legislation  are  a  major 
obstacle  to  investment  by  companies  in  France 
(European Commission, 2018c). 

aiming  at  an  ambitious  and  coordinated  overhaul 
of all public policies. The programme  sets 3 main 
objectives, namely, the improvement of the quality 
of  public  services,  the  modernisation  of  public 
administration  and  the  support  to  the  reduction  of 
the  expenditure-to-GDP  ratio  by  3  percentage 
points  by  2022.  It  also  formally  embeds  and 
replaces the annual spending reviews introduced in 
2014 which were officially terminated at the end of 
2017.  After  a  first  preparatory  phase  (35),  the 
second half of 2018 was meant to give way to the 
definition  and  implementation  of  effective  reform 
the 
taken 
measures.  This  has 
conclusions  of 
inter-
ministerial  committee  (Comité  interministériel  de 
la  transformation  publique,  CITP)  in  October 
for 
2018,  which 
transforming  public  action  while  providing  more 
details  on  guiding  principles,  objectives  and  areas 
of  intervention.  Moreover,  the  inter-ministerial 
transformation  plans 
the 
committee  endorsed 
presented by each and every ministry. 

the  second  dedicated 

the  form  of 

confirmed 

strategy 

the 

has 

clear 

priority 

the  process 

transforming 

is 
The  structural  nature  of 
the  public 
consistent  with 
administration  over  the  medium-  to  long-term 
but  the  expected  results  in  terms  of  efficiency 
gains and expenditure  savings are unclear. The 
to 
given 
government 
methodological  and  process-related  aspects  rather 
than  focusing on the ex-ante  and across-the-board 
quantification  of  potential  savings.  While  this 
could be consistent with a complex reform process 
and  the  need  to  smoothen  the  public  debate  over 
likely 
the 
quantitative assessment of the overall strategy and 
of its contribution  to fiscal consolidation difficult. 
In  particular,  it  is  not  clear  how  exactly  and  with 
what  timing  the  reform  programme  —  including 
the  transformation  plans  by  ministries  which 
embrace  an  extremely  varied  set  of  measures  — 
would  contribute  to  the  very  specific  objective  of 
reducing  the  expenditure-to-GDP  ratio  by  2022. 
Overall,  available 
information  shows  partial 
adherence  to  the  guidance  for  spending  reviews 
agreed  in  2016  at  the  level  of  the  Eurogroup  (36). 

it  also  makes 

sensitive 

issues, 

(35)  This  phase  was  characterised  by  the  work  of  an  ad  hoc 
committee of experts (Comité Action Publique 2022) which 
handed in its  report  to  the  Prime  Minister  in  spring 2018, 
the setting up of inter-ministerial projects on cross-cutting 
issues and by widespread stakeholders' consultation. 
(36)  http://www.consilium.europa.eu/media/23664/spending-

reviews_commission_note.pdf 

Efforts  are  ongoing  to  reduce  tax  compliance 
costs.  The  ESSOC  law  (Loi  pour  un  Etat  au 
service  d’une  société  de  confiance)  aims  at 
simplifying  administrative  procedures  and  makes 
them  more  transparent.  In  tax  matters,  the  law 

33 

 
                                                           
4.1. Public finances and taxation 

the  existing 

to  streamline 

recommended 
tax 
expenditures and pointed their lack of control and 
evaluation.  Furthermore  efforts  to  discontinue 
taxes  which  bring  limited  revenue  or  that  are 
inefficient  have  been  amplified  in  2019.  In  total, 
26  taxes  yielding  low  revenues  have  been  cut  in 
the Budget law 2019, 20 eliminated in 2019 for a 
total  amount  of  EUR  132  million  and  6  will  be 
eliminated  in  2020  for  a  total  amount  of  208 
million. The elimination of small taxes is expected 
to continue in 2020 at the same pace.  

Corporate taxation* 

The reduction of the corporate income tax rate 
in  2019  is  more  limited  than  envisaged.  The 
statutory  corporate  income  tax  rate  has  been 
lowered  from  33.33 %  to  31%  except  for  firms 
with a turnover above EUR 250 million for which 
the decrease has been postponed. Reduced rates of 
15 %  for  small  and  medium-sized  enterprises  and 
of  28 %  for  the  first  EUR  500  000  of  profits 
continue  to  apply  in  2019.  The  decrease  of  the 
standard  tax  rate,  gradually  to  25  %  by  2022  will 
also  further  reduce  the  debt-equity  tax  bias  in 
corporate  financing.  Although 
it  recorded  a 
substantial  drop  from  5  %  to  3.8%  between  2016 
and 2017, it remains the highest in the EU (38). 

sector 

Other taxes on production continue to weigh on 
businesses Taxes on production stood at 3.1 % of 
GDP  in  2016(39)  above  Italy  (1.4 %),  Spain 
(1.0 %)  or  Germany  (0.4 %).  Such  taxes  have 
different tax bases (turnover, added value, salaries, 
land  and  buildings)  and  can  increase  the  overall 
cost  of  production.  This  could  have  a  negative 
impact  on  competitiveness  in  particular  for  the 
(OFCE,  Coe-Rexecode, 
manufacturing 
2018). Taxes on production are often levied at the 
local 
local 
authorities. The rationale behind such taxes is that 
they  finance  local  public  goods  (e.g.  public 
transport, infrastructures) that directly or indirectly 
benefit companies. Decreasing taxes on production 
requires  a  broader  reflection  on  local  public 
finances  since  they  represent  a  large  share  of 
revenues of local authorities. The 2019 budget law 
cuts  only  one  tax  on  production  (‘forfait  social’) 
levied at national level and worth EUR 660 million 
per year (once fully implemented in 2020). 

revenue  benefits 

level  and 

the 

to  provide 

provides  that  tax  rulings  should  become  more 
systematic,  their  requests  trackable  by  the  tax 
payers and results should be published to serve as 
a reference. Similarly, tax audit should also deliver 
legally  binding  conclusions 
legal 
certainty to the tax payer. Tax adjustments will be 
eased,  penalties  reduced  and  normalised  for  those 
to  become  compliant.  In 
tax  payers  willing 
addition,  companies  liable  to  corporate  tax  could 
ask to have the compliance of their tax operations 
checked  Specific  support  will  focus  on  small  and 
medium-sized  enterprises  as  a  first  step.  Overall, 
law  has  been  welcomed  by  businesses, 
the 
especially the introduction of a single contact point 
responsible for the whole procedure. Making such 
support  more  continuous  and  targeting  companies 
willing  to  export  may  be  beneficial  as  they  are 
more  likely  to  face  difficulties  to  comply  with 
crossborder  tax  rules  and  new  tax  environment 
(see Chapter 1 and Section 4.4.4). 

The  withholding  of  personal  income  tax  is  in 
force since January 2019. Tax payments are now 
better synchronised to earnings avoiding important 
collection  time  lags.  Monthly  payments  from  the 
tax  payers  will  be  taken  over  by  companies, 
reducing  the  amount  of  transactions  to  the  tax 
administration. This may however entail additional 
in  particular  for  small 
costs  for  companies, 
businesses.  Although  not  fully  deployed  (notably 
for  private  persons  acting  as  employers), 
it 
provides some options to individualise the personal 
income tax (37).  

Streamlining tax expenditures and reducing the 
number  of  small  taxes  could  further  help 
simplifying  the  tax  system.  Unlike  the  previous 
multiannual  framework,  this  current  budgetary 
framework  (2018-2022)  does  not  provide  a 
spending limit for tax expenditures. It sets instead, 
a  non-binding  target  of  28 %  for  the  ratio  of  tax 
expenditures to the sum of net tax revenues and tax 
expenditures.  This 
ratio  will  progressively 
decrease to reach 25 % in 2022. The 2019 budget 
tables  a  decrease  of  the  overall  amount  of  tax 
expenditures  below  EUR  100  billion,  putting  an 
end  to  a  5-year  period  of  constant  increase  in 
volume. Total tax expenditure is estimated at 4 % 
of  GDP  in  2019.  Between  2018  and  2019,  the 
number of tax expenditures has however increased 
from  457  to  474.  In  2018,  the  Court  of  Auditors 

(37)  For further development, see SWD(2016) 79 final, p77. 

(38)  SWD(2018) 208 final, p.28. 
(39)  This figure excludes producer households.   

34 

 
                                                           
                                                           
4.1. Public finances and taxation 

for  a  gradual  implementation  and  others  specific 
adjustments.  For  example,  the  update  of  the  tax 
base  for  commercial  properties  is  being  gradually 
transition  phase 
implemented  with  10  years 
revenue 
effects. 
strong 
avoid 
Consultations  with  stakeholders  (and  in  particular 
local  authorities)  will  be  necessary  to  ensure  a 
smooth implementation.  

neutral 

to 

Revenues  from  inheritance  and  gift  taxes  have 
strongly increased. Tax revenues are expected to 
reach  EUR  14.3  billion  in  2019.  It  stood  at  EUR 
9.1  billion  in  2012.  This  increase  is  explained  by 
2011-2012 reform of the inheritance and gift taxes 
and the increase in wealth of older cohorts. On the 
other  end,  average  tax  rate  remains  low,  despite 
high  marginal  inheritance  tax  rates  (OFCE,  2017 
(43)),  which  limit  the  redistributive  effects  of 
inheritance  and  gift  taxes.  This  discrepancy  stems 
from  possibilities  to  decrease  inheritance  tax 
through  exemptions,  life  insurance  contracts  and 
split  of  property  between  usufruct  and  bare 
ownership.  On  average,  the  wealth  of  households 
receiving  inheritances  or  donations  is  1.7  times 
higher (Insee, 2018). Inheritance represented 19 % 
of households’ disposable income in 2015 against 
8 % in 1980 and could reach 25 % in 2050 (France 
Stratégie, 2017). 

Taxes on labour* 

The tax wedge on labour remains high for those 
at  average  wage  but  the  gap  with  the  EU 
average  is  diminishing.  While  the  tax  wedge  on 
labour  for  low-income  earners  (50 %  of  average 
wage) is below the EU average (30.9 % vs 32.8 % 
in  2017),  the  tax  wedge  on  labour  for  average 
income  earners  remains  the  fourth  highest  in  the 
EU (47.6 % in 2017) (see Graph 4.1.5). This is due 
to  sizeable  employer  social  contributions,  which 
weigh on France’s labour market performance. As 
of  2019,  the  tax  credit  for  employment  and 
competitiveness 
la 
Compétitivité  et  l’Emploi,  CICE)  is  replaced  by  a 
reduction 
security 
employer 
contributions. The increased  corporate  income tax 
revenues  (EUR  5  billion)  will  be  partly  used  to 
decrease  further  employer  social  contributions  at 
minimum  wage  level,  setting  them  at  zero.  The 

d’Impôt 

(Crédit 

social 

pour 

in 

(43)  Average tax rate stand at 3 % for direct heirs and 20 % for 
indirect heirs, whereas marginal inheritance tax rates reach 
45 % for direct heirs and 65 % for indirect (OFCE, 2017). 

Taxes on capital* 

It  is  too  early  to  assess  the  economic  impact  of 
the  capital  tax  reforms  introduced  in  2018. 
Capital  taxation  in  France  was  among  the  highest 
in  the  EU  in  2016,  before  the  substantial  reforms 
of 2018 that have narrowed down the wealth tax to 
a  tax  on  real  estate  property  and  introduced  a  flat 
tax  on  capital  income (40).  The  economic  impacts 
of these reforms are difficult to assess at this stage 
and  studies  show  a  wide  range  of  effects (41).  A 
monitoring  committee  under  the  leadership  of  the 
Prime Minister has been established. Its first report 
on  the  impact  of  the  reform  is  due  for  September 
2019.  While  in  terms  of  income  redistribution, 
capital  tax  reforms  introduced  in  2018  have 
income 
benefitted 
the  highest  decile  of 
distribution (42),  the  reform  has  been  designed  to 
foster productive and riskier investments as well as 
to attract capital in France. 

the 

The  housing  tax  continues  to  be  reduced  in 
2019.  For  80%  of  households,  the  housing  tax 
(taxe  d'habitation)  is  further  reduced  by  35 %  in 
2019  for  a  cost  of  EUR  3.8  billion.  Part  of  the 
decrease  of  the  housing  tax  effective  in  2018  has 
been  offset  by  an  increase  in  the  rate  decided  by 
some  local  authorities.  The  increase  remained 
overall modest, of 0.49 pps on average in 2018 (v. 
0.73 pps in 2017). Authorities plan to fully abolish 
the tax for the remaining 20 % richest households. 

The  elimination  of  the  housing  tax  calls  for  a 
comprehensive  reform  of  the  financing  of  local 
authorities.  An  update  of  the 
immovable 
property  tax  base  for  housing  properties  could 
be  announced  in  2019  (See  Box  4.1.1).  Such  an 
update  has  already  been  introduced  in  2017  for 
commercial  properties.  Authorities  could  pursue 
the  reform  to  the  benefit  of  housing  properties. 
Updating the tax base from its outdated 1970 value 
might  entail  redistributive  effects  which  may  call 

(40)  SWD(2018) 208 final, p.28. 
(41)  The economic impact of those reforms is difficult to assess 
ex-ante.  Evaluations  based  on  the  presidential  programme 
assessed an impact from 0.1 % (OFCE (2017) to 1.3 % of 
GDP  (Coe-Rexcode,  2017)  by  2022.  Authorities  evaluate 
the actual reforms to have an impact of 0.5 % GDP in the 
long run 

(42)  See Rapport économique, social et financier (RESF), 

document général annexé au projet de loi de finances 2018, 
p. 74 
(https://www.tresor.economie.gouv.fr/Articles/2017/10/03/
publication-du-rapport-economique-social-et-financier-plf-
pour-2018). 

35 

 
                                                           
                                                           
4.1. Public finances and taxation 

Graph 4.1.5:  Tax wedge on labour, single earner, average wage (2017) (in % of labour cost) 

* weighted on GDP 
(1) data for Cyprus is not available 
Source: European Commission. 

social 
announced  exemption  of  employees’ 
security  contributions  and  of  income  tax  on 
overtime  hours  is  expected  to  stimulate  labour 
supply of workers and to increase their disposable 
income (44).  

Taxes on consumption and environment* 

The  efficiency  of  the  French  value-added  tax 
system is limited by the extensive use of reduced 
rates.  While  the  standard  value-added  tax  rate 
(20 %)  is  below  the  EU  average  (21.6 %),  France 
applies  two  reduced  rates  (5.5 %  and  10 %),  as 
well as a  super reduced rate  (2.1 %) (45). In 2016, 
the revenue  foregone  from applying reduced rates 
represented  11.9 %  compared  to  a  theoretical 
maximum  where  all  products  and  services  are 
taxed at the standard rate. 

Planned  efforts  to 
increase  revenue  from 
transport  fuel  taxes  have  been  cancelled  in 
2019.  The  objective  to  close  the  gap  between 

(44)  A  gain  equivalent  to  11.3 %  of  the  extra  hour  rate, 
according  to  the  Labour  Ministry,  and  8  million  workers 
would  be  concerned,  with  a  gain  in  disposable  income  of 
EUR 200 annually (EUR 155 for a worker at the minimum 
wage). 

(45)  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  until  the application  of 
the definitive value added tax system. 

diesel  and  petrol  by  2021  is  unlikely  to  be 
achieved.  The  increase  in  environmental  taxes,  in 
particular  energy,  risks  weighing  on  vulnerable 
households and may require effective well-targeted 
support  to  be  accepted  by  taxpayers.  To  that  end, 
France  has  strengthened  its  support  scheme  to 
acquire  new  vehicles  (in  2018,  the  amount  is 
doubled to EUR 2000 for non-taxable households ; 
in  2019  for  low-income  and  long-distance  drivers 
households),  extended  the  tax  credit  on  green 
transition  (Crédit  d’impôt  pour 
transition 
énergétique)  albeit  reducing 
its  budget,  and 
increased its energy voucher from EUR 150 to 200 
per household per year and enlarged the number of 
beneficiaries.  Preferential  fiscal  treatments  related 
to some transport means or more generally to other 
areas of the energy transition risk undermining the 
consistency the consistency with ambitious climate 
objectives,  and  deprive  authorities  of  additional 
resources  they  could  allocate  to  support  the 
transition  towards  a  greener  economy.  Overall, 
revenues 
steadily 
increased  from  2009  onwards  to  reach  2.3 %  of 
GDP  in  2017,  but  are  still  below  the  EU-28 
average (2.4 %). 

from  environmental 

taxes 

la 

36 

0510152025303540455055BEDEITFRATHUCZSIFISELVSKPTLTELROESEEHRNLLUDKPLBGUKIEMTIncome taxEmployer contributionsEmployee contributionsEU average * 
                                                           
 
 
 
4.1. Public finances and taxation 

Box 4.1.1: Assessing the budgetary and distributional effects of alternative scenarios to 
reform the immovable property tax in France 

Like many other EU countries, France has not comprehensively updated the tax base (‘valeur locative 
cadastrale’)  of  the  immovable  property  tax  (‘taxe  foncière’)  since  1970.  France  applies  a  correction 
coefficient  to  outdated  property  values,  which  does  not  reflect  appreciations  and  depreciations  of 
property  values  resulting  from  the  different  development  of  urban  areas.  These  outdated  property 
values generate distortions and potential inequitable effects. The immovable property tax is a direct local 
tax  payable  annually  by  owners  of  real  estate.  In  2017,  revenues  (1)  of  this  recurrent property  tax  reached 
EUR  32  billion  (1.35 %  of  GDP)  to  the  benefit  of  local  authorities,  which  determine  part  of  the  total  tax 
rates. The elimination of the housing tax by 2022 (‘taxe d'habitation’) calls for a comprehensive reform of 
the local government financing system. Such a reform, including an update of the immovable property tax 
base, could be announced in 2019. 

The European Commission’s Joint Research Centre simulated an uprate of the immovable  property 
tax to better reflect properties’ market values (2). To this end, the microsimulation model EUROMOD (3), 
has been enriched with the latest data on reported tax from the EU-SILC(4). The baseline scenario, reflecting 
tax-benefit  rules  in  place  in  2017,  reproduces  the  current  situation  of  outdated  cadastral  values. Two 
alternative  reform  scenarios  are  then  used  to  reform  the  immovable  property  tax:  (1)  an  uprate  by 
geographical unit (NUTS 2), based on uprating ratios of the commercial properties implemented in 2017; (2) 
an  uprate  by  housing  property  type  (apartment  v.  houses)  and  size  (surface  in  m²),  based  on  an 
experimentation by the French authorities in 5 departments in 2015(5). 

Based on the EUROMOD simulations, uprating the tax on recurrent property taxes to reflect market 
values  whilst  keeping  local  tax  rates  constant  would  lead  to  higher  revenue.  In  the  first  scenario,  the 
reported immovable property tax is uprated using ratios that have been simulated for commercial properties, 
bringing extra revenues of EUR 18 billion (0.8 % of GDP). The second scenario uses uprating ratios based 
on property  type  (apartment  v.  houses)  and  size  (surface  in  m²)  and  corresponds  to  additional  revenues  of 
around EUR 7 billion (0.3 % of GDP) (see Graph 1a).  

The  redistributive  effects  of  the  simulations  suggest  the  need  for  specific  adjustments.  On  average, 
households  in  the  lowest  decile  would  pay  an  extra  EUR  195  (scenario  1)  and  EUR  69  (scenario  2)  of 
immovable  property  tax,  while  households  in  the  highest  decile  would  pay  EUR  739  or  EUR  218, 
respectively  (see  Graph  1b).  In  relative  terms,  the  lowest  deciles  would  be  more  affected  than  the  highest 
deciles, as the increase in immovable property tax represents a higher share of their disposable income. This 
suggests the need for a gradual implementation over time of the reform or some progressive scheme to limit 
effects on inequality.  

(1)  Tax on build property only ("taxe sur le foncier bâti"). 
(2)  The simulations assume the uprate of the reported tax liabilities, which, given that the tax schedules are not changed, 

would be equivalent to uprates of the tax bases. 

(3)  EUROMOD simulates benefit entitlement and tax liabilities according to the rules applicable in each Member State.  
(4)  Statistiques sur les Ressources et les Conditions de Vie (2016). 
(5)  "Expérimentation révision des valeurs locatives des locaux d'habitation" (DGFIP, 2015). 

37 

0,00,10,20,30,40,50,60,70,80,91,002.0004.0006.0008.00010.00012.00014.00016.00018.00020.000Scenario 1Scenario 2% of GDPMillionsGraph 1a: Impact of reform scenarios on public revenuesmillions (lhs)% of GDP 2017 (rhs)-800-700-600-500-400-300-200-100012345678910Average change in equivalised disposable income per household by decile (euros)DecilesGraph 1b: Average impact on equivalised disposable income by decileScenario 1Scenario 2Source: European Commission, Joint Research Centre based on EUROMOD 
 
 
4.2.  FINANCIAL SECTOR 

Banking* 

credit  quality 

French  banks’  solvency  is  stable,  but  their 
profitability  is  under  pressure.  The  French 
banking  sector  presents  stable  solvency,  funding 
and 
ratios.  Return-on-equity 
remained at a similar level to previous exercises, at 
6.4 % at the end of 2017 (see Table 4.2.1), a little 
higher  than  the  euro  area  average  (5.6 %)  but 
lower  than  the  typical  cost  of  capital.  As  of  June 
2018,  the  capital  adequacy  ratio  was  stable  at 
17.7 %  (v.  17.9 %  in  the  euro  area),  the  non-
performing loan ratio reached a new low at 2.9 % 
(v. 4.2 % in the euro area), and the loan-to-deposit 
ratio slightly increased to reach 106.0 % (v. 96.0 % 
in the euro area). 

French  banks  are  mostly  exposed  to  risks 
common  to  other  euro  area  banks.  Overall,  the 
2018  EU-wide  stress  test  revealed  that  French 
banks’ resilience is close to the European average. 
An abrupt increase in interest rates represents their 
most  significant  risk, 
together  with  possible 
international  regulatory  fragmentation  (Banque  de 
France,  2018).  The  remaining  risks  are  country-
specific. In particular, French banks are confronted 
with  growing  private  indebtedness  of  both  non-
financial corporations (particularly large ones) and 
households  (Graph  4.2.1)  and 
to  significant 
exposure to the Italian private sector via the  large 
retail subsidiaries held in Italy. Fierce competition 
leads to low average interest rates on housing loans 
(1.49 %  in  December  2018).  Should  such  limited 
profitability  from  new  credit  flows  persist,  the 
banks'  bottom  line  could  be  more  significantly 
affected.  Finally,  some  distortions  persist,  such  as 
the 
the 
exoneration  of  the  Livret  A  (equity  and  bonds), 
penalise 
which 
capital  market 
tends 
intermediation 
the  benefit  of  banking 
intermediation (loans); while the non-deductibility 

transactions  and 

financial 

tax  on 

to 
to 

of  banks'  contributions  to  the  Single  Resolution 
Fund has an opposite effect. 

Graph 4.2.1:  Annual growth rate of loans 

(1) Adjusted for sales and securitization 
Source: ECB CBD 

Risks to an abrupt adjustment are limited. The 
percentage of new mortgage generation at variable 
rates has remained very low in recent years, falling 
from 8.9 % in 2012 to 0.6 % in 2017. Hence, even 
if  interest  rates  were  to  increase  suddenly,  their 
impact  would remain contained. Moreover, banks' 
loans  ratio  remains 
non-performing  corporate 
stable at low levels (around 5 %). It requires close 
monitoring  though,  given  the  increasing  share  of 
vulnerable  borrowers  with  a  relatively  high  Debt 
Service-to-Income ratio.  

French  authorities  have  shown  a  pro-active 
approach to anticipate risks. Given the sustained 
growth  in  private  indebtedness,  the  French  High 
Council  for  Financial  Stability  (Haut  Conseil  de 
stabilité  financière) decided to introduce two new 
macroprudential  measures.  A  counter-cyclical 

Table 4.2.1: 

Financial soundness indicators – all banks in France 

* ECB aggregated balance sheet: loans excluding government and MFI deposits 
** For comparability purposes, only annual values are presented. 
Source: ECB CBD. 

38 

-101234567820112012201320142015201620172018Total privateNon-financial corporationsHouseholds%2014q42015q42016q22016q32016q42017q12017q22017q32017q42018q12018q2Non-performing loans4.24.03.93.93.63.53.43.23.13.12.9o/w foreign entities1.92.52.52.52.01.81.61.61.61.61.3o/w NFC & HH sectors5.15.04.94.94.84.84.64.54.34.24.0o/w NFC sector6.25.85.95.85.85.75.55.25.15.14.7o/w HH sector4.44.24.24.14.14.04.03.83.63.53.5Coverage ratio51.351.150.050.251.451.050.349.550.450.451.4Return on equity(1)4.46.87.47.36.56.47.07.06.45.66.8Return on assets(1)0.20.40.40.40.40.40.40.40.40.40.4Total capital ratio15.216.416.716.917.617.817.717.517.817.717.7CET 1 ratio11.812.612.812.913.713.814.013.914.214.114.0Tier 1 ratio13.113.814.114.115.015.115.115.015.315.215.1Loan to deposit ratio105.1104.7104.6105.5106.2102.9102.1102.8105.1105.2106.0 
 
 
 
 
 
4.2. Financial sector 

to  enforce  some  mutualisation  between  overseas 
and continental France. 

New measures are expected to make new forms 
of life insurance contracts more attractive. Like 
in  other  EU  Member  States,  the  life  insurance 
sector  suffers  from  the  persistent  low  interest  rate 
environment.  The  loss  of  the  life  insurance  tax 
advantage  for  the  new  contracts  above  EUR 
150 000  does  not  seem  to  have  had  a  significant 
impact  on  the  volume  of  written  premiums.  For 
instance, 2017 saw a strong increase of unit-linked 
premiums  to  the  detriment  of  traditional  life 
insurance,  but  this  rebalancing  seems  to  have 
stabilised  since  the  second  quarter  of  2018.  The 
euro-croissance 
a 
guaranteed  interest  rate,  but  only  at  maturity,  has 
had  very  little  success  until  now.  Contrary  to 
traditional life insurance, it would allow insurers to 
adopt  a  longer-term  assets  allocation  strategy  and 
invest  into  relatively  riskier  and  more  profitable 
assets. However, its functioning has been complex, 
its  legibility  relatively  limited  and  its  investment 
policy  still  particularly  constrained.  The  draft 
PACTE  law  (‘loi  PACTE’)  aims  at  remedying 
these  shortcomings  and  making  the  euro-growth 
(‘euro-croissance’) contract more attractive. 

contract,  which 

offers 

to 

the  most 

buffer (CCyB) of 0.25 % will enter into force as of 
July 2019, while a specific cap on systemic banks' 
exposure 
indebted  non-financial 
corporations entered into force in July 2018. Both 
measures  send  a  clear  preventive  signal  to  the 
sector to anticipate and avoid excessive imbalances 
in  the  future.  Since  both  are  very  recent,  it  is  too 
early  to  assess  their  potential  impact  on  banks’ 
credit  strategy.  In  the  insurance  sector,  France  is 
one of the  rare  Member States that  have  designed 
and 
and 
resolution  framework  establishing  several  tools  to 
deal with macroprudential risks in the sector. 

a  macro-prudential 

implemented 

Insurance*  

insurers 

offering  builder's 

Risks  stem  from  the  bankruptcy  of  several 
foreign 
risk 
insurance  following  poor  risk  selection  and 
provisioning practices. Builder's risk insurance is 
an  important  line  of  business  in  France,  partly 
because  it  is  mandatory.  Several  foreign  insurers 
created  serious  imbalances  in  this  market,  by 
offering  low  prices  without  enough  provisioning 
and  risk  selection.  The  consequences  of  these 
bankruptcies  on 
insurance  and 
the  French 
construction sectors need to be monitored.  

reinsurer, 

The multiplication of extreme climatic events is 
expected  to  substantially  affect  the  market  of 
reinsurance  and  non-life  insurance  in  France. 
Extreme climatic events have multiplied in France 
over the last years (Seine and Loire floods in 2016, 
hurricane Irma in 2017). In this respect, the impact 
of  the  natural  catastrophes'  line  of  business  was 
strongly  negative  in  2017,  with  a  combined  ratio 
(before  reinsurance)  of  200 %,  much  higher  than 
98 %  in  2016.  Most  of  hurricane  Irma's  EUR  2 
billion  insured  cost  was  absorbed  by  the  French 
public 
the  Caisse  Centrale  de 
Réassurance.  As  a  result,  its  equalisation  reserve 
fell by 1/3, from EUR 3 billion to EUR 2 billion. 
Its current own funds and reserves should enable it 
to cover a natural disaster market loss of EUR 4.5 
billion  without  resorting  to  the  use  of  State 
guarantees  in  the  future.  Natural  catastrophes  can 
in  theory  be  reinsured  by  private  reinsurers. 
However, the concentration of natural catastrophes 
risks  in  certain  geographical  zones,  like  overseas 
territories,  explains  the  choice  of  the  French 
authorities  to  set  up  a  public  entity  (Caisse 
Centrale  de  Réassurance) 
to  reinsure  natural 
catastrophes risks across the French territories and 

39 

 
 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

Labour market developments* 

Labour market conditions continue to improve, 
albeit  at  a  slower  pace  than  in  the  rest  of  the 
EU.  In  line  with  a  relatively  favourable  business 
cycle  in  2017,  headcount  employment  registered 
the  highest  growth  rate  since  2008  (+1.1 %  based 
on National Accounts). The employment rate (20-
64) increased at 71.3 % Q3 2018 and is close to the 
EU  average  (73.2%).  The  unemployment  rate  is 
only  slowly  reducing,  and  at  9.0%  (2018Q3)  is 
higher  than  the  EU  average  (6.8%)  and  the  euro 
area average (8.1%). The persistently high level of 
unemployment, together with the significant share 
of  involuntary  part-time  (43.2%  of  total  part-time 
in  2017)  and  the  entrenched  segmentation  of  the 
further 
labour  market,  point 
investments in human capital.  

room 

for 

to 

While all groups benefit from the improvements 
in  the  labour  market,  low  skilled  and  young 
people 
remain  at  a  disadvantage.  The 
unemployment rate of the low skilled fell in 2017 
for the first time since 2008, but at 17%, it remains 
much  above  pre-crisis  levels.  The  rate  of  young 
people  (15-24)  not  in  employment,  education  or 
training    decreased  from  11.8%  in  2016  to  11.5% 
in 2017 (slightly above the EU average of 10.9%), 
but  is  close  to  18%  for  young  people  not  born  in 
the  EU.  Youth  unemployment  (15-24)  decreased 
by 2.3pps in 2017, to 22.3%, but still above the EU 
average  of  16.8%.  However,  the  unemployment 
rate of low-skilled young people is still very high, 
is  also 
at  37.8%.  Long-term  unemployment 
improving and is  now below  the EU average as a 
share  of  total  unemployment,  but  remains  a 
concern,  especially  for  older  workers.  Moreover, 
workers who have been unemployed for more than 
two  years  are less likely to  secure job  interviews 
(8%)  (Duguet,  Le  Gall,  L’Horty,  Petit,  2017). 
Additional  investment  could  help  address  these 
challenges. 

The French labour market is highly segmented. 
On the one  hand, self-employment  has been quite 
dynamic,  accounting  in  2000-2017  for  more  than 
20% of total job creation (compared to zero for the 
euro  area).  The  increase  in  micro-entrepreneurs 
(has  been  particularly  significant  since  2009(46), 

(46)  In  2009  a  new  social  contribution  and  fiscal  regime  was 
created  for  self-employed.  For  most  self-employed,  a  flat 
tax  applies.  This  status  may  be  cumulated  with  a  salaried 
job.  Following  the  introduction  of  the  new  regime,      1.2 

with self-employed without employees rising from 
5.2% of total employment in 2008 to 6.8% in 2017 
(see  Graph  4.3.1).  However,  the  self-employment 
created  jobs  mainly  in  low-productivity  and  low 
pay  sectors  (Askenazy  and  Erhel,  2015;  OECD 
2017).  The  rise  of  temporary  contracts  continues 
steadily  -  in  particular  of  those  with  very  short-
term  contracts  (OFCE,  2018)  –  as  well  as  recalls 
with the same employer (Unédic, 2016, 2018). The 
transition  rate  from 
to  permanent 
contracts (11.7%) remains among the lowest in the 
EU. On the other hand, recruitment on open-ended 
contracts  has  been  increasing  since  mid-2015  but 
still represented only 15.6% of total recruitment. A 
breakdown  of  job  creation  by  sector  reveals  that 
net  job  creation  in  the  last  10  years  was  positive 
only  in  services  sector,  while  it  was  negative  in 
industry  and  to  a  lesser  extent  in  construction, 
pointing  to  the  need  of  future  investment  for 
supporting 
and 
upskilling. 

the  professional 

temporary 

reskilling 

Graph 4.3.1:  Trends in self-employment, part-time and 

temporary employment 

Source: Eurostat 

As  labour  market  conditions  improve,  several 
indicators  point  to  skills  mismatches.  While 
unemployment  and  under-employment  remain 
high, the job vacancy rate and the labour shortage 
index  are  increasing,  although  at  a  slower  pace 
than in the EU. Shortages of skilled workers can be 

million  unincorporated  enterprises  were  created  between 
2009  and  2012,  representing  about  half  of  total  newly 
created enterprises (Askenazy and Erhel, 2015). However, 
most  micro-entrepreneurs  retain  an  accessory  status  with 
low  financial  turnout,  based  on  latest  available  data 
(INSEE 2010-2014). 

40 

05101520%Self-employment (without employees) - totalTemporary employees 20-64Part-time employment 20-64 
 
                                                           
 
                                                                                   
4.3. Labour market, education and social policies 

wages partially picked up in 2017 in response to a 
gradually  improving  labour  market  (see  Graph 
4.3.3).  However,  due  to  rising  inflation  real  wage 
growth  remained  moderate  (+1.0%).  The  job 
vacancy  rate  (50)  has  been  also  increasing  -  from 
0.6% in 2012-2015 to 1.2% in Q2 2018. Consistent 
with tightening labour market conditions, nominal 
wage growth has picked up from 1.5% of the first 
half of 2017 to 2% of the first half of 2018. As part 
of  the  ‘law  for  the  freedom  to  choose  one’s  own 
professional  career’  adopted  on  September  2018 
5th, the French government introduced measures to 
reduce  the  gender  pay  gap  in  firms  with  at  least 
250  employees  by  2022,  as  well  as  in  firms  with 
between 50 and 250 employees by 2023. The main 
measure is the introduction of an index measuring 
gender  pay  inequalities  coupled  with  reinforced 
controls and financial penalties.  

Graph 4.3.2:  Beveridge curve: 2003Q2-2018Q2 

Source: European Commission, own calculations 

The  minimum  wage  continued 
to  evolve 
according to its indexation formula, with no  ad 
hoc  hikes  since  2013.  In  January  2019,  the 
minimum  wage  will  increase  by  1.5%,  aligned  to 
inflation  (tobacco  expected),  similar  to  reference 
wages.  Income  of  workers  earning  close  to  the 
minimum  wage  will 
by 
complementary  income  (Prime  d’activité),  which 
saw  a  significant  increase.  The  revaluation  of  the 
complementary income will not have an impact on 
the 
on 
of 
cost 
competitiveness. 

supported 

therefore 

labour 

and 

be 

(50)  The ratio between vacant posts and the sum of vacant and 

occupied posts. 

in 

certain 

detected 
sectors.  The  Conseil 
d’orientation pour l’emploi estimated unfilled ICT 
vacancies  could  reach  80 000  in  2020.  A  forecast 
exercise  led  by  the  European  Centre  for  the 
Development  of  Vocational  Training  expects  a 
more  marked  change  in  France,  compared  to  the 
EU  average,  in  the  labour  force  structure  towards 
higher  level  of  qualifications.  Skill  shortages  and 
lack  of  competencies  are  key  factors  explaining 
unfilled  job  vacancies.  According  to  data  from 
Pole Emploi, in 2017, out of 3.2 million registered 
job  vacancies,  150 000  were  cancelled  due  to  the 
lack  of  suitable  candidates  (47).  The  Beveridge 
curve  (48)  (see  Graph  4.3.2)  shifted  rightwards  in 
2008-2010,  entailing  a  higher  unemployment  rate 
for  the  same  job  vacancy  rate  and  pointing  to  a 
deterioration  of  the  match  between  job  vacancies  
and job seekers. Evidence suggests that, during the 
crisis  and  the  subsequent  recovery,  an  increase  of 
skill  mismatches,  contributed  to  both  a  slower 
decline of unemployment and to higher long-term 
unemployment (Dosi et al., 2017). These different 
factors  point  to  the  need  for  further  investment  in 
skills,  France  has  already  adopted  a  major 
Investment  plan  for  skills  (Plan  d’investissement 
dans  les  compétences,  PIC)  for  2018-2022  to 
tackle the skills mismatch. Adequate financing will 
be key for its success. 

Some  slack  in  the  labour  market  remains. 
Adding  up  underemployed,  discouraged  and 
unavailable  workers 
to  unemployed,  unused 
resources  still  amount  to  more  than  17%  of  the 
labour  force.  This  contributes  to  explain  the 
moderate  wage  dynamics,  which  are  below  the 
prediction  based  on  economic 
fundamentals 
(LMWD,  2018).  The  increase  in  the  share  of 
temporary  contracts49  from  11.9  %  in  2011  to 
15.6%  in  2017  (INSEE),  which  was  mainly 
concentrated  in  services,  also  had  a  large  and 
significant  negative  impact  on  wage  growth,  in 
particular at the lower end of the wage distribution.  

In  2017,  wages  started  to  respond  to  a 
tightening  labour  market.  After  growing  at  a 
moderate  pace  between  2013  and  2016,  nominal 

(47)  This  share  is  higher  for  contracts  shorter  than  6  months 
(4.2%).  

longer  duration  contracts 

(5.5%) 
(Boulemia, A. and  T.Goldman, 2017) 

than 

for 

(48)  The  Beveridge  curve 

linking 
is 
unemployment  rate  to  job  vacancies  and  is  usually 
negatively sloped over the business cycle. 

relationship 

the 

(49)  Fixed-term contracts and interim, excluding apprenticeship.  

41 

2013q12009q12014q12010q32016q12008q12010q42017q12012q42010q12018q12018q200,20,40,60,811,21,47891011Job vacancy rate (%)Unemployment rate (%) 
                                                           
 
                                                           
4.3. Labour market, education and social policies 

25)  not  in  employment,  education  or  training  but 
almost  three  quarters  (73%)  of  those  registered  at 
any point during the year had been waiting for an 
offer  for  more  than  4  months.  In  addition,  the 
percentage  of  young  people  (15-24)  not 
in 
employment, education or training is much higher 
for  non-EU  born  (18.7%)  than  for  young  people 
born in France (11.0%). Cooperation between key 
providers  of  employment  and  social  services  has 
not always been efficient so far, but is improving. 
These  elements  point 
to  further 
modernise  labour  market  institutions  and  services 
towards  an  integrated  approach.  Moreover,  active 
labour market policies are increasingly focused on 
training  for  jobseekers,  while  the  number  of 
subsidised  contracts  is  further  decreasing  (cf. 
Skills investment plan).  

to  a  need 

Graph 4.3.4:  Nominal unit labour cost dynamics 

labour 

Reforms  adopted  in  recent  years  aimed  at 
labour  market  segmentation  and 
reducing 
towards  open-ended 
promoting 
transitions 
law 
contracts.  The  September  2017 
ordonnances  fully  entered  into  force  in  2018, 
making  open-ended  contracts  more  flexible  and 
further  promoting  decentralised  bargaining  (see 
Country  Report  2018). Their effect  is  expected  to 
enhance gradually flexibility of the labour market. 
However, the merging of social dialogue entities at 
the company level, considered by trade unions as a 
reduction  of  available  means,  might  be  delayed. 
On  the  other  hand,  the  “Law  for  the  freedom  to 
choose one's own professional career” (2018/771), 
adopted on 5 September 2018, aims at developing 
professional  skills  of  the  active  population  and 
providing  tools  for  career  orientation.  Finally, 
negotiations between social partners on a reform of 
the  unemployment  benefits  system  are  ongoing. 
The  aims  are  i)  to  reduce  the  debt  of  the  system 
and  ii)  to  amend  the  rules  in  order  to  reduce  job 
insecurity and  make them  more  conducive for the 
unemployed, iii) to find an incentive mechanism to 
decrease the separation rate of the firms when it is 
excessively high. The public employment services 
are  undergoing  an  ambitious  modernisation 
agenda, 
their 
territorial  structure  and  a  digitalisation  of  their 
offer. 

rationalisation  of 

including  a 

Graph 4.3.3:  Wage benchmark 

Source: Eurostat, National Accounts 

Regional  disparities  are  relatively  moderate 
compared to other European countries, with the 
exception of outermost regions. In the outermost 
regions, disparities are particularly pronounced for 
indicators  linked  to  young  people.  Educational 
attainment rates tend to be much lower than in the 
rest of the country and labour market prospects of 
young  people  remain  weak  (youth  unemployment 
hovered around 50% in 2017, compared to 22.4% 
on average in France). Regional disparities are less 
pronounced  in  metropolitan  France.  In  general 
terms, 
long-term  unemployment  and  youth 
unemployment  are  higher  in  the  northeast  and 
higher 
Mediterranean 
employment  rates  are  recorded  for  working-age 
people living in rural areas rather than in cities. A 

areas.  Moreover, 

Source: European Commission, own calculations 

Reaching out to the most vulnerable jobseekers, 
in  particular  young  people  and  those  with  a 
migrant  background  remains  a  challenge.  In 
2017,  the  Youth  Guarantee  scheme  in  France 
covered an estimated 68% of young people (under 

42 

-2-1012345%Prediction based on inflation, productivityand unemploymentActual nominal compensation growth8090100110120130140150National currency; 2000 = 100  DE  ES  FR  ITEA-19 
 
 
4.3. Labour market, education and social policies 

Adequate investment and policies promoting social 
diversity  might  improve  the  reputation  of  poor 
neighbourhoods  in  the  long  run,  but  may  be  less 
in  tackling  discrimination  based  on 
effective 
family  names.  According  to  a  recent  study  by  the 
Défenseur  des  droits(51),  origin  is  one  of  main 
factors of discrimination at work.  

a 

Despite recent improvement, ensuring access to 
for  people  with  a  migrant 
employment 
background 
challenge.  The 
remains 
employment  rate  for  non-EU  born,  at  55.6%  in 
2017,  is  one  of  the  lowest  in  the  EU.  The 
employment  rate  among  recently  arrived  non-EU 
born residents is also very low (35.5 %). Non-EU 
born women are at a particular disadvantage, with 
an employment rate of 45.8%, almost 24 pps lower 
than  women  born  in  France  In  addition,  the 
acquisition  of  formal  qualifications  has  a  limited 
impact on employment opportunities, compared to 
natives: in 2017, 69 % of who were not born in the 
EU having tertiary education were in employment, 
against 85 % of who were born in France. The gap 
for  secondary  education  is  15  pps.  These  figures 
suggest  that,  at  equivalent  level  of  qualification, 
people  with  a  migrant  background  suffer  from  a 
lack of professional or personal networks and from 
direct  or  indirect  discrimination.  Tackling  these 
challenges,  also  in  light  of  the  Social  Pillar 
principles  on  equal  opportunities,  may  deserve 
higher investment on targeted policies. 

the  French  government 
In  June  2018, 
announced a series of  measures to improve the 
integration of newly arrived migrants. The new 
measures will increase the hours of French classes 
for newcomers (from 200 to 400  hours, up to 600 
hours  for  illiterate  people)  with  an  improved 
training framework. Access to employment is also 
expected  to  be  promoted  through  the  creation  of 
specific  vocational  training  pathways  for  5000 
refugees, 1000 pathways for skills recognition, and 
linguistic  trainings  with  a  vocational  dimension. 
Specific  measures 
be 
for 
implemented  (housing,  health,  better  support  to 
claim rights after getting the refugee status). These 
measures  will  only  start  to  have  an  impact  from 
2019 onwards.  

refugees  will 

(51)https://www.defenseurdesdroits.fr/sites/default/files/atoms/fi

les/etudresult-harcmoral-a4-num-30.08.18_0.pdf 

recent  OECD  study  showed  that  Pays  de  la  Loire 
and Auvergne-Rhone-Alpes accounted for 52% of 
the  overall  job  creation  in  the  period  2011-2016, 
and  Hauts-de-France 
whereas  Grand  Est 
concentrated  about  70%  of  job  destruction  in 
metropolitan France. On the other hand, the region 
Ile-de-France contributed only a 17% share to the 
overall  job  creation,  although  on  jobs  of  higher 
productivity potential (OECD regions at a glance, 
2018). Moreover, French regions are characterised 
by  different 
risk  of  automation,  entailing 
differentiated  investment  needs  in  upskilling  and 
reskilling policies (OECD, 2018).  

Table 4.3.1:  Employment growth by sector 

Source: Eurostat 

to 

related 

disadvantages, 

The geographical concentration of people with a 
migrant background in poor neighbourhoods is 
a  matter  of  concern.  In  poor  neighbourhoods, 
more than 30 % of the population was born outside 
the  EU  (against  less  than  10  %  for  metropolitan 
France) (INSEE). People living in these areas face 
multiple 
lower 
educational  attainment  as  well  as  limited  social 
inclusion  and  integration  in  the  labour  market. 
the  national 
Testing  experiments  held  by 
ombudsman  (Défenseur  des  droits)  show  that 
living  in  a  poor  neighbourhood  has  a  negative 
impact  on  job  opportunities.  The  unemployment 
rate  in  these  neighbourhoods  was  of  25.3%  in 
2016, compared to 9.9% in the surrounding areas, 
but 
revamped 
recruitment  incentive  scheme  of  hiring  incentive 
(Emplois francs), whose experimentation started in 
in  194  neighbourhoods,  aims  at 
April  2018 
tackling  these  disparities,  but  it  is  too  early  to 
assess the results of this initiative. 

improving.  The 

slowly 

is 

People with a migrant background also tend to 
be disadvantaged during the recruitment stage. 
Experimental  studies  reveal  that  candidates  with 
Arab  sounding  names  and  residents  of  poor 
neighbourhoods  have  much  lower  chances  of 
obtaining a job interview than others with identical 
CV  (Bunel  et  al.,  2016;  Petit  et  al.,  2016). 

43 

Total employmentEmployeesSelf-employedTotal employmentEmployeesSelf-employedTotal - all NACE activities8,97,622,110,412,30,1Industry (except construction)-23,2-24,47,5-13,3-12,8-21,6Construction17,012,542,7-10,9-15,57,9Wholesale and retail trade, transport, accommodation12,912,020,113,920,0-9,3Professional, scientific and technical activities33,431,752,853,958,836,4Public administration11,79,559,818,116,841,3Arts, entertainment and recreation; other service activities14,410,848,122,620,633,0FranceEuro area 
 
 
 
                                                           
Education and skills 

levels 

Socio-economic  and  territorial  disparities  in 
educational  outcomes  remain  strong  at  all 
(European  Commission, 
educational 
2018). This points to significant investment needs 
in  this  area,  particularly  in  some  regions.  Inter-
generational  social  mobility  is  hampered  by  the 
strong  influence  of  socio-economic  and  migration 
(52). 
background  on 
Educational  attainment  is  much  lower  in  poor 
neighbourhoods.  Teachers 
disadvantaged 
schools  tend  to  be  less  experienced  and  teaching 
hours  are  de  facto  lower  due  to  both  teacher  and 
student  absenteeism.  Early  school  leaving  rates 
showed  significant  regional  disparities,  and  were 
particularly high in the Overseas territories. Access 
to  higher  education  also  varies  widely  across 
regions. 

educational  outcomes 

in 

level  of  offer  varies  between 

To improve basic skills and reduce inequalities, 
the starting age of compulsory education will be 
lowered  to  3  years  in  September  2019.  The 
measure  targets  those  few  children  who  do  not 
participate  in  early  childhood  education  and  care, 
most of whom are from disadvantaged and migrant 
backgrounds  or  live  in  overseas  territories.  In  the 
area  of  childcare,  France  is  performing  well,  but 
the 
regions. 
Moreover, the halving of class size in the first two 
grades of primary education will be extended to all 
disadvantaged schools by September 2019. French 
authorities  estimate  that  reducing  the  size  of 
classes  could  in  the  long  term  bring  about  an 
increase of 2 percentage points in GDP and create 
120 000  jobs.  The  measure  may  need  to  be 
accompanied  by  investment  in  infrastructures. 
There are also plans to strengthen teacher training 
to  deliver  differentiated 
is 
essential for class size reduction to have an optimal 
impact. These measures are likely to have an effect 
also  at  later  stages  of  education,  as  80 %  of  early 
learning 
leavers  already  experienced 
school 

teaching,  which 

(52)  On  average  across  OECD  countries,  students’  family 
background  explains  13 %  of  the  variation  in  student 
performance  in  science,  against  at  least  20 %  in  France 
(OECD  broken  elevator  p.261).  The  type  of  secondary 
school-leaving diploma (baccalauréat) obtained is strongly 
dependent  on  a pupil’s  socioeconomic  background.  While 
77 %  of  children  whose  parents  are  managers  have  a 
general  education  diploma  and  9 %  of  them  a  vocational 
diploma,  the  corresponding  proportions  for  children  of 
blue-collar  workers  are  34 %  and  44 %.  Similar  findings 
hold true for higher education.See also ETC 2018 and CR 
2018. 

4.3. Labour market, education and social policies 

difficulties in the first grade53. Still, as about 70 % 
of  disadvantaged  children  are  not  enrolled  in 
disadvantaged  schools  ‘éducation  prioritaire’  (54), 
the  measure. 
these  will  not  benefit 
Evaluations  for  new  pupils  have  been  set  up  in 
primary  education  as  well  as 
in  secondary 
education and cost-free tutoring for homework has 
been extended in lower secondary schools.  

from 

for 

teachers 

conditions 

participation 
development 

2020.  Teacher 
professional 

Working 
in 
disadvantaged  schools  will  be  improved.  The 
annual salary of staff in disadvantaged schools will 
be  progressively  increased  by  EUR  3 000  by 
in 
September 
continuous 
is 
comparatively  low  (TALIS  and  PIRLS),  partly 
is  not  compulsory  for 
because  participation 
secondary education teachers. The national budget 
allocated for continuous professional development 
is  far  from  being  fully  used  for 
teachers’ 
professional  development  and  its  effectiveness  in 
improving  competences  seems  limited.  Measures 
currently 
a 
strengthening  of  initial  teacher  education  and 
continuous professional development. 

discussion 

envisage 

under 

for 

the 

Complementary  reforms  of  upper  secondary 
and  tertiary  education  have  been  launched  in 
2018.  The  first  reform  aims  to  make  upper 
secondary  education  and  the  final  examination 
(baccalauréat)  more relevant for higher education 
or 
including  by 
labour  market, 
strengthening guidance. The second reform aims to 
improve  completion  in  higher  education,  while  so 
far  failure  and  dropout  have  disproportionately 
affected  disadvantaged  students  from  a  lower 
socio-economic background. It also aims to put an 
end to previous selection practices such as drawing 
lots  (Parcoursup).  Only  28 %  of  university 
students  graduate  three  years  after  completing 
secondary  education  and  only  41 %  after  4  years. 
for  holders  of  a 
lower 
The 
technological  or  vocational  baccalauréat.  The 
socioeconomic  background  of  students  has  an 
impact on the  baccalauréat chosen,  which in turn 
is  strongly  correlated  with  higher  education 
outcomes.  Places  reserved  for  holders  of  the 

figures  are 

(53)  Ministry  of  Education  (“Assises  école  maternelle  Mars 
http://education.gouv.fr/cid128334/assises-ecole-

2018); 
maternelle.html 

54   http://cache.media.education.gouv.fr/file/2018/68/4/depp-

ni-2018-18-02-l-education-prioritaire-etat-des-
lieux_896684.pdf 

44 

 
                                                           
                                                           
4.3. Labour market, education and social policies 

board.  Apprentices  below  the  age  of  20  will 
receive a salary increase, while those aged over 18 
will  benefit  from  EUR  500  support  to  pass  their 
driver’s license. To support equal enrolment and to 
limit the termination of contract, the preparation to 
be  undertaken  before  starting  an  apprenticeship 
programme  will  be  promoted  and  a  special 
the 
representative  has  been  appointed  by 
government to promote apprenticeship in the most 
deprived  areas  (Quartiers  politique  de  la  ville). 
Information  on 
integration  of 
labour  market 
curricula (also applying to school-based VET) is to 
implementing 
be  made  available,  although 
measure have not yet been taken. 

Measures  supporting  apprenticeship  will  be 
complemented  by  measures  on  school-based 
vocational  education  and  training.  Students  in 
school-based  vocational  education  and  training 
represent around 75% of vocational education and 
training  students  in  secondary  education.  The 
Ministry of Education is planning improvements in 
line with the announced law on “a School based on 
trust”  to  be  introduced  gradually,  with  main 
components  as  of  September  2019.  The  measures 
target 
through  better 
attractiveness, 
information  to  students  and  families,  clearer  and 
more  tailored  curricula  on  topics  such  as  digital 
(ii) 
energy 
technology 
employability, through closer links with companies 
and  as  of  September  2019  updated  training  offer, 
better adjusted to labour market needs and gradual 
specialisation of pupils. Moreover, links with other 
pathways, 
such  as  apprenticeship,  will  be 
strengthened (Cedefop, 2018).  

transition; 

and 

(i) 

: 

Adult  participation  in  learning  was  broadly 
stable  in  2017  (18.7%)  and  far  above  the  EU 
average (10.9%). Yet, the participation in learning 
by 
is 
low-qualified  and  unemployed  people 
comparatively  low  in  respect  of  other  groups. 
Upskilling the low qualified has been identified as 
an  investment  priority  by  the  French  authorities,  
in line with the 2016 CSR  on upskilling pathways, 
a  field  which  could  also  benefit  from  further 
to  validation  of  competences.  The 
support 
implementation  of  the  EUR  14  billion  Skills 
investment  plan  for  2018-2022  will  gain  pace  in 
2019.  The  plan  aims  at  reaching  out  1  million  to 
young  people  not  in  employment,  education  or 
training  and  1  million  low-qualified  unemployed 
and supports new forms of training (i.e. online). It 
has  been  launched  in  2018,  combining  outreach, 

technological  and  vocational  baccalauréat  will  be 
increased  substantially.  Minimum  quotas 
for 
holders  of  a  needs-based  grant  will  be  also 
guaranteed.  Increasing  the  completion  rate  can 
improve the efficiency of spending and impact on 
the future employment rates of students.  

the  extension  of  access 

Labour  market  outcomes  of  initial  vocational 
education  and  training  are  improving.  The 
positive  economic  developments  have  supported 
the  increase  in  the  number  of  apprentices  (+4.3% 
in  2017).  Higher  education  contributes  to  79%  of 
this  increase,  in  line  with  a  long-time  trend,  but 
apprentices in secondary education are also on the 
rise.  The  higher  education  component  of  the 
vocational education and training system would be 
to 
reinforced  by 
apprenticeship  from  25 
to  30  years  of  age 
experimented  in  9  regions  (Dares,  2018).  Recent 
figures confirm that apprenticeship presents better 
employment  results  than  school-based  vocational 
education  and  training.  Results  are  also  better  in 
terms  of  job  quality,  with  a  higher  share  of 
apprentices  hired  on  open-ended  contracts.  At  the 
same  time,  several  studies  point  at  the  potential 
orientation  bias 
into  apprenticeship, 
notably  based  on  socio-economic,  gender  and 
migrant background. 

in  entry 

and 

system 

Opening 

to  make 

to  reshape 

the 
The  2018  reform  plans 
apprenticeship 
it  more 
attractive  and  relevant  for  the  labour  market. 
The  September  2018/771  Law  introduces  several 
types  of  measures  to  support  both  the  supply  and 
demand  of  apprenticeship.  The  apprenticeship 
system  will  be 
funding 
governance 
significantly 
of 
restructured. 
apprenticeship  centres  will  not  be  conditioned  to 
Regional’  approval,  but  labelled  at  national  level 
from  spring  2019.  As  of  2020,  centres  will  be 
funded  based  on  the  number  of  signed  contracts, 
with  branch-defined  cost  coverage.  Regions  will 
retain  a  reduced  budget  to  ensure  a  geographical 
balance  of  the  apprenticeship  offer  within  their 
territory.  Termination  rules  for  apprenticeship 
contracts  will  be  made  easier  for  companies  and 
financial incentives will be exclusively targeted to 
small  and  medium  size  companies  for  training  up 
to secondary education levels. 

Several  measures  also  aim  to  improve  the 
appeal  of  apprenticeship.  The  extension  of  age 
limit from 25 to 30 years is to be applied across the 

45 

 
4.3. Labour market, education and social policies 

below  the  EU  average  of  22.4%.  The  impact  of 
social  transfers  (excluding  pensions)  on  poverty 
reduction,  at  44.8%,  is  one  of  the  highest  in  the 
EU. Income inequality remained slightly below the 
EU  average  but  well  above  pre-crisis  levels,  with 
the  Gini  index  at  29.3%  in  2017  and  the  S80/S20 
ratio at 4.4. However, in 2017, the rate of material 
deprivation  of  people  at  risk  of  poverty  increased 
from  7.1%  to  9.3%  (EU  level  2017  at  7.7%). 
Besides,  fixed  costs  reduce  disposable  income  for 
specific  groups.  This  is  particularly  the  case  for 
households  below  the  60%  of  median  income 
(DREES,  2018),  which  are  already  overburdened 
by housing costs (20.1 % against 4.7 on average in 
France). The increased taxation applied to fuel and 
tobacco  products  in  2018,  aimed  at  influencing 
consumption behaviour,  might have  hampered the 
disposable  income  of  specific  groups  (IPP  2018). 
In  response  to  social  protest,  the  government 
cancelled the increase in energy taxes in 2019.  

to 

the 
represent  11%  of 

Access to social protection for the self-employed 
has been improved. The September 2018/771 law 
self-
opens  unemployment  benefits 
total 
employed,  which 
employment.  Strict  eligibility  criteria  will  apply, 
such  as  a  compulsory  liquidation,  excluding  solo-
entrepreneurs.  Freelance  workers  do  not  have 
formal  access  to  maternity  benefit.  Moreover, 
trainees and vocational trainees do not have formal 
access 
to  unemployment  benefits  and  old 
age/survivors pensions. 

Some groups face additional difficulties, despite 
recent improvements. For instance, single parents 
with  dependent  children,  often  women,  face  a 
32.6%  poverty  rate  (down  by  2.6pps  in  2017). 
Poverty  in  young  people  (18-24)  also  remains 
relatively  high  at  20.9%.  The  risk  of  poverty  and 
material deprivation is particularly high for people 
with  a  migrant  background.  Risk  of  poverty  or 
social  exclusion  for  people  born  outside  the  EU 
was 33.6% in 2017, more than double compared to 
people born in France. The situation is particularly 
worrying  for  children.  41.3%  of  children  with 
parents born outside France were at risk of poverty 
in  2017  (compared  to  only  13.8%  of  those  with 
parents born in France),  one of  the highest rate  in 
the EU and steadily rising since 2014. In addition, 
people  born  outside  the  EU  tend  to  be  more 
exposed  to  poverty,  even  when  they  are  working. 
In spite of a slight improvement in the employment 
rates, the in-work at-risk of poverty rate of people 

counselling  and  support  to  training  measures.  As 
of  2018,  some  flagship  measures  have  started  to 
support  specialised  courses  on  the  low-carbon 
economy and to develop IT skills (EUR 77 million 
for  10.000  trainings  towards  IT  jobs  through  the 
label  IT  advanced  school  (Grande  école  du 
numérique), to test innovative approaches to offer 
low-
tailored  pathways  (100% 
qualified jobseekers and to strengthen the  training 
component  of  subsidised  contracts.  Half  of  the 
plan  will  be 
level; 
agreements between the State and the Regions are 
currently being rolled out.  

implemented  at  regional 

inclusion) 

to 

The  Skills  investment  plan  complements  the 
continuous  vocational  education  and  training 
reform.  The  personal  training  account  in  place 
since  2015  is  credited  in  euros  instead  of  hours 
since January 2019. The aim is to provide access to 
higher number of training courses, certified by the 
new vocational education and training governance 
body to overcome current eligibility restraints due 
to the sectoral segmentation of the current system. 
To  ease  access  to  certified  training,  the  law 
introduces a modularisation of the courses, with all 
professional  certifications  being  divided 
into 
‘competences  blocks’.  Autonomy  of  individuals 
should  be 
the  professional 
counselling which will receive additional funding. 
The  governance  of  the  system  is  being  reshaped, 
with  new  responsibilities  given  to  multi-sectoral 
skills  operators  (Opérateurs  de  compétences)  to 
support  companies  in  defining  the  training  needs. 
A national public agency “France Competences” is 
created  and  will  be  in  charge  of  financing  and 
regulating the system. Regions would see their role 
of  overseeing  coordination  in  orientation  and 
guidance  strengthened,  including  for  additional 
professional counselling. 

supported  by 

Social policies 

The  French  Social  protection  system  performs 
well  in  comparison  to  the  rest  of  the  world. 
Taxes and social transfers reduce the  gap in mean 
equivalised  disposable  income  between  the  top 
10% richest and the bottom 10% to 6 times (v. 22 
times  before  redistribution)  in  2017.  Between  the 
top  20%  richest  and  the  bottom  20%,  the  gap  is 
times  before 
reduced 
redistribution) (Insee, 2018). In 2017, the share of 
people  at  risk  of  poverty  or  social  exclusion 
reached  a  historical  low  at  17.1%,  significantly 

(v.  8 

to  4 

times 

46 

 
4.3. Labour market, education and social policies 

born outside the EU  increased to 19.3%  in 2017 
(6.5%  for  natives).  Inter-generational  mobility  is 
also a matter of concern. In 2017, the employment 
rate  for  native-born  persons  (15-34)  with  two 
parents  born  outside  France  was  15.9  pps  lower 
than  for  French  nationals  without 
immigrant 
background. 

The government presented in September 2018 a 
strategy  to  prevent  and  fight  against  poverty. 
This  ambitious  strategy  adopts  a  ’work-first’ 
approach.  An 
‘Activity  guarantee’  will  be 
developed  for  beneficiaries  of  social  minima, 
based  notably  on  the  Youth  guarantee  scheme, 
with  additional  100 000  places  being  created  in 
social  and  occupational  integration  structures  by 
2022.  The  strategy  also  aims  at  promoting 
effective  access  to  social  benefits  (take-up  gap 
currently  estimated  at  about  30%  for  the  main 
minimum  income)  as  well  as  developing  work-
friendly  childcare  facilities.  The  strategy  also 
intends  to  merge  different  income  benefits  into  a 
single  one  universal  activity  income  (Revenu 
universel  d’activité  (55).  Consultations  are  to  be 
pursued in 2019 and a draft law presented in 2020 
for  progressive  implementation  as  of  2021.  In 
response  to  the  yellow  vest  (‘gilets  jaunes’) 
movement, the government anticipated the planned 
the  Prime  d’activité  (household 
increase  of 
income-tested  complementary  activity  income), 
which  together  with  the  automatic  increase  in 
minimum  wage,  resulted  in  a  EUR 100  monthly 
gain  for  minimum  wage  earners  as  of  January 
2019.  

Overall, access to healthcare is good. The social 
security health insurance system is generalised and 
covers the entire population with a comprehensive 
care  package.  In  addition,  96%  of  the  population 
has  a  complementary  health  plan  subscribed 
individually  or  with  the  employer  (OECD),  for 
better coverage of those goods and services which 
are  poorly covered by  the social  health insurance. 
In  addition,  publicly 
funded  complementary 
coverage  is  available  for  insured  people  with  low 
income.  Overall,  out-of-pocket  expenditure  on 
healthcare has remained relatively low over recent 

(55)  In  2016,  the  adequacy  of  the  minimum  income  benefits 
exceeded  the  EU  average,  according  to  the  results  of  the 
2018  Benchmarking  exercise  in  the  area  of  Minimum 
Income  of the Social  Protection Committee.  See the Draft 
Joint  Employment  Report  2019  (European  Commission, 
2018) for details. 

years  compared  with  the  EU  average.  It  stood  at 
9.8%  of  total  health  expenditure  in  2016.  To 
further  limit  co-payments  by  insured  parties,  an 
agreement signed in 2018 between the government 
and professional bodies aims to achieve by 2021 a 
‘zero  co-payment’  on  dental  prosthetics,  optical 
items and hearing aids. The generalisation of third-
party  payment  at  the  point  of  delivery  for  all 
medical  services,  aiming  at  removing  financial 
barriers to medical treatment, has been postponed. 

Regional disparities in health services (‘medical 
  France  ranks 
deserts’)  remain  significant. 
slightly  below  average  in  Europe  in  terms  of 
medical  density,  with  a  ratio  of  3.4  doctors  per 
1 000  inhabitants  (OECD),  and  access  to  care  has 
become  difficult  in  some  areas,  mainly  in  rural 
zones, given the lack of practising doctors. Doctors 
are more prevalent in the southeast, the west coast 
and urban hubs and relatively scarce in most rural 
territories and major towns in the Paris region and 
territories  face  a 
northern  France.  Overseas 
particular 
isolated 
to 
challenge  due 
geographical  location,  administrative  or  financial 
barriers,  shortages  in  certain  medical  professions 
(e.g.  specialists)  and  weak  prevention.  The 
implementation of the 2017 plan for access to care 
in  the  regions  is  showing  first  results,  with  the 
promotion  of  telemedicine  and  e-health,  financial 
support  for  538  multidisciplinary  medical  homes, 
incentives for medical and paramedical professions 
and for medical students and young doctors to start 
their career in underserved areas. 

their 

A  wave  of  massive  retirements  is  expected  to 
put  significant  pressure  on  the  health  system. 
The  ageing  of  the  medical  profession  (27%  of 
doctors  are  60  or  over),  the  preference  of  young 
doctors  to  work  under  salaried  contracts  and 
shorter hours, as well as the rise in the demand for 
care, are all set to put pressure on the system. The 
government  is  taking  steps  to  ease  access  to 
medical professions, facilitate the establishment of 
medical  practice  and  modernise  medical  and 
paramedical studies (see section 4.4.2.). Moreover, 
400 family doctors have been allocated to ‘medical 
deserts’.  According  to  the  government,  more  than 
EUR  3.4  billion  will  be  needed  until  2022  to 
finance  the  implementation  of  the  transformation 
strategy (see Section 4.1).  

Social housing supply is limited in certain areas. 
Despite  recent  positive  developments  (124 200 

47 

 
                                                           
4.3. Labour market, education and social policies 

potential  risks  of  shortage  of  social  housing 
(Fondation Abbé Pierre). The law is also relaxing 
standards  related  to  accessibility  of  people  with 
disabilities,  by  reducing  from  100 %  to  20 %  the 
share of new housings to be fully accessible. This 
change  has  been  criticised  by 
the  French 
Ombudsman  and  the  Council  of  Europe.  An 
assessment of the changes introduced by the law is 
planned in 5 years. 

Investment needs 

inclusion  are  particularly 

Increased  investment  in  skills,  education  and 
training,  employment 
support  and  active 
inclusion  can  foster  equal  opportunities  and 
improve  access  to  the  labour  market.  Adequate 
employment  support  and  further  investment  in 
social 
to 
improve  labour  market  conditions  for  youngsters, 
low-qualified 
a  migrant 
and  people  with 
background and from urban deprived areas, with a 
particular focus on outermost regions. At the same 
time,  the  emergence  of  skills  shortages  and 
mismatches points at the need for additional public 
and  private  investment  in  initial  and  continuous 
training. 

important 

social rental units financed in 2016 and more than 
100 000  renovated),  shortages  of  affordable  and 
social  housing  remain  in  certain  regions.  It  is 
estimated  that,  in  2017,  2.1  million  households 
were  in  the  waiting  list  for  social  housing  (Union 
sociale  pour  l'habitat).  Overcrowding  for  more 
modest  households  is  also  increasing  due  to  the 
lack  of  accommodation.  Stronger  investment  in 
social  housing,  especially  in  areas  with  high 
demand,  could  reduce  social  distress  and  foster 
labour mobility. 

The recently adopted ELAN law (‘Évolution du 
logement,  de  l'aménagement  et  du  numérique’) 
aims at better allocating social housing to those 
most  in  need.    The  situation  of  existing  social 
housing  tenants  living  in  tense  areas  will  be  now 
revised  every  3  years  to  ensure  that  it  benefits  to 
the  most  urgent  situations  (see  Section  4.1) 
Transparency in the allocation of social housing is 
also  expected  to  be  fostered  by  generalising  a 
scoring  system  in  large  agglomerations.  So  far, 
only  2  large  agglomerations  (Paris  and  Rennes) 
have implemented this system. On the other hand, 
the  easier  conditions  for  selling  out  social  houses 
to  private  actors  could  lead  to  the  privatisation  of 
up  to  40 000  social  housing  units  per  year 
(compared to the current 8 000 units per year) with 

48 

 
 
4.3. Labour market, education and social policies 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights  is  designed  as  a  compass  for  a  renewed  process  of  upward 
convergence  towards  better  working  and  living  conditions  in  the  EU (1).  It  sets  out  20  essential 
principles  and  rights  in  the  areas  of  equal  opportunities  and  access  to  the  labour  market;  fair  working 
conditions; and social protection and inclusion. The analysis in this report has been carried out in light of the 
Pillar’s principles. 

France performs relatively well on a number of 
indicators  of  the  Social  Scoreboard  supporting 
the  European  Pillar  of  Social  Rights.  The  social 
protection  system  is  a  point  of  strength,  both  in 
terms  of  impact  of  social  transfers  on  poverty 
reduction and of quality of services. However, risks 
are  higher  for  specific  groups,  especially  when 
taking  into  account  fixed  household  costs.  The 
main challenges relate to entrenched labour market 
segmentation  and  equality  of  opportunities. 
Educational  and  labour  market  outcomes  remain 
strongly dependent on socio-economic and migrant 
background.  

Despite  the  several  reforms  adopted  in  recent 
years, the labour market remains segmented. The 
share  of  hiring  and  renewals  on  very  short-term 
contracts  remains  very  high,  despite  a  recent 
increase  of  hiring  on  permanent  contracts. 
Segmentation  may  also  have  negative  effects  on 
accumulation.  The 
capital 
long-term  human 
transition 
to  permanent 
contracts is among the lowest in the EU. Involuntary 
part-time  is  also  very  high.  The  September  2017 
labour  law  ordonnances  are  expected  to  gradually 
enhance  labour  market  flexibility,  but  their  effects 
remain to be seen. At the same time, negotiations are 
ongoing between social partners  on a reform of the 
system.  The  public 
unemployment  benefits 

temporary 

from 

rate 

employment services are undergoing an ambitious modernisation agenda. 

In  response  to  emerging  skills  shortages  and  persistent  inequality  of  opportunities,  a  comprehensive 
reform  package  has  been  adopted  in  2018.  The  aim  is  to  raise  basic  skills  and  increase  the  relevance, 
attractiveness  and  quality  of  vocational  education  and  training.  The  reform  also  aims  at  making 
apprenticeship more attractive and relevant  for the labour  market.  To  complement these reform efforts, the 
Skills investment plan will finance, over the next 5 years, intensive counselling with qualifying trainings, to 
improve the situation of disadvantaged groups on the labour market and fostering mobility and employment 
opportunities.  

(1)  The European Pillar of Social Rights was proclaimed on 17 November 2017 by the European Parliament, the Council 
and  the  European  Commission.  https://ec.europa.eu/commission/priorities/deeper-and-fairer-economic-and-monetary-
union/european-pillar-social-rights/european-pillar-social-rights-20-principles_en 

49 

Early leavers from education and training (% of population aged 18-24)On averageGender employment gapOn averageIncome quintile ratio (S80/S20)On averageAt risk of poverty or social exclusion (in %)Better than averageYouth NEET (% of total population aged 15-24)On averageEmployment rate (% population aged 20-64)On averageUnemployment rate (% population aged 15-74)On averageLong-term unemployment rate (% population aged 15-74)On averageGDHI per capita growth On averageNet earnings of a full-time average single worker earning AWBetter than 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 marketSOCIAL SCOREBOARD FOR FRANCEMembersStatesareclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaveragesandclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituation").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaverage,butitisimprovingfast.Formethodologicaldetails,pleaseconsultthedraftJoint Employment Report 2019, COM (2018)761 final. Data update of 29 January 2019.NEET:neitherinemploymentnorineducationandtraining;GDHI:grossdisposablehousehold income.                       
 
4.4.  COMPETITIVENESS REFORMS AND INVESTMENT 

4.4.1 Investment and productivity* 

Graph 4.4.1:  Public, corporate and foreign investment in 

France 

investment 

Total 
in  France.  Both 
is  high 
corporate  and  public  investments  are  at  a  high 
level  in  France.  Their  level  is  fairly  stable  in 
annual  terms  at  about  13 %  and  3 %  of  GDP 
respectively.  France  has  also  a  higher  share  of 
inward and outward foreign direct investment than 
in other large economies, accounting for 1.9 % and 
2.3 % of French GDP in 2017, respectively (Graph 
4.4.1).  A  Grand  Plan  d'Investissement  aims  at 
mobilising EUR 57 billion of investments over the 
the 
period 
environmental 
(EUR  20  billion), 
enhancing  skills  (EUR  15  billion),  improving 
innovation (EUR 13 billion), and digitising public 
services  (EUR  9  billion).  The  volume  of  total 
financing  under  the  European  Fund  for  Strategic 
Investments (EFSI) in France is the highest in the 
EU (Box 4.4.1).  

2018-2022, 

sustaining 

transition 

for 

Further  investments  in  infrastructures,  skills 
and innovation in France could foster potential 
growth,  support  competitiveness  and  reduce 
regional  disparities.  Additional  investment  may 
contribute to improve the performance of research, 
development and innovation activities as well as to 
address  the  challenges  of  the  digital  economy. 
Coupled  with  training,  further  investment  would 
also enhance the cost and non-cost competitiveness 
of  French  exports  (Section  1)  and  decrease 
regional  disparities  (Section  4.4.3,  Annex  D). 
Lastly, the announced investment plans would help 
modernise existing energy capacities, while further 
investment  may  support  the  transition  to  low-
carbon  and  circular  economy, 
including  by 
unleashing  the  potential  for  additional  private 
investments in this field. 

Business  investment  expanded  up  to  2017.  The 
investment  rate  of  financial  and  non-financial 
corporates  in  France  reached  23.9%  in  2017  as  a 
percentage  of  their  gross  value  added.  Business 
investment  in  France  performs  relatively  well 
compared  to  other  euro  area  Member  States 
(Graph  4.4.2).  In  addition,  a  survey  (EIB,  2018) 
shows  that  a  high  share  of  firms  in  France  are 
investing  and  expecting 
their 
investment  in  the  year.  This  position  in  the  ‘high 
investment 
has  been 
expanding’  quadrant 
reinforced (see Graph 4.4.3) for all sectors, except 
for construction. 

increase 

to 

Source: Eurostat 

Business  investment  in  intangible  assets  has 
been  resilient  during  the  crisis  contrarily  to 
investments  in  tangible  assets.  Investment  by 
firms in intangible assets has become important to 
support  the  relative  specialization  of  advanced 
economies at the upper end of global value chains. 
(Alexander  and  Eberly,  2018;  Corrado,  Hulten, 
and  Sichel,  2009).  In  France,  investment  in 
intangible  assets  (intellectual  property  products) 
stands above a number of other EU Member States 
and its level is close to that of Nordic EU Member 
States.  Investment  in  tangible  assets  (excluding 
dwellings) remains instead at a relatively low level 
with  respect  to  their  pre-crisis  trend  and  to  the 
the 
other  EU  Member  States.  In  particular, 
equipment  rate 
in  France 
in  robots 
compared  to  Germany  and  Italy  (132  robots  for 
10 000 employees in the manufacturing industry in 
France  in  2016  v.  309  in  Germany,  and  160  in 
Italy)  (Guillou  et  al.,  2018).  The  share  of 
machinery  and  equipment  considered  by  French 
firms as being state-of-the-art (29 %) is below the 
EU average (44 %) (EIB, 2018). 

low 

is 

to 

In  spite  of  the  rather  high  investment  level, 
productivity  gains  have  been  moderate.  In 
comparison 
large  European 
some  other 
economies,  France  is  characterised  by  a  stronger 
decline  in  total  factor  productivity  (TFP)  growth 
observed  since  the  2000s  (European  Commission 
2018a,  p.5).  This  structural  slowdown  of  total 
factor  productivity  growth  (Section  1),  first,  casts 

50 

-4-20246810121420102011201220132014201520162017% of GDPCorporationsGovernmentInward FDIOutward FDIInward - outward FDI 
 
 
4.4. Competitiveness reforms and investment 

doubts  upon 
the  efficiency  of  French  firms' 
investment and the impact of some public policies 
on  firms'  investment  decisions  (Guillou  et  al., 
2018, OFCE forthcoming). Second, it may lead to 
enquire  about  the  speed  at  which  investments 
translate into productivity gains, given investments 
in  intangibles  assets  may  take  longer  to  increase 
firms'  productivity  (OFCE  forthcoming).  Third,  it 
raises  questions  on  the  localisation  of  investment, 
as  investments  abroad  to  relocate  part  of  a 
production  process  could  affect  country’s  value 
added  (Markusen,  2002;  Navaretti  et  al.,  2010; 
Hijzen et al., 2011; Emlinger et al., 2019). Fourth, 
the structural slowdown of total factor productivity 
growth may be linked to a low innovative intensity 
of  firms.  According  to  a  survey  (EIB,  2018), 
the  most 
indeed,  replacing  capacity  remains 
commonly 
for  motivating  
priority 
investment by firms over the next three years (36% 
of  firms  in  France).  Contrarily  to  previous  years, 
this first priority is now more closely followed by 
the  need  to  develop  or  introduce  new  products, 
processes or services. 

cited 

Graph 4.4.2:  Investment rate by firms 

(1) Excludes public sector activities and real estate. 
Source: European Commission 

to 

is  mainly  attributable 

The  deceleration  of  aggregate  productivity 
growth 
lower 
productivity  growth  within  firms.  As  shown  in 
Graph  4.4.4,  on  average 
the  contribution  of 
efficiency  gains  within  firms  decreased  between 
2010  and  2014,  meaning  that  firms  experienced  a 
slowdown of their total factor productivity growth. 
At  the  same  time,  the  between-firms  reallocation 
of resources (allocative efficiency) decreased more 
between  2004  and  2007,  with  some  studies  even 
finding  a  stabilisation  over  the  most  recent  years 

(Libert,  2017)  and  others  highlighting  a  positive 
“dynamic  effect”,  that  is,  a  reallocation  towards 
productivity  enhancing  firms  (Ben  Hassine  2017, 
OFCE forthcoming) (56). By sector, manufacturing 
has  suffered  from  a  larger  slow-down  in  the 
within-firm  productivity  growth,  whereas  a 
relatively 
resources 
between  firms  has  been  observed  in  the  services 
sector, although the literature is not conclusive on 
this 
Increasing 
(Ben  Hassine  2017). 
heterogeneity  characterizes  French  firms  (Cette  et 
al., 2017), with highly productive firms tending to 
raise their total factor productivity at a faster pace 
than less performing ones. 

reallocation  of 

smaller 

topic 

Graph 4.4.3:  Business investment prospects in France 

Source: EIB, 2018 

Adopted  or  announced  reforms  are  likely  to 
boost  investment  and  improve  productivity. 
Barriers  to  firms'  investment  remain,  while  recent 
and  planned  structural  reforms  in  France  are 
expected to boost investment and productivity (box 
4.4.2). Their effects are difficult to qualify ex ante 
(IMF,  2018).  Following 
the  2016  Council 
Recommendation (57),  France  has  also  appointed 
the  Conseil  National  de  Productivité  as  National 
in  June  2018.  National 
Productivity  Board 
Productivity  Boards  are  objective,  neutral  and 
independent  institutions  that  can  investigate  the 
productivity  challenges,  contributing  to  evidence-
based policy making, boosting domestic ownership 
of structural reforms. 

(56)  The  methodology  used  for  the  decomposition  could 
introduce  a  downward  bias  in  the  allocative  efficiency 
component (Nishida et al, 2017). 

(57)  Council  Recommendation  of  20  September  2016  on  the 
establishment  of  National  Productivity  Boards.  OJ  C  349, 
24.9.2016, p. 1–4. 

51 

16%18%20%22%24%26%28%199920002001200220032004200520062007200820092010201120122013201420152016SwedenFranceFinlandGermanySpainItaly 
 
 
                                                           
4.4. Competitiveness reforms and investment 

Graph 4.4.4:  Total factor productivity (TFP) growth 

decomposition 

Furthermore,  the  business  dynamism  seems  to  be 
subdued,  as  suggested  by  the  low  and  declining 
share  of  employment  in  high  growth  enterprises 
(9.4%  compared  to  EU  average  of  14%  in  2016), 
in  particular  in  those  companies  belonging  to  the 
50% most innovative sectors (4.1% in 2015, down 
from  5.1%  in  2008  and  below  the  EU  average  of 
4.8%). 

resulting 

The  basis  for  ERDF  interventions  in  favour  of 
Research,  Development  and  Innovation  is  the 
elaboration of smart specialisation strategies at 
regional level. The success of these strategies will 
depend  on  the  territories’  ability  to  mobilise  and 
concentrate the resources on action plans designed 
to  support  their  strategic  objectives  and  activities. 
Updating  these  strategies  from  the  2014-2020 
period  will  be  needed,  especially  in  the  new 
regions 
regional 
from 
organisation. The success of this process  will also 
depend  on  the  ability  to  coordinate  the  approach 
over time, to support an entrepreneurial discovery 
process 
innovative 
the 
ecosystem  in  the  long  term,  based  on  the  defined 
strategy,  to  coordinate  with  other  French  and 
European  regions  with  a  view  of  optimising  the 
benefits  of  the  transfer  of  skills,  knowledge  and 
technologies in the territories. All these challenges 
could benefit from the exchange of good practices 
among French regions, and also regions inside the 
cross border and inter-territorial cooperation. 

the  new 

involving 

regional 

While  the  quantity  of  human  capital  in  science 
is  high,  there  may  be  room  to  strengthen  the 
efficiency  of  the  public  research  system.  The 
French scientific system benefits from a number of 
strengths  and  in  particular  the  share  of  French 
graduates  in  science  and  engineering  (21.6  per 
thousand  population)  is  the  second  highest  in  the 
EU.  However,  an  international  comparison  of 
public 
their 
indicators 
performance 
(number  of  publications,  citations  and  patents) 
against  the  resources  used  (DG  Trésor,  2018) 
suggested  that  the  French  performance  could  be 
improved. Its performance is comparable to that of 
Germany. In addition, France only ranks 10th in the 
EU for the share of top 1% highly cited scientific 
publications.  

systems,  measuring 

terms  of  outcome 

research 
in 

Source: COMPNET database, 6th edition 

Research, Development and Innovation* 

Research  and  development  investment  remains 
stable since 2015 and France has not been able 
to  reduce  the  gap  with  EU  innovation  leaders. 
Total research and development intensity (58) stood 
at  2.25%  in  2016,  which  was  above  the  EU 
average  (2.03%)  but  slightly  lower  than  in  2015 
(2.27%),  which  hints  to  a  certain  stagnation  of 
research  and  development  efforts  s.  Investment 
from the  business  sector has  been the  main driver 
of  the  overall  positive  trend  of  research  and 
development  investment  but  their  level  is  still  far 
below  the  2%  target.  Business  expenditure  on 
research  and  development  rose  to  1.43%  of  GDP 
in  2016,  compared  to  1.27%  in  2007.  Public 
expenditure on research and development amounts 
to  0.78%  of  GDP  in  2016,  above  the  EU  average 
(at  0.7%).  Overall,  France  is  not  on  track  to  meet 
its  total  research  and  development  intensity  target 
of  3%  for  2020.  France  is  also  among  the  more 
research  and  development  intensive  EU  Member 
research  and 
reported  business 
States 
development intensity growth rates lower than the 
EU average in 2007-2016 (European Commission, 
2018i).  According 
the  2018  European 
to 
Innovation  Scoreboard,  France  ranks  11th  in  the 
EU  and 
the  best 
performers  has  not  changed  over  the  last  years. 
Firms’  non-research  and  development  innovation 
expenditure  (59)  are  one  of  the  weak  dimensions. 

its  position  compared 

that 

to 

(58)  R&D investment as a percentage of GDP. 
(59)  This  indicator  measures  non-R&D  innovation  expenditure 
the 
total 

turnover.  Several  of 

as  a  percentage  of 

components of innovation expenditure, such as investment 
in equipment and machinery and the acquisition of patents 
and  licenses,  measure  the  diffusion  of  new  production 
technology and ideas. (Community Innovation Survey) 

52 

-3%-2%-1%0%1%2%3%2004-20072010-2014Allocative efficiencyWithin-firm component 
 
                                                           
                                                                                   
4.4. Competitiveness reforms and investment 

concentrated  on  national  industrial  priorities  and 
with a track record in EU projects.  

to  business 

The  efficiency  of  public  schemes  and  tax 
incentives 
for  research,  development  and 
innovation  needs  to  be  further  evaluated.  The 
French landscape is characterised by a wide range 
of  direct  and  indirect  support  schemes  and  a 
generous  support 
research  and 
innovation  efforts.  This  includes  the  R&D  tax 
credit scheme (Crédit d’Impot Recherche, CIR) the 
most generous among OECD countries, amounting 
to  0.24%  of  GDP  in  2018.  However,  the  overall 
performance of the research and development and 
innovation ecosystem does not yet match the large 
amount 
International 
organisations have already drawn attention on this 
issue in the past (OECD, 2014). This warrants the 
need for a comprehensive evaluation of the policy 
mix to inform  future implementation. (61).A group 
of  French  experts’  repeated  the  call  for  regular 
evaluations  of  public  schemes  (Lewiner  report). 
The 
de 
l'innovation’),  set  up  in  July  2018,  is  tasked  with 
supervising  the  simplification  measures  including 
better  coordination  between  regional  and  national 
support to innovation.  

Innovation 

(‘Conseil 

support. 

Council 

public 

of 

is  making  artificial 

intelligence  a 
France 
national priority. Drawing on the  findings of the 
Villani  Report  (2018),  a  national  strategy  for 
artificial intelligence (“AI for humanity”) has been 
designed  and  foresees  EUR  1.5  billion  in  public 
investments  until  2022.  This  strategy  will  take 
advantage  of  the  quality  of  human  resources  in 
mathematics, computer science, cognitive sciences 
and  existing  leading  research  centres.  Priority 
areas  include  mobility,  environment,  security  and 
health, notably the creation of a Health Data Hub. 
The  Innovation  and  Industry  Fund  (Fonds  pour 
l’innovation  et 
through 
privatisations  (62),  will  also  contribute  to  provide 
funding 
intelligence.  Timely 
development  of  related  technologies,  such  as  the 
Internet of Things, 5G networks, high performance  

l’industrie),  financed 

artificial 

for 

(61)  Several  studies  are  currently  being  conducted  by  France 

Stratégie. 

(62)  The draft law PACTE allows the French state to sell shares 
in Groupe Aéroport de Paris, Française des jeux and Engie 
by  reducing  current  shareholding  minimum  requirements. 
The  proceeds  of  these  privatisations  will  be  invested  to 
generate  a  return  used  to  finance  the  EUR  10  billion 
Innovation and Industry fund. 

through 

incentivised 

Links  between  science  and  business  could  be 
further 
researchers’ 
careers. A limited number of public researchers is 
taking  part  in  business  creation  and  collaborates 
with  existing  companies.  Since  2000,  only  51 
requests  of  public  researchers  to  join  companies 
and  231  requests  to  create  new  businesses  have 
been  examined  by  the  Deontology  Commission60. 
The  draft  Pacte  law  (‘Loi  Pacte’)  would  relax 
some of the underused rules of the current law (Loi 
Allègre)  and 
to  promote 
includes  provisions 
researchers’  mobility  by  allowing  researchers  to 
dedicate  50%  of  their  working  time  to  newly 
created  companies,  as  well  as  to  return  to  public 
research  while  preserving  their  firms’  shares. 
However,  researchers’  careers  and  advancement 
are  still  largely  based  on  research  output  such  as 
publications. 

innovative 

Accelerator 

Partnership  research  between  businesses  and 
public  research  has  to  be  improved.  Between 
2012  and  2014,  15%  of 
firms 
collaborated  with  public  research  organisations 
and  universities  (compared  to  17%  in  Germany). 
France  continues  to  score  below  the  EU  average 
for  public  research  and  development  financed  by 
businesses.  Many  commercialisation  structures 
have  been  set  up  since  2010  with  the  Investment 
for  the  Future  Programme  (‘Plan  d'investissement 
d'avenir’, PIA) for a total public support reaching 
EUR  5.4  billion  between  2010  and  2020.  In 
particular,  the  first  results  of  the  14  Technology 
(Société 
Transfer 
d'accélération du transfert de technologies, SATT) 
in  terms  of  licencing,  patents,  spin-offs  are  below 
expectations and the target of financial equilibrium 
by 2020  will not be achieved  (Cour des Comptes, 
2018b).  Following  the  Court’s  recommendations, 
underperforming Technology Transfer Accelerator 
Offices  structures  will  be  closed  in  2019,  such  as 
SATT  Grand  Centre.  Evidence  also  suggests  the 
in 
need 
in 
partnership 
commercialisation 
to 
competitiveness  clusters  (‘pôles  de  compétitivité’) 
has  been  renewed  for  a  fourth  phase  (2019-2022) 
and priority will be given to clusters organisations 
well connected with others structures at local level, 

to  further  develop 
for 
research 
structures. 

training 
staff  working 

targeted 

Support 

Offices 

(60)  This number may underestimate the real number of public 
researchers that have moved to the private sector since not 
all  public  researchers  ask  for  a  review  of  the  Deontology 
Commission.  

53 

 
                                                           
                                                           
4.4. Competitiveness reforms and investment 

computing and, more generally, the data economy, 
will  be  one  of  the  keys  to  the  success  of  these 
initiatives.  

Box 4.4.1: The Investment Plan for Europe - in France 

Total financing under the European Fund for Strategic Investments (EFSI) in France amounts to EUR 11.6 
billion  and  is  set  to  trigger  EUR 60.6  billion  in  additional  investments,  which  make  France  the  country 
which benefited most in volume from the Fund (while it ranks eleventh as to the overall volume of approved 
operations as a share of GDP). France managed to highly mobilise EFSI on its priorities — innovation, the 
energy transition and the digital — in the regions. 

120 infrastructures and innovation projects have been financed by the European Investment Bank (EIB) with 
EFSI  backing,  which  amounts  to  approximately  EUR 9.3  billion  in  total  financing  and  set  to  trigger 
EUR 45.8  billion  in  total  investment.  3  regions  (Ile-de-France,  Hauts-de-France  and  Grand-Est)  represent 
more than half of the investments. 

Under  the  SME  Financing  component of  the  plan,  the  European Investment  Fund  (EIF)  has  developed  in 
France several tools: equipment loans, innovation loans and equity investments in SMEs through investment 
funds.  The  EIF  has  also  signed agreements  with  commercial  banks  to  provide them  with  a  guarantee  that 
they  will  finance  innovation  loans  for  research  and  development  of  SMEs.  40  agreements  financed  by 
European Investment Fund (EIF) with EFSI backing  have been signed with intermediary banks with a  total 
of EUR 2.2 billion of financing and set to trigger approximately EUR 14.7 billion in investments with some 
234 919 SMEs and mid-cap companies expected to benefit from improved access to finance. 

Examples of EFSI-backed projects in France 

Agriculture: Agricool 

Agricool  is  an  SME  in  France  which  developed  a  business  cultivating  strawberries  closer  to  the  city  and 
without pesticides  to  improve  flavour  and  reduce  transport  costs. The  co-founders  upcycled  an  innovative 
container in which to grow the fruit called a Cooltainer. To expand the business further, Agricool sought an 
equity investment from Daphni, a fund backed by EIF under the EU’s Investment Plan for Europe. Most of 
this  investment  was  used  to  recruit  engineers  and  agronomists,  with  the  company  expanding  to  45 
employees. 

Energy transition: Adestia energy-efficient social housing 

 

EFSI-backed financing: EUR 200 million, set to trigger total investment: EUR 330 million 

The EIB is providing a EUR 200 million loan for modernisation and energy efficiency refurbishment work 
in  25 000  social  housing  units.  The  loan  will  help  to  increase  the  volume  of  operations  by  speeding  up 
refurbishments that are more ambitious than originally planned, improving the quality of the housing units 
and reducing heating energy costs. In addition to the environmental and socio-economic impact, refurbishing 
these homes and bringing them up to standard will contribute to economic growth  in their areas due to the 
scale of the work undertaken. 

Circular economy: EcoTitanium: recycling aviation grade titanium 

The EIB is lending EUR 30 million to EcoTitanium to build and operate Europe’s first recycling plant for 
aviation  grade  titanium.  EcoTitanium  will  recycle  and  re-melt  aviation-grade  scrap  titanium  metal  and 
titanium  alloys.  All  aviation-grade  European  titanium  scrap  currently  has  to  be  exported,  mainly  to  the 
United States, as no such facility exists in Europe. The project would help establish a circular economy for 
titanium metal and alloys in Europe.  

54 

 
 
4.4. Competitiveness reforms and investment 

Box 4.4.2: Investment challenges and reforms in France 

Section 1. Macroeconomic perspective 

Total investment in France (measured as gross fixed capital formation) remains important. Total investment-
to-GDP ratio is higher than in the Euro area as a whole and in large economies including Germany, Italy and 
Spain. This is notably due to a larger share of corporate and public investment in GDP. However, investment 
growth  is  expected  to  cool  down  in  the  upcoming  years,  in  particular  in  the  corporate  sector.  Public 
investment is set to continue contributing in 2018-2019 to the increase in the share of investment in GDP. 

Section 2. Assessment of barriers to investment and ongoing reforms 

Barriers to investment in France are overall moderate. Access to finance is a barrier to investment only 
for  very  fast  growing  companies  or  break-through  innovation.  Also  thanks  to  the  action  of  national 
investment banks, external finance accounts for a larger share of investment finance in France than in other 
Member States (56 % v 35 %) (European Commission, 2018k). The proportion of firms that consider digital 
infrastructure to be an obstacle is instead increasing over time, with an 11-point increase compared to last 
year  (EIB,  2018).  Labour  and  product  market  regulations  continue  to  be  viewed  as  a  barrier  by  firms  in 
France  (European  Commission,  2018m).  In  this  respect,  measures  addressing  the  impact  of  temporary 
breaches  of  size  thresholds  should  alleviate  the  impact  of  the  regulatory  requirements  related  to  firms’ 
growth and give firms time to consider investment opportunities. 

Selected barriers to investment and priority actions underway 

More  business-friendly  taxation,  further  reducing  the  labour  tax  wedge,  and  implementing  a  gradual 
reduction in corporate income taxes will continue to unfold over the coming years. Along with recent labour 
market  reforms,  these  actions  might  sustain  firms’  investments.  Investment  barriers  stemming  from  the 
availability  of  workers  with  the  right  skills  and  unnecessary  regulatory  burden  are  being  addressed  as 
follows: 

1. The reform of the vocational education and training system could improve the link between training, labour 
market  and  firms’  needs  in  terms  of  hiring  (Section  4.3).  The  availability  of  staff  with  the  right  skills  is 
indeed considered as an obstacle for investment by 75 % of the firms in France. This share has increased 
vis-à-vis last year (62 %), although it remains lower than the EU average (77 %). 

2. The  2018  ‘Loi  pour  un  État  au  service  d’une  société  de  confiance’  further  simplifies  procedures, 
interactions  and  exchange  of  information  with  the  public  administration  (Section  4.4).  The  draft  law 
PACTE, currently under discussion, is expected to pave the way for businesses throughout life trajectories, 
notably  by  simplifying  procedures  to  start  or  to  register  them,  developing  new  rules  to  have  a  second 
chance,  and  reducing  the  time  and  cost  of  insolvency  procedures.  Some  measures  contained  in  the  same 
draft  law  may  also  help  channel  savings,  reorienting  them  to  more  risky  products  to  support  firms’ 
investment and growth.  

55 

Regulatory/ administrative burdenCSRTaxationCSRPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessCSRJudicial systemFinancing of R&D&ICSRInsolvency frameworkBusiness services / Regulated professionsCSRCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingCSRDigital Economy / TelecomEducation, skills, lifelong learning CSREnergyTransportLegend:No barrier to investment identifiedSome progressCSRInvestment barriers that are also subject to a CSRSubstantial progressNo progressFully addressedLimited progressPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
Digitisation* 

The  Plan  for  Ultra-Fast  Broadband  (Plan 
France Très Haut Débit) aims to ensure that all 
French  territories  are  covered  by  broadband 
networks  providing  at 
least  30  Mbit/s  by 
2022.   In  2017,  only  55%  of  French  households 
had such coverage, compared to an EU average of 
80 %. Fast broadband take-up is also low (20% of 
households v. 41 % in the EU on average in 2018). 
The  use  of  mobile  broadband  services  increased 
over the past year from 86 to 91 subscriptions per 
100  inhabitants,  but  is  still  slightly  below  the  EU 
average  (96).  Broadband  coverage  varies  greatly 
across  regions  and  remains  limited  in  rural  areas 
and  overseas  territories.  The  plan  France  Très 
Haut Débit was launched in 2013 and reviewed in 
2017  to  ensure  universal  access  to  fast  broadband 
(of at least 8 Mbit/s) by 2020. EUR 3.3 billion has 
been  committed  to  support  deployment  projects 
implemented  by  regional  and  local  authorities  in 
areas where private initiative is lacking. Measures 
to support equipment installation by households in 
remote  areas  (Guichet  Cohesion  Numérique  des 
Territoires)  have  also  been  announced.  In  June 
2018,  the  government  accepted  the  proposals  of 
operators  Orange  and  SFR  to  speed  up  fibre-to-
the-home 
deployment.  The  French 
authorities  expect  that  a  total  of  27m  fibre-to-the-
home 
from  private 
initiatives  will be built by the end of 2022. These 
and 
to 
related  measures  can  be  expected 
significantly  contribute  to  reach  the  country’s 
connectivity  targets.  A  close  monitoring  of  their 
implementation,  particularly  in  areas  with  poor 
coverage,  will 
the 
predominantly  decentralised  approach  as  well  as 
potential  bottlenecks  owing  to  availability  of 
skilled  required  for  network  roll-out  (see  Section 
4.3).  

lines,  of  which  18.8m 

essential 

(FttH) 

given 

be 

Actions  to  promote  the  adoption  of  digital 
technologies by companies are being developed. 
France’s levels of adoption of digital technologies 
and  e-commerce  are  below  the  EU  average  and 
vary  significantly  with  company  size.  Small  and 
medium-sized  enterprises  show  lower  adoption 
levels than their larger counterparts, e.g. only 15 % 
of  small  and  medium-sized  enterprises  sell  online 
compared  to  nearly  44  %  of  large  enterprises 
(European  Commission,  2018j).  France  Num, 
launched in October 2018, aims to further promote 
the  digital  transformation  of  business.  It  notably 

and  medium-sized 

seeks  to  unlock  EUR  1  billion  worth  of  loans  to 
small 
and 
microenterprises via a guarantee scheme that partly 
draws on EU funding.  

enterprises 

is 

to 

taking  measures 

France 
foster  e-
government  roll-out.  The  country  displays  a 
medium-high  level  in  terms  of  both  penetration 
and  digitisation  (eGovernment  Benchmark).  It 
performs  strongly  in  open  data  use  and  is  above 
the  EU  average  regarding  completion  of  online 
services  as  well  as  digital  public  services  for 
businesses. However, it is lagging behind in terms 
of the amount of pre-filled data in public services’ 
online  forms.  Action  Publique  2022,  launched  in 
October  2017  (see  Section  4.1),  includes  the 
objective  of  100  %  of  dematerialised  public 
services  by  2022.  A  dedicated  fund  for  the 
modernisation  of  public  services  was  set  up  end-
2017 and endowed with EUR 700 million over five 
years,  including  EUR  200  million  for  2018. 
Implementation  is  ongoing  and  32  transformation 
projects  have  been  launched,  including  several  on 
digital transformation (FranceConnect). In the area 
of e-health, results are mixed. 80% of primary care 
physician  offices  use  using  electronic  medical 
records  (OECD,  2018).  Telemedical  consultations 
are reimbursed by the national health insurance in 
primary  care.  E-prescribing,  however,  has  not  yet 
been implemented. A personalised digital space for 
patients will be introduced by 2022. 

Investments for sustainable growth* 

Energy 

financements 

In  2017,  France  invested  around  41  billion 
euros  in  climate-related  policies.  Most  of  these 
investments were in the fields of energy (20 billion 
euros  for  energy  efficiency,  6.6  for  renewable 
energies  deployment)  and  transport  (10  billion 
the  construction  and  updating  of 
euros  for 
sustainable transport), according to the ‘Panorama 
des 
by 
I4CE-Institute  for  Climate  Economics  (2018). 
These  investments  -  significantly  growing  for  the 
first  time  since  2013  -  aim  at  achieving  the 
ambitious  objectives  set  by  the  Energy  Transition 
Act (LTECV, Loi pour la transition énergétique et 
la croissance verte) adopted in 2015 and translated 
into operational terms in the National Low Carbon 
Strategy 
(SNBC,  Stratégie  Nationale  Bas-
Carbone) and the Multiannual Energy Programme 

performed 

climat’ 

56 

 
 
(PPE, Programmation Pluriannuelle de l’Energie). 
With  the  Climate  Plan  adopted  in  July  2017, 
France  has  now  set  carbon  neutrality  as  new  long 
term objective, to be met by 2050. 

in 

to 

the  pace 

So  far,  France  is  performing  well  in  climate 
mitigation  policy  but  needs  to  step  up  efforts 
with a view to reaching its 2030 targets. Notably, 
France  needs 
the 
increase 
deployment  of  renewables  (only  16 %  of  the 
energy  mix  in  2016  against  a  target  of  23 %  by 
2020)  and  energy  refurbishment  of  the  building 
stock.  The  observatory  set  up  by  the  Agence  de 
l'Environnement  et  de  la  Maîtrise  de  l'Energie 
(ADEME)  in  2018  indicates  a  widening  gap 
relative  to  its  "carbon  budget"  objective  (+ 6.7 % 
of  greenhouse  gas  emissions  in  2017,  mainly  due 
to  the  building  sector:  +22.7%).  If  no  further 
measures  are  taken,  France  would  fall  short  of  its 
2030 objective of greenhouse gas emissions by 10 
pps. (Graph 4.4.5). According to I4CE, in order to 
achieve  its  2020  and  2030  commitments  and 
considering  also  the  investment  gap  accumulated 
between 2016 and 2018 (63), France would need to 
invest  a  total  of  between  EUR  55  and  85  billion 
per  year  between  2019  and  2023.  As  more  than 
half  (52 %)  of  the  funding  supporting  for  these 
investments  is  publicly-driven,  the  economic  and 
regulatory  conditions  would  need  to  make  the 
financing  of  projects  more  viable  for  the  private 
sector  in  order  to  tap  significant  investment 
opportunities.  

setting 

The  French  government  presented  on  27 
November  2018  the  draft  second  Multi-annual 
Energy  Programme  for  2019-2028  (second 
PPE), 
for 
the  main 
investments  in  the  field  of  energy  involving 
public  intervention  in  this  period.  This  plan 
addresses  operationally  for  the  first  time  the 
implementation  of  the  objectives  in  terms  of 
nuclear  energy  that  were  included  in  the  energy 

trajectory 

(63)  In  its  National  Energy  and Climate  Plan  to be  adopted by 
31  December  2019  in  line  with  the  Regulation  on  the 
Governance  of  the  Energy  Union  and  Climate  Action 
(Regulation  (EU)  2018/1999  of  the  European  Parliament 
and  of  the  Council  of  11  December  2018),  France  will 
provide an overview of its investment needs until 2030 for 
the  different  dimensions  of  the  Energy  Union,  including 
renewable  energy,  energy  efficiency,  security  of  supply, 
and  climate  mitigation  and  adaptation.  The  information 
provided  will  further  contribute  to  the  identification  and 
assessment of energy and climate-related investment needs 
for France. France submitted its draft National Energy and 
Climate Plan on 15 February 2019.  

4.4. Competitiveness reforms and investment 

transition  law  adopted  in  2015.  In  particular,  the 
2nd PPE sets the objective of reduction of the share 
of  nuclear  power  to  50%  of  electricity  production 
by  2035.  At  the  same  time,  it  acknowledges  the 
need  of  a  continued  operation  after  40  years  of 
most  of  the  existing  nuclear  fleet,  which  will 
require  substantial  investment  (so-called  ‘grand 
carénage’).  The  investment  needs  have  been 
revised  in  2017  by  Electricité  de  France  (EDF)  at 
45  for  the  entire  fleet  over  the  2014-2025  period. 
The  government  also  asked  the  French  electric 
utility company (Électricité de France S.A., Graph 
4.4.6)  to  make  proposals  on  possible  evolution  of 
its  structure  for  meeting  the  objectives  set  in  2nd 
PPE. 
the 
implementation  of  the  second  duly  internalise  the 
need  for  Electricité  de  France  to  develop  without 
having unintended consequences for French public 
finances. 

to  ensure 

important 

that 

is 

It 

further 

simplification 

Further private investments would be needed in 
the field of renewable energy to reach the 23% 
target  for  2020.  Despite  an  appropriate  support 
scheme  in  place  (‘complément  de  rémuneration’), 
and  efforts  made  to  alleviate  administrative  and 
regulatory  barriers, 
is 
required  -  in  particular  in  the  field  of  off-shore 
wind technology: the delay of implementation of a 
project  (7  to  10  years  in  France  against  3  to  4  in 
Germany)  could  be  reduced  significantly  with  the 
adoption of the law ‘pour un Etat au service d’une 
société  de  confiance’.  The  systematic  appeals 
faster 
against 
deployment  of  wind  technology,  despite  its  high 
potential. Such issues could partially be solved by 
participating,  introduced  as  an  experiment  in 
recent  tenders,  communication  towards  citizens 
and local communities and a reform of local taxes 
so  that  hosting  municipalities  could  benefit  more 
from those projects. It is particularly important that 
France accelerate the penetration of renewables in 
the  heating  and  cooling  sector,  where  there  is  a 
large 
further 
decarbonisation. 

construction 

untapped 

potential 

prevent 

sites 

for 

High investment needs and gap equally concern 
energy  efficiency  in  buildings.  The  share  of 
building  stock  reported  to  satisfy  high  energy 
efficiency  standards  is  lower  for  firms  in  France 
(22 %) than the EU (37 %) (EIB, 2018). According 
to  the  plan  for  the  retrofitting  of  buildings  (‘Plan 
de rénovation énergétique des bâtiments’) adopted 
in  2017,  500 000  housing  units  should  be 

57 

 
                                                           
4.4. Competitiveness reforms and investment 

double 

(CEF),  which  will 

interconnections.  In  2018,  important  progress  was 
made  with  the  power  line  crossing  the  Bay  of 
Biscay,  co-financed  by  the  Connecting  Europe 
the 
Facility 
interconnection  capacity  between  France  and 
Spain  by  2025.  In  addition,  several  projects  of 
common  interests  are  planned,  which  should 
the  electricity 
contribute 
interconnection  capacity  between  France  and  its 
neighbours.  In  the  gas  sector,  France  is  well 
interconnected,  as 
the  output 
capacity doubling and the entry capacity increasing 
by 50% in the last ten years. 

illustrated  by 

to  further 

increase 

Graph 4.4.6:  Evolution of Électricité de France S.A. (EdF) 

indebtedness from 2005 to 2017 

Source: European Commission, based on EdF annual reports 

economy, 
Circular 
management and emission reduction 

eco-innovation, 

waste 

the 

France has strongly supported the development 
the 
of  eco-industries,  eco-innovation  and 
circular  economy  over 
last  decades. 
According  to  the  Circular  Economy  Monitoring 
Framework, 
the  circular  (secondary)  use  of 
material is also the highest in Europe (at 19.5 % in 
2016,  against  an  EU  average  of  11.7%), 
notwithstanding  the  limited  number  of  persons 
employed in the circular economy (1.52 % of total 
employment in 2016 compared to the EU average 
of  1.73 %).  In  April  2018  France  published  the 
first  roadmap  for  the  circular  economy  with  the 
objective to create up to 300 000 new jobs. Among 
others,  the  roadmap  is  set  to  reduce  by  30 %  the 
resource  use  and  consumption  compared  to  the 
GDP by 2030 (compared to 2010), reduce by 50 % 
the quantities of non-hazardous waste landfilled by 

retrofitted  annually  by  2020,  of  which  120 000  in 
social  housing  units,  and  380 000  in  private 
housing  units.  According  to  I4CE  (2018),  the 
investment  gap  reached  5  to  8  billion  euros  in 
2018,  accounting  for  60 %  of  the  total  climate 
investment gap. Despite the multiplicity of existing 
public  instruments  to  finance  this  segment  (zero-
interest  “eco-loan”,  Energy  Transition  Tax  Credit 
program  –  Crédit  d’impôt  pour  la  transition 
énergétique, CITE – or White Certificates program 
-  Certificats  d’économie  d’énergie,  CEE,  Habiter 
Mieux,  programme  de  l’Agence  nationale  pour 
to  unlock  private 
l’Habitat),  France  needs 
financing  into  energy  efficiency  on  the  necessary 
scale in order to secure its energy transition with a 
2020  perspective  and  beyond,  through  citizens 
awareness  campaign,  up-skilling  of  the  workforce 
and  one-stop  shops  with  a  strong 
territorial 
anchorage.  

Graph 4.4.5:  France: targets and emissions under the effort-
sharing legislation (percentage change from 
2005) 

Source: European Commission 

in 

to  advance 

Finally,  more  investments  in  interconnection 
projects  are  needed 
the 
integration  of  the  internal  energy  market,  e.g. 
by further tying the Iberian Peninsula. France’s 
in 
electricity 
2017 (64) and is on its way to reach the 2020 target 
of  10%  through  the  completion  of  Projects  of 
Common Interest (PCIs) currently under way, e.g. 
ElecLink 
the 

level  was  9% 

Savoie-Piémont, 

interconnection 

IFA2 

or 

(64)  Communication  on 

strengthening  Europe’s 

energy 

networks, COM(2017) 718 final. 

58 

-10%-14%-37%-11%-19%-27% -40% -30% -20% -10%+0%201720202030TargetEmissions(preliminary data)Projectedemissions-70000-2000030000800002005200620072008200920102011201220132014201520162017M€Cash and cash equivalents and liquid assetsPerpetual subordinated bondsLoans and other financial liabilitiesNet indebtedness, incl. Perpetualsubordinated bonds 
 
                                                           
 
4.4. Competitiveness reforms and investment 

agricultural  sector  did  not  take  the  opportunity  to 
increase at the same pace. Also on foreign markets, 
France’s total agri-food exports increased over the 
period  2007-2017  but  not  as  fast  as  total  EU 
exports, so that France has lost 1 percentage point 
of market share over this period.  

The  relatively  poor  performance  of  French 
exports over the last decade highlights the need 
to  reinforce  the  productive  value  chain.  The 
number of farms and people engaged in agriculture 
has decreased significantly. According to the Farm 
structure  survey  published  in  2018,  France  lost 
110 000 farms between 2005 and 2016, which is a 
20 %  decrease.  This  led  France’s  agricultural 
sector to have a good level of utilised agricultural 
area  as  well  as  livestock  unit  per  labour  unit 
compared  to  other  competing  Member  States, 
pointing  to  a  competitiveness  issue  at  value  chain 
level.  In  November  2018,  France  adopted  a  new 
the  États 
law  following 
Généraux  de  l’Alimentation  (EGA)  launched  in 
July  2017.  It  aims  to  improve  price  margins 
transmission  along  the  chain  (from  producers  to 
distributors),  while  giving  the  consumer  a  better 
perception  of  price  structure.  It  also  addresses 
societal  expectations,  notably  with  regard 
to 
organic  products,  quality  designations,  animal 
welfare,  reduction  of  phytosanitary  products  and 
waste, and soil quality.  

the  conclusions  of 

and 

sanitary  performance  of 

An investment plan amounting to EUR 5 billion 
between  2018  and  2022  has  been  launched  to 
help  increase  the  economic,  environmental, 
social  and 
the 
agricultural  and  agri-food  sectors.  In  France, 
there  is  an  increased  awareness  of  the  need  to 
further  modernize  the  agricultural  and  agri-food 
sectors  in  order  to  better  respond  to  citizens  and 
consumers’  expectations  in  terms  of  production 
practices 
diversification.  The 
modernization of the sector is seen as an important 
element 
inclusive 
to  ensure  sustainable  and 
growth,  through  investment  support  and  other 
relevant instruments like agri-environment-climate 
measures  as  well  as  accompanying  the  change  of 
farming  practices  through  extension  services.  The 
plan  will support investments covering  five  cross-
cutting priorities: (i) agro-ecology and reduction of 
inputs  (including  plant  health  and  antibiotics),  (ii) 
animal  welfare  and  animal  health  safety,  (iii) 
protein independence (animal feed), (iv) renewable 

supply 

2025 (compared to 2010) and an ambitious 100 % 
recycling of plastic waste by 2025. New extended 
producer  responsibility  schemes  will  be  put  in 
place,  while  the  scope  of  existing  ones  will  be 
expanded 
improved. 
Information to consumers on products' reparability 
will be made mandatory from 2020 for electric and 
electronic  devices,  according  to  a  specific  new 
index to be aligned with the EU product policy. 

their  governance 

and 

Further investments may be needed to increase 
eco-innovation,  waste  management, 
and 
emission  reduction.  Despite  the  progress  made 
thanks  to  the  national  industrial  policy  'Nouvelle 
France  Industrielle', 
legislative  and  financial 
barriers can still impede many companies to invest 
in eco-innovation. Individual behaviours and social 
acceptance  of  sustainable  consumption  patterns 
appear  to  be  difficult  to  change.  Banks  are  still 
cautious  as  to  funding  breakthrough  innovations. 
In  terms  of  waste  management,  with  a  recycling 
rate  of  42 %  in  2016 (Commissariat  Général  au 
Développement  Durable),  France  is  close  to  the 
EU target of 50 % recycling of municipal waste by 
2020.  However,  more  effort  will  be  necessary  to 
comply with the recycling targets in the post-2020 
period  and  to  reach  the  ambitious  targets  of  the 
action  plan  for  circular  economy.  As  for  the 
reduction  of  several  air  pollutants,  air  quality  in 
France  continues 
for  severe 
concern (65). Additional efforts are needed to attain 
the emission reduction commitments (compared to 
2005  emission  levels)  laid  down  in  the  new 
National Emissions Ceilings Directive (66) between 
2020 and 2029 and from 2030 onwards.  

to  give  cause 

Agriculture and agri-food sectors 

Despite  good  positioning  of 
the  French 
agricultural  sector  in  intra-EU  trade,  France’s 
trade  balance  has  deteriorated  in  the  past  few 
years.  From  2007  to  2017,  France’s  exports  to 
other  Member  States  went  from  14 %  to  11 %  of 
total  intra-EU  exports.  While  total  intra-EU  trade 
significantly,  France’s 
(in  value) 

increased 

(65)  For  the  year  2015,  the  European  Environment  Agency 
(2018) estimated that more than 40 000 premature deaths in 
France  were  attributable 
fine 
particulate  matter,  nitrogen  dioxide  and  ozone.  This 
corresponds  to  almost  500 000  life-years  lost  due  to  air 
pollution in absolute terms or more than 700 life-years lost 
in relative terms, i.e. calculated per 100 000 inhabitants.  

to  concentrations  of 

(66)  Directive 2016/2284/EU 

59 

 
                                                           
4.4. Competitiveness reforms and investment 

President  in  September  2018  aims  to  reform  the 
health professions and health education. It includes 
establishing  a  new  profession  of 
‘medical 
assistant’  to  relieve  doctors  from  performing 
administrative  tasks  and  abolishing  the  numerus 
clausus  to  access  medical  studies,  as  well  as  the 
exams at the end of the first study year. 

Barriers  have  led  to  high  profit  margins  and 
prices,  harming  the  competitiveness  of  the 
whole economy. Churn rates are lower and mark-
ups  are  higher  in  key  business  services  in  France 
compared  to  the  rest  of  the  EU.  In  real  estate,  as 
well  as  in  legal  and  accounting  services,  gross 
operating  rates  are  particularly  high  compared  to 
other  service  sectors.  Lack  of  competition 
combined  with  high labour costs  have  contributed 
to  keep  such  prices  high,  notably  in  real  estate 
transactions,  housing,  catering  and  professional 
services  (France  Stratégie,  2017).  Insofar  as  these 
services  costs  are  also  borne  by  firms  as  inputs, 
they  represent  an  additional  factor  weighing  on 
France's competitiveness, including on industry.  

In  the  retail  sector  France  has  carried  out  a 
number  of  reforms  to  reduce  the  regulatory 
burden,  but  further  effort  is  warranted.  .  On 
retail establishment the situation has improved and 
France is the tenth least restrictive Member States 
(European Commission, 2018g). However, France 
is the most restrictive Member State when it comes 
shops. 
to 
hours, 
Restrictions 
distribution channels for certain products and sales 
promotion.  In  addition,  a  specific  retail  tax  based 
on  selling  space  and  turnover  has  a  very  negative 
impact on the competitiveness of retailers and puts 
them  at  a  disadvantage  compared  to  e-commerce. 
In  this  context,  retail  sector  growth  in  France  is 
rather modest. 

regulating  daily  operations  of 
opening 

concern 

shop 

for 

the 

railway 

system,  France 

is 
As 
implementing  an  ambitious  reform,  which 
includes further opening up to competition. The 
‘Law  for  a  New  Railway  Pact’  entered  into  force 
on 28 June 2018. This law is designed to improve 
France’s  national 
(Société 
nationale  des  chemins  de  fer  français,  SNCF) 
governance, further open it up to competition, and 
improving  its  viability.  Indeed,  SNCF's  legal 
monopoly  on  rail  passenger  transport  is  expected 
to end in December 2020 for high-speed trains and 
in  December  2023  for  regional  transport.  Longer 

railway  company 

energy  production  and  energy  savings,  and  (v) 
workers’ health and working conditions. 

4.4.2 Competition and market integration* 

The  Competition  Authority’s  opinions  and 
recommendations  have  helped  to  improve  the 
functioning  of  key  markets  in  recent  years. 
Under  French  competition  law,  the  government 
must  consult  the  Competition  Authority  (‘the 
Authority’)  on  draft  secondary  legislation  that 
provides  for  price  regulation  as  well  as  measures 
restricting  access  to  a  market  or  a  profession, 
establishing  exclusive  rights  or  imposing  uniform 
prices  or  sales  terms.  The  Authority  may  also  on 
its  own  initiative  render  opinions  on  any  issue  on 
competition  or  carry  out  sector  inquiries.  For 
example, in January 2015, the Authority published 
an opinion on regulated legal professions (such as 
notaries and bailiffs) finding to be imperative that 
those professions were modernised and opened up 
to  competition.  The  Authority  then  issued  80 
recommendations  to  reform  the  legal  professions 
(such  as  lifting  restrictions  on  qualified  legal 
professionals to set up shop freely and introducing 
more  cost-based  and  flexible  pricing),  most  of 
which  were  reflected  in  the  final  Macron  law  of 
2015. 

legal 

Despite  progress,  barriers 
to  entry  and 
competition  in  business  services  and  regulated 
professions remain high. Main barriers arise with 
respect  to  restrictive  authorisation  requirements, 
reserves  of  activities,  shareholding  and  voting 
rights  requirements.  The  new  OECD  intra-EEA 
Services  Trade  Restrictiveness  Index  shows  that 
the  level  of  regulatory  restrictiveness  in  France 
vis-à-vis  other  EU  Member  States  is  higher  than 
the  Single  Market  average  in  sectors  such  as 
accounting, 
and  distribution 
services 
services.  In  the  short-term  accommodation,  the 
introduced  new  obligations  on 
ELAN 
collaborative  platforms.  Ambitious  reforms  in  the 
field  of 
regulated  professions  have  been 
undertaken in past years (i.e. 2015 Law on growth, 
activity  and  equality  of  economic  chances, 
designated 
the 
implementation  of  certain  measures  have  taken 
more time than expected and further improvements 
could  be  made  (Mission  d’évaluation  de  la  loi 
Macron,  2018)  Meanwhile  reforms  in  specific 
sectors  continue.  For  instance,  the  healthcare 
the 
transformation 

‘loi  Macron’), 

announced  by 

strategy 

law 

but 

as 

60 

 
4.4. Competitiveness reforms and investment 

Regions  differ  significantly  in  terms  of  R&D 
expenditure  and  innovation  performance.  With 
R&D  expenditure  of  4.75 %  of  GDP  in  2015, 
Midi-Pyrénées  is  the  only  region  that  exceeds  the 
3%  target  (Graph  4.4.7).  Only  six  other  regions 
spend  above  the  EU  average  of  2.04%.  The 
regional  efforts  in  R&D  by  private  businesses 
mimic  the  same  relative  ranking.  As  regards 
innovations, 
the  highest 
Ile-de-France  has 
innovative score  while Midi-Pyrénées and Rhône-
Alpes  also  show  good  performances.  Several 
metropolitan  regions  and  regions  that  are  still  in 
industrial  transition  or  rural  rank  below  the  EU 
average.  Outermost  regions  are  at  the  low  end  of 
the scale.  

In  terms  of  overall  regional  competitiveness, 
significant  differences  persist.  According  to  the 
regional  competitiveness  index (68),  Ile-de-France 
is  consistently  ranking  eighth  in  Europe,  much 
ahead  of  the  second  and  third  best  performers  at 
the  68th  and  87th  places.  However,  between  2013 
and  2016  all  but  five  regions  (three  in  the  Nord, 
Alsace  and  Guyane) 
their  overall 
ranking. 

improved 

Graph 4.4.7:  Regional expenditure for R&D in France 

transitional  periods  are  however  planned  for 
market  liberalisation  in  major  regional  transport 
networks  (e.g.  the  Greater  Paris  area).  The  law’s 
implementation will be detailed in ordonnances to 
be  published  between  December  2018  and  June 
2019. Railway stations will be transferred from the 
railway  undertaking  ‘SNCF  Mobilités’  to  the 
infrastructure  manager  ‘SNCF  Réseau’,  as  the 
current  arrangement  had  been  identified  as  an 
obstacle  to  the  opening  up  to  competition  by  the 
regulatory body (ARAFER). 

‘projet  de 
reviews 

France  has  also  planned  to  invest  EUR 13.7 
billion  to  improve  transport  and  mobility  until 
loi  d'orientation  des 
2023.  The 
mobilités’ 
of 
programming 
the 
infrastructures. State investment would increase up 
to  EUR 13.7  billion  for  2019-2023,  40 %  more 
than the previous five-year period. Main priorities 
for investment are as follows: the maintenance and 
modernisation  of  road,  rail  and  river  networks  to 
also  allow  greater  use  of  transport  multimodal 
solutions; the desaturation of  large  railway  nodes; 
the  opening  up  of  medium-sized  towns  and  rural 
areas  and  the  development  of  clean  and  shared 
mobility  on  a  daily  basis;  and  finally  the  modal 
shift 
the  rail 
connectivity  with  Spain  could  help  ensure  the 
circulation  of  trains  through  the  Trans-European 
Network  for  Transport  (TEN-T)  Atlantic  and 
Mediterranean corridors. 

in  freight.  Developing  further 

4.4.3 Regional disparities in investment 

Socio-economic  indicators  show a  major  divide 
between  some  growing  regions  and  the  rest  of 
the country. Île-de-France, Franche-Comté, Midi-
Pyrénées,  Rhône-Alpes  and  Pays  de  la  Loire are 
attracting  skilled  labour  force  in  higher  value-
added  sectors (67).  The  share  of  employment  in 
high  technology  sectors  is  far  below  the  EU 
average  of  4 %  in  the  rest  of  the  country  and 
declined  from  7.8 %  in  2010  to  7.1 %  in  2017  in 
the leading Ile-de-France. This state of play and its 
evolution  raise  some  concerns  about  the  overall 
attractiveness of French regions and their capacity 
to innovate and compete internationally.  

(67)  As  in  Section  1,  depending  on  the  date  of  statistical  data, 
the  names  of  the  regions  are  still  the  ones  existing  in  the 
former administrative organisation of the country. 

Source: Eurostat, own calculations 

Important  regional  differences  appear  also  in 
the  energy  sector.  Energy  intensity  is  decreasing 
in  almost  all  regions,  but  at  a  different  pace.  The 
decrease  in  energy  intensity  exceeds  30 %  in 
PACA and is very marked in Aquitaine (-28 %) or 

(68)  See the "EU Regional Competitiveness Index", available at 
https://ec.europa.eu/regional_policy/en/information/maps/r
egional_competitiveness/ 

61 

-1012345R&D expenditure - % ofGDPR&D expenditure -Difference betweenratiosR&D expenditure in thebusiness enterprisesector (BERD) - % ofGDPR&D expenditure in thebusiness enterprisesector (BERD) -Difference betweenratiosNon-capital regionsCapital regionMS average 
                                                           
 
                                                           
4.4. Competitiveness reforms and investment 

limited 

improvement 

improvements  in the functioning of labour and 
product  markets.  The  business  environment 
experimented 
in  2018, 
according  to  the  annual  assessments  of  the  World 
Economic  Forum  and  World  Bank  (WEF,  2018; 
World  Bank,  2018). The  former  registers  a  minor 
relative improvement (France ranks 17th out of 140 
countries  for  competitiveness),  but  weaknesses 
remain with regard to the functioning of the labour 
and  product  markets,  skills’ mismatches  and  the 
burden  of  government  regulations.  According  to 
the  Small  Business  Act  for  Europe  (SBA)  –  see 
the  business 
European  Commission,  2018j  – 
environment  for  small  and  medium  enterprises 
(SMEs) has improved over time (see Graph 4.4.8). 
For the tenth consecutive year, the participation of 
small and medium enterprises in the single market 
and  the  complexity  of  administrative  procedures 
remain among the weaknesses.  

legislation  must 

is  expected  to  be 
The  regulatory  burden 
reduced  over  the  next  years.  One  year  after  the 
July  2017  circular  introducing  the  "one-in,  two-
out" principle for autonomous decrees (70), 18 new 
autonomous  decrees  were  adopted  and  as  a 
compensation, 41 withdrawn or lightened (Comité 
interministériel  de  la  transformation  publique, 
2018).  After  an  update  exercise  in  2018,  the 
number  of  published  circulars  was  reduced  from 
30  000  to  10  000.  A  further  government  circular 
requires  any  new 
include 
simplifications.  In  October  2018,  the  government 
presented  legislative  measures  to  remove  over-
transposition  of  EU  law  in  several  fields,  such  as 
corporate 
law  or  public 
procurement.  In  addition,  a  law  ('loi  pour  un  État 
au  service  d' une  société  de  confiance') was 
adopted  in  July  to  facilitate  relations  between  the 
private and public sectors with three objectives: (i) 
to  public 
improve 
for  mistakes 
administrations  made  by  private 
firms  and 
individuals when made in good faith; (ii)  give the 
possibility to firms and individuals to  request ex-
ante  checks  by  public  administrations  for  legal 
certainty  they  comply  to  the  administration’s 
answer; and (iii) simplify public procedures.  

law,  environmental 

tolerance 

Small and medium enterprises suffer from fast-
administrative 
changing 

legislation 

and 

(70)  Autonomous  decrees  are  decrees  which  are  not  adopted 
pursuant  to  another  norm.  They  are  around  100  per  year, 
i.e. 10 % of all decrees. 

(-27 %).  Franche-Comté 

Midi-Pyrenees 
and 
Limousin  are  the  only  two  regions  where  energy 
intensity grows slightly (respectively 2 % and 3 % 
due  to  a  drop  in  GDP  that  exceeds  the  decline  in 
final  energy  consumption).  As  for  renewable 
energy,  while  Guyana  produces  40%  of 
its 
consumption from renewable  energy, that share is 
less than 5% in Île-de-France. In Auvergne-Rhône-
Alpes,  which is the strongest regional producer of 
renewable  energy  (more  than  28000  GWh/year), 
this  accounts  for),  about  one  third  of  the  regional 
consumption.  Each  French 
set 
renewable energy objectives for 2020 as part of its 
Schéma  Régional  du  Climat,  de  l’Air  et  de 
l’Energie 
a  planning  document 
established  under  the  Grenelle  II  law  in  2010. 
These plans will be updated in 2019 as part of the 
Schéma 
de 
développement  durable  et  d'égalité  des  territoires 
(SRADDET)  created  under  the  law  on  territorial 
organisation adopted in 2015 (69). 

d'aménagement, 

region  has 

(SRCAE), 

régional 

Waste  management  is  of  specific  relevance  for 
the  outermost  regions  (ORs).  In  2014,  the  ORs 
collected selectively only an average of 15.8 kg of 
household  waste  versus  45.9  kg  in  metropolitan 
France. The single incineration unit of households 
waste  in  Martinique  and  the  two  methanisation 
units  in  La  Réunion  signal  a  patent  lack  of 
equipment  in  the  ORs.  The  waste  collection 
network  is  also  unequally  developed.  Investments 
are  needed  higher  in  the  waste  hierarchy  (waste 
prevention  and  collection)  and  in  recycling  in 
order  to  meet  the  more  ambitious  targets.  The 
financial  burden  of  investments  and  of  operation 
costs are high for local authorities, which results in 
delays.  The  ORs  also  have  important  needs  in 
waste  water  treatment  and  supply  of  drinkable 
water, where less than 50 % of the population were 
connected  in  2012.  The  French  authorities  have 
adopted an action plan (‘plan eau DOM’) to speed 
up  the  implementation  of  the  Urban  Waste  Water 
Treatment  Directive  in  the  six  ORs  in  2016.  Yet, 
the situation remains of concern in Mayotte. 

4.4.4 Business and regulatory environment* 

Business  environment  has  slightly  improved 
since last year, but it would is still benefit from 
a reduction in the regulatory burden and from 

(69)  Loi  no  2015-991  du  7  août  2015  portant  sur  la  nouvelle 

organisation territoriale de la République. 

62 

 
                                                           
                                                           
4.4. Competitiveness reforms and investment 

12 500 in Germany, 10 000 in the UK or 8 000 in 
Italy.  They  have  potential  to  innovate,  export  and 
create jobs: in 2016 they created 156 000 out of the 
187 200  net  jobs  in  the  market  sector  (Institut 
Montaigne,  2018).  Small  and  medium  enterprises 
may  have  difficulties  to  grow  due  to  investment 
barriers (see Box 4.4.2). 

France  is  emerging  as  a  major  start-up  hub, 
although  many  French  start-ups  still  have 
difficulties to scale up. The start-up ecosystem in 
France is vibrant and in the first semester 2018, the 
number  of  venture  capital  deals  above  EUR  20 
million  doubled  compared  to  the  same  period  last 
year.  Foreign  investors  are  eager  to  invest  in 
French  start-ups,  notably  the  digital  ones  (EY, 
2018). French start-ups struggle, however, to grow. 
There  are  relatively  few  deals  worth  EUR  50 
million  or  more,  and  the  number  of  French 
"unicorns" (i.e. private companies valued at USD 1 
billion or more) remains limited. Public support to 
start-ups  in  the  digital  sector  is  channelled  in 
particular  through  the  French  Tech  initiative.  A 
French  Tech  Seed  Fund  endowed  with  EUR  400 
million  has  been  announced  to  support  tech  start-
ups  at  their  early  stages  of  development  (notably 
Deep  Tech start-ups and those  younger than three 
years  old).  Private  initiatives  include  Station  F, 
founded  in  June  2017  and  currently  the  largest 
business incubator in the world.  

The  draft  PACTE  law  aims  to  support  the 
growth  and  transformation  of  firms.  PACTE 
will reduce the number of thresholds firms face as 
they grow (however, remaining thresholds become 
broader  in  scope  and  more  costly  to  overcome, 
notably  when  reaching  50  employees).  It  also 
introduces a 5-year transition before considering a 
threshold  is  reached  and  encourages  small  and 
medium  enterprises 
incentives  and 
participation schemes for employees linked to firm 
performance  (71).  Finally,  it  provides  simplified 
procedures to start or register businesses (72); new 
rules  to  help  entrepreneurs  get  a  second  chance; 

to  use 

(71)  It cuts employers' social contributions ("forfait social") for 
small  and  medium  enterprises  below  50  employees. 
Concerning  firms  between  50  and  250  employees,  social 
security  contributions  will  be  cut  only  for  schemes 
“d’intéressement”,  as 
the  profit-sharing  schemes  are 
compulsory for this category of firms.  

(72)  Training obligations before opening a new business will no 
longer  be  obligatory  in  commercial  and  craft  sectors).  As 
of 2021 formalities will be allowed to be completed online 
(registration, start a business). 

complexity.  80 %  and  85 %  of  French  small  and 
medium enterprises find respectively fast-changing 
legislation and complex administrative procedures 
a  problem  for  business  (EU  average:  61 %  and 
60 %)  (European  Commission,  2018j).  Further 
progress  could  be  done  to  take  better  account  of 
business'  needs  when  designing 
legislation, 
following  the  example  of  the  consultations  done 
for  the  draft  law  PACTE.  Impact  assessments 
sometimes  appear  as  a  formal  exercise  with  little 
influence on the decision, even if the range of costs 
assessed  has  been  broadened  and  the  Secrétariat 
général du gouvernement can reject the assessment 
if its quality is insufficient.  Although an extended 
‘small 
test’  was 
introduced  in  2014,  none  has  been  carried  out 
since  2015.  Regarding  administrative  complexity, 
some  indicators  suggest  some  improvement  since 
2015  (baromètre  de  la  complexité,  DITP).  The 
procedures  which  businesses 
the  most 
complex  relate  to  building  authorisations,  public 
procurement  and  environmental  measures.  Firms 
spend  nearly  3 %  of 
tax 
obligations in France against a 2.5 % average in a 
(European 
sample  of  20  Member  States 
Commission, 2018f).  

and  medium 

turnover  on 

enterprises 

their 

find 

Graph 4.4.8:  France: SBA performance, state of play and 
development from 2008 to 2018 

Source: European Commission, 2018 

companies.  Early 

Entrepreneurship  is  still  weak  and  small  and 
medium enterprises have difficulties in growing 
stage 
into  mid-sized 
in 
entrepreneurial  activity  amounts 
France,  far  below  the  EU  average  (8.3 %),  even 
though  entrepreneurial  intentions  increased  from 
15.7 %  in  2016  to  17.6 %  in  2017  (European 
and  medium 
2018j).  Small 
Commission, 
enterprises have difficulties to grow into mid-sized 
companies. Indeed there are  only 5 800 mid-sized 
companies  (250-4999  employees)  compared  to 

to  3.9 % 

63 

123456789-12%-8%-4%0%4%8%12%-3.0-2.0-1.00.01.02.03.0Progress over time(Compound annual growth rate 2008-2018PerformanceVariation from the EU average (in standard deviations; EU average=0)Low Performance,ProgressHigh Performance, ProgressHigh Performance, DeteriorationNote: The scores presented in the chartabove are not fully comparable to those displayed in previous versions of the fact sheet. This is due to a review of the framework of indicators used to assess performance across the SBA principles. Only the aspects with sufficient backgrounddata are presented. The value for progress over time was set to 0% in case of insufficient data and marked in the above chart by a diamond shape.For more details, please consult the methodological note on the webpage of the SME Performance Review: http://ec.europa.eu/growth/smes/business-friendly-environment/performance-review/Legend:1. Entrepreneurship 2. 'Second chance'3. 'Responsive administration'4. State aid & public procurement5. Access to finance6. Single market7. Skills & innovation8. Environment9. Internationalisation 
 
                                                           
4.4. Competitiveness reforms and investment 

including  by  making 

and  reduces  the  time  and  costs  of  insolvency 
for  small  and  medium 
procedures,  notably 
them  more 
enterprises, 
French 
predictable. 
the 
administration’s  own  estimates, 
the  potential 
impact of the law on GDP is an increase by 0.32 % 
by 2025 and by 1 % in the longer term.  

According 

to 

64 

 
 
 
 
 
ANNEX A: OVERVIEW TABLE 

Commitments 

Summary assessment (73) 

2018 country-specific recommendations (CSRs) 

CSR  1:  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 
the  2019  budget. 
Progressively unify the rules of the different pension 
regimes to enhance their fairness and sustainability. 

in 

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): 

  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. 

  The  compliance  assessment  with 

the 
Stability and Growth Pact will be included 
in spring  when final data  for 2018 will be 
available. 

  Use  windfall  gains  to  accelerate  the  reduction  of 

the general government debt ratio. 

  The  compliance  assessment  with 

the 
Stability and Growth Pact will be included 
in spring  when final data  for 2018 will be 
available. 

(73)  The following categories are used to assess progress in implementing the 2018 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. 

65 

 
 
 
 
 
 
 
 
 
 
 
                                                           
 
A. Overview Table 

  No  Progress.  It  remains  difficult 

to 
understand  how  exactly  and  with  what 
timing  "Action  Publique  2022"  would 
contribute to the objective of reducing the 
expenditure-to-GDP  ratio  by  3  percentage 
points  by  2022.  Available  information 
shows weak adherence to the guidance for 
spending  reviews  agreed  in  2016  at  the 
level  of  the  Eurogroup.  Implementation 
risks seem  high  when looking at  the track 
record  of  spending  reviews  in  France  and 
the relatively limited results  produced. No 
and 
significant 
efficiency  gains  stemming  from  Public 
Action  2022  was  included  in  the  2019 
budget. 

expenditure 

savings 

  Limited  Progress.  In  October  2018,  the 
Government presented the main principles 
of  the  future  pension  reform,  which  will 
replace the more than 40 regimes currently 
existing  with  a  unique  and  universal 
pension  system.  Consultations  with  social 
partners  are  currently  ongoing,  while  the 
adoption of the reform is scheduled by the 
end of 2019.  

France has made some progress in addressing 
CSR 2: 

the  reforms  of 

  Substantial  progress  has  been  made  to 
the  vocational 
pursue 
education  and  training  (VET)  system  and 
improve  access  to  training.  The  law  on 
“freedom  to  choose  one’s  professional 
pathway”  (adopted  in  September  2018) 
reforms  apprenticeship  and  continuous 
training 
labour  market 
integration.  Measures  are  being  gradually 
to 
implemented 
increase 
of 
apprenticeship  (accompanying  measures 

January  2019 
attractiveness 

support 

since 

the 

to 

 

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. 

CSR  2:  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 
for  people  with  a  migrant 
market, 
background  and  people  living  in  deprived  areas. 
Ensure 
that  minimum  wage  developments  are 
consistent with job creation and competitiveness. 

including 

  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. 

66 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

for  apprentices,  financial  incentives  for 
SMEs).  Comparative  information  on  the 
labour  market  relevance  of  apprenticeship 
pathways  and  school-based  vocational 
education should be  made available in the 
future.  The  law  also  facilitates  access  to 
continuous  training  through  a  revised, 
training  account 
euro-based,  personal 
granting  increased  rights  to  low-qualified 
and  part-time  workers.  The  governance  of 
the  VET  system  is  overall  reshaped  and 
simplified  with  the  establishment  since 
single  national 
January  2019  of  a 
certifying authority “France compétences”. 
A 
reform  of  school-based  vocational 
education has been announced in 2018 and 
will  be  progressively  introduced  as  of 
September  2019.    In  addition,  a  EUR  15 
billion investment plan for skills (PIC) has 
been running since 2018 to train 1 million 
of  young  people  and  1  million  of  low 
qualified job seekers by 2022. The plan is 
gaining pace in 2019, based on agreements 
on  jobseekers  trainings  between  the  state 
and the regions, which are currently rolled 
out. 

  Foster  equal  opportunities  and  access  to  the 
labour  market,  including  for  people  with  a 
migrant background and people living in deprived 
areas. 

67 

  Limited  progress  has  been  made 

are 

discriminatory 

in 
improving  access  and  equal  opportunities 
in  the  labour  market  for  people  living  in 
deprived areas. A specific hiring premium 
for increasing labour  market integration is 
being  tested  since  April  2018,  before 
mainstreaming.  Moreover, 
possible 
internship 
professional  orientation  and 
currently 
being 
opportunities 
strengthened  at 
lower 
level  of 
the 
secondary  schools  in  these  areas.  Testing 
against 
is 
currently under way. However, the focus is 
limited 
to  bigger  French  enterprises. 
Concerning  persons  with  a  migrant 
background,  little  progress  has  been  made 
in 2018, apart from the actions targeted at 
recently arrived migrants and actions in the 
field  of  education.  A  revision  of  the 
integration  policy  for  recently  arrived 
migrants  focused  on  trainings  to  learn 
French 
professional 
the  mobilisation  of 
purposes) 
economic  actors  to  favour  their  access  to 
the  labour  market  (inter  alia  by  closer 

(especially 
and 

practices 

for 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

disadvantaged 

recognition  of 
monitoring  and  better 
qualifications 
professional 
and 
experiences).  On  education,  the  starting 
age  of  compulsory  education  was  reduced 
to three years, targeting those few children 
who  do  not  participate  in  early  childhood 
education  and  care,  most  of  whom  are 
and  migrant 
from 
backgrounds or live in overseas territories. 
The  halving  of  class  size  in  the  first  two 
grades of primary education was extended 
to all disadvantaged schools. The on-going 
upper-secondary  and  higher  education 
reforms  and  in  particular,  strengthened 
guidance  in  upper  secondary  education  as 
well  as  support  measures  to  increase  the 
completion rate in higher education and to 
increase the number of places reserved for 
holders  of  technological  and  vocational 
baccalauréat  also  supports 
the  future 
(disadvantaged) 
employment 
students. 

rates  of 

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

developments 
creation 
job 

  Some progress has been made in ensuring 
are 
minimum  wage 
consistent  with 
and 
competitiveness.  Since  2012,  no  ad-hoc 
hike  of  the  minimum  wage  has  been 
adopted.  The  minimum  wage  hence 
evolved following its automatic indexation 
rule,  evolving  below  reference  wages  in 
the previous years. The implementation of 
the formula led to an increase of +1.5% in 
January  2019,  aligned  to  inflation  and 
reference  wages  evolutions  observed  in 
2018. At the same time, the unemployment 
rate of the low-skilled remains in France at 
17%  end  2017  and  16.6%  in  the  second 
quarter of 2018. Income of employees paid 
close 
the  minimum  wage  will  be 
supported  by  an  additional  increase  of  90 
euros of the activity premium (at minimum 
wage  level)  associated  to  a  decrease  of 
employees'  social  contributions  applied  in 
October 2018. 

to 

CSR 3: 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 

France has made some progress in addressing 
CSR 3: 

68 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

performance of the innovation system in particular by 
improving  the  efficiency  of  public  support  schemes 
and strengthening knowledge transfer between public 
research institutions and firms. 

  Simplify the tax system, by limiting the use of tax 
taxes  and 
levied  on 

taxes  on  production 

expenditures,  removing 
reducing 
companies.  

inefficient 

  Some  progress  has  been  made 

in 
simplifying  the  tax  system  for  businesses 
and  removing  inefficient  taxes  while  very 
limited  progress  has  been  made  to  reduce 
taxes  on  production  levied  on  companies. 
In  particular,  several  measures  have  been 
announced  and  are  being  implemented  to 
simplify  the  tax  system  (ESSOC  law). 
Furthermore, a total of 17 inefficient taxes 
be 
worth  EUR 
discontinued in 2019. On tax expenditures, 
six inefficient tax expenditures are planned 
to  be  suppressed,  while  four  new  ones 
(worth  EUR  1  billion)  to  be  introduced. 
However,  little  has  been  done  to  reduce 
taxes 
on 
companies:  only  one  tax  ("forfait  social") 
is planned to be cut in 2019 (according to 
the budget law). 

production  weighing 

7.5  million  will 

on 

  Reduce  the  regulatory  and  administrative  burden 
to increase competition in the services sector and 
to foster firms' growth.  

  Some progress has been made in reducing 
the regulatory and administrative burden to 
increase competition in the services sector 
and to foster firms' growth. The 2018 ‘Loi 
pour  un  État  au  service  d’une  société  de 
confiance’ (ESSOC law) further simplified 
procedures,  interactions  and  exchange  of 
information with the public administration. 
A 
law  supporting  firms'  growth  (loi 
PACTE) is currently being discussed at the 
Parliament.  It  plans  to  reduce  the  number 
of  thresholds  related  to  size-dependent 
regulations  based  on 
the  number  of 
employees  that  firms  face  as  they  grow, 
and  to  introduce  a  five-year  transitional 
period  to  give  firms  time  to  adjust  when 
they  cross  these  thresholds.  To  further 
support  SME  growth, 
law 
promotes  employees'  incentives  linked  to 
firm  performance  by  removing  the  so-
called forfait social for firms with less than 
50  employees.  Barriers  to  competition  in 
the  services  sector  remain  and  reforms  in 
specific sectors continue. For instance, the 
healthcare  transformation  strategy  ("Plan 

the  draft 

69 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Step up efforts to increase the performance of the 
innovation  system  in  particular  by  improving  the 
efficiency  of  public  support  schemes  and 
strengthening  knowledge  transfer  between  public 
research institutions and firms. 

A. Overview Table 

Santé")  announced  by  the  President  in 
September  2018  aims 
the 
numerus clausus to access medical studies.  

to  abolish 

to 

improve 

announced 

(2019-2022)  of 

  Limited  progress.  Several  measures  have 
been 
the 
performance  of  the  innovation  system, 
with  a  particular  focus  on  breakthrough 
innovation,  e.g.  the  Innovation  Council 
and the EUR 10 billion fund, but they still 
need to be fully implemented. Concerning 
the  efficiency  of  public  support  schemes, 
the 
the  4th  Phase 
competitiveness poles has been announced 
and  the  preliminary  design  suggests  that 
some  of  the  weaknesses  identified  in  a 
previous  evaluation  have  been  addressed. 
The 
the 
announced  publication  of 
evaluations  of  the  R&D  tax  credit  (CIR) 
have  been  repeatedly  postponed  and  it  is 
still  due  to  date.  Finally,  more  incentives 
for  researchers  in  the  public  sector  to 
collaborate  with 
industry  have  been 
proposed in the PACTE law which has not 
been adopted yet. 

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 70.6 % in 2017, up from 70 % since 2016.  

a 

71.2 % 

employment 

This  rise  continued  in  the  first  half  of  2018, 
in 
with 
metropolitan  France  in  the  second  quarter.  
However, the 75 % target remains out of reach 
at  this  stage,  in  spite  of  continued  job 
creations in the private sector. 

rate 

R&D target: 3.0 % of GDP 

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 2016 was at 2.25%, up from 
2.02% in 2007.  

- Public R&D intensity has been rather stable 
over time, stabilising at 0.78% in 2016. 

- Business  R&D intensity  has increased since 
2008, but it stood only at 1.43% GDP in 2016. 

70 

 
 
 
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) 

Renewable  energy  target:  23 %,  with  a  share  of 
renewable  energy  in  all  modes  of  transport  equal  to 
10.5% 

Based  on  the  latest  national  projections  and 
taking  into  account  existing  measures,  non-
ETS  emissions  will  fall  by  19.4 %  between 
2005  and  2020.  The  -14 %  target  is  thus 
expected to be met, by a margin of more than 
five percentage points. 

In 2017, according to Eurostat data, the share 
of  renewable  energy  in  gross  final  energy 
consumption  reached  16.3 %,  which  is  below 
the interim target of 19.5 % set in the National 
Renewable  Energy  Action  Plan  (NREAP) 
presented in 2009 to pave the way towards its 
2020 objective of 23 %.  

The tenders organised under the "complément 
de  remunération"  scheme  (equivalent  to  a 
feed-in-premium, 
1 
January 2016) should help France in achieving 
its 2020 target.  

implemented 

since 

Concerning  the  renewable  energy  share  in 
heating  &  cooling,  the  National  Renewable 
Energy  Action  Plan  anticipates  a  share  of 
33 %  for  in  2020.  However,  since  2010,  the 
actual  deployment  has  constantly  been  below 
the  planned  trajectory  (in  2016,  the  share  of 
renewables  in  heating  and  cooling  reached 
21.1 %,  below  the  interim  target  of  25.5 %). 
Moreover,  the  spread  between  the  anticipated 
share  and  the  effective  share  has  increased. 
According  to  the  European  Union  Reference 
Scenario  2016,  the  country  is  projected  to 
miss its anticipated 2020 value, despite several 
measures 
the 
to  promote  renewables 
heating and cooling sector. 

in 

In  the  field  of  transport,  according  to  the 
National  Renewable  Energy  Action  Plan,  the 
anticipated national share of renewable energy 
in  the  transport  sector  is  10.5 %  by  2020. 
Since  2010,  France  is  on  track  regarding  its 
planned  trajectory.  If  the  current  trend  is 
maintained  (8.9 %  in  2016),  the  country  is 
projected to be almost in line in with its 2020 
anticipation.  Due  to  a  very  important  diesel 
fuelled  car  market,  France  is  by  far  the  top 
European  biodiesel  consumer.  The  country 
owns  a  structured  biodiesel  industry  with 
some of the main European producers. 

71 

 
 
 
Energy  efficiency  target:  219.9  million  tons  of  oil 
equivalent 
energy 
consumption  and  131.4  Mtoe  for  the  final  energy 
consumption  

primary 

(Mtoe) 

the 

for 

A. Overview Table 

its 

Since  2005,  France  has  decreased  its  primary 
energy  consumption  by  13 %  to  reach  239.5 
million  tons  of  oil  equivalent  (Mtoe)  in  2017 
final  energy  consumption  also 
and 
decreased  by  43 %  to  reach  148.7  Mtoe  in 
2017,  whereas  the  GDP  increased  by  15.2 % 
over the same period. These figures - together 
intensity  which 
with  the  primary  energy 
decreased  by  a  1.8 %  annual  average  rate 
since  2005  –  reflects  the  general  decoupling 
between 
energy 
consumption.  

economic  growth 

and 

However, even  if France has  reduced the  gap 
towards its indicative national 2020 targets for 
energy  efficiency,  the  rapid  and  thorough 
implementation  of  the  Energy  Transition  for 
green  growth  Act  of  2015  is  required  to 
further  tap  into  the  significant  potential  for 
energy demand reductions in areas such as the 
building  sector.  Additional  efforts  should  be 
envisaged  to  accelerate  the  energy  renovation 
of  residential  buildings  and  development  of 
demand-side response. 

The French early school leaving rate remained 
stable  at  8.9 %  in  2017  from  8.8 %  in  2016, 
remaining under the Europe 2020 target.  

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

The  French  tertiary  education  attainment  rate 
for  the  population  aged  30-34  years  was 
44.3 %  in  2017,  increasing  from  43.6 %  in 
2016.  This  rate  is  above  the  EU  tertiary 
education target of 40 %. 

Early school/training leaving target: 9.5 % 

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

(49.6 %) 

Women 
consistently 
outperforming men (38.7 %) in the attainment 
rate. 

are 

72 

 
 
 
 
 
A. Overview Table 

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  decreased 
in  cumulative 
terms  from  2008  of  329 000  units.  As  for 
other  Member  States,  the  2020  objective  still 
remains out of reach. 

73 

 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

74 

General Government debt projections under baseline, alternative scenarios and sensitivity tests2017201820192020202120222023202420252026202720282029Gross debt ratio98.598.798.597.296.896.796.996.897.097.397.898.799.8Changes in the ratio (-1+2+3)0.30.2-0.1-1.3-0.4-0.10.10.00.10.30.50.91.1of which(1) Primary balance (1.1+1.2+1.3)-0.8-0.8-0.90.1-0.1-0.4-0.6-0.6-0.7-0.6-0.7-0.8-0.8(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)-0.6-0.6-0.4-0.4-0.5-0.5-0.6-0.6-0.7-0.6-0.7-0.8-0.8(1.1.1) Structural primary balance (bef. CoA)-0.6-0.6-0.4-0.4-0.4-0.4-0.4-0.4-0.4-0.4-0.4-0.4-0.4(1.1.2) Cost of ageing0.10.20.30.30.40.40.40.50.6(1.1.3) Others (taxes and property incomes)0.00.00.10.10.10.10.10.10.1(1.2) Cyclical component-0.20.10.30.50.30.20.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.0-0.2-0.80.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-0.8-0.7-1.0-1.2-0.6-0.5-0.4-0.6-0.5-0.4-0.20.10.3(2.1) Interest expenditure1.91.91.81.81.92.02.12.22.42.62.93.23.4(2.2) Growth effect-2.1-1.6-1.6-1.5-0.8-0.7-0.6-1.0-1.0-1.1-1.2-1.2-1.2(2.3) Inflation effect-0.6-0.9-1.3-1.5-1.6-1.7-1.9-1.9-1.9-1.9-1.9-1.9-1.9(3) Stock-flow adjustments0.40.10.00.00.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Fiscal Sustainability Report (FSR) 2018. b. For the medium-term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained thereafter) to bring the debt-to-GDP ratio to 60 % by 2033. The critical values used are 0 and 2.5 pps. of GDP. The DSA classification is based on the results of 5 deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. c. For the long-term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps. of GDP. The DSA results are used to further qualify the long-term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018.FR - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[3] The second table presents the overall fiscal risk classification over the short, medium and long-term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 70758085909510010511011512020162017201820192020202120222023202420252026202720282029Debt as % of GDP -FRBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario70809010011012020162017201820192020202120222023(% of GDP)Stochastic debt projections 2019-2023 -FRp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline70758085909510010511011512020162017201820192020202120222023202420252026202720282029Debt as % of GDP -FRBaselineHistorical SPB scenarioSGP scenario70758085909510010511011512020162017201820192020202120222023202420252026202720282029Debt as % of GDP -FRBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryHIGHHIGHHIGHHIGHHIGHHIGHDebt level (2029)99.8107.7105.1105.6101.2Debt peak year20292029202920292029Percentile rank65.0%75.0%Probability debt higher33.6%Dif. between percentiles13.9MEDIUMLong termDSAHIGHDebt sustainability analysis (detail)Medium termHIGHHIGHShort termLOW(S0 = 0.3)(S1 = 4.2)S2LOW(S2 = -0.1)S1 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2018. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2018. 
(3) 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). 

75 

201320142015201620172018Total assets of the banking sector (% of GDP)1)372.3380.4370.7373.9368.8375.0Share of assets of the five largest banks (% of total assets)46.747.647.246.045.4-Foreign ownership of banking system (% of total assets)2)3.05.95.45.04.84.6Financial soundness indicators:2)              - non-performing loans (% of total loans)-4.24.03.63.12.9              - capital adequacy ratio (%)15.015.216.417.617.817.7              - return on equity (%)3)6.04.46.86.56.46.8Bank loans to the private sector (year-on-year % change)1)0.90.52.04.95.67.5Lending for house purchase (year-on-year % change)1)3.6-2.83.24.96.26.9Loan to deposit ratio2)-105.1104.7106.2105.1106.0Central Bank liquidity as % of liabilities1)-2.32.31.72.32.1Private debt (% of GDP)137.4141.5142.8146.6148.2-Gross external debt (% of GDP)2) - public57.262.460.359.055.654.1    - private49.752.854.256.156.946.2Long-term interest rate spread versus Bund (basis points)*63.450.334.737.749.237.6Credit default swap spreads for sovereign securities (5-year)*38.931.024.422.714.411.1 
 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

(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) Long-term unemployed are people who have been unemployed for at least 12 months. 
(4) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019. 
(5) 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). 
(6) Average of first three quarters of 2018 for the employment rate, long-term unemployment rate and gender employment 
gap. Data for unemployment rate is annual. 
Source: Eurostat. 

76 

201320142015201620172018 6Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)9.78.89.28.88.9:Gender employment gap (pps)8.17.57.27.57.97.6Income inequality, measured as quintile share ratio (S80/S20)4.54.34.34.34.4:At-risk-of-poverty or social exclusion rate1 (AROPE)18.118.517.718.217.1:Young people neither in employment nor in education and training (% of population aged 15-24)11.211.212.011.911.5:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)69.569.269.570.070.671.3Unemployment rate2 (15-74 years)10.310.310.410.19.49.1Long-term unemployment rate3 (as % of active population)4.44.54.64.64.23.8Gross disposable income of households in real terms per capita4 (Index 2008=100) 99.5100.2100.7102.0103.4:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)23319237612429124579::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)-0.20.00.40.6::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction543.944.643.142.444.8:Children aged less than 3 years in formal childcare39.039.541.848.950.5:Self-reported unmet need for medical care2.62.81.21.31.0: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) 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. 
(2) PISA (OECD) results for low achievement in mathematics for 15 year-olds. 
(3) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science. 
(4) Average of first three quarters of 2018 for the activity rate, employment growth, employment rate, part-time employment, 
fixed-term employment. Data for youth unemployment rate is annual. 
Source: Eurostat, OECD. 

77 

Labour market indicators201320142015201620172018 4Activity rate (15-64)71.171.071.371.471.571.9Employment in current job by durationFrom 0 to 11 months11.411.712.112.713.5:From 12 to 23 months7.77.67.67.68.2:From 24 to 59 months14.014.214.013.613.5:60 months or over65.565.665.265.163.7:Employment growth* (% change from previous year)0.20.50.20.71.11.0Employment rate of women(% of female population aged 20-64)65.565.666.066.366.767.5Employment rate of men (% of male population aged 20-64)73.673.173.273.874.675.2Employment rate of older workers* (% of population aged 55-64)45.646.948.749.851.352.1Part-time employment* (% of total employment, aged 15-64):18.618.418.318.218.0Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)15.315.316.016.116.816.8Participation in activation labour market policies(per 100 persons wanting to work)40.540.441.243.5::Transition rate from temporary to permanent employment(3-year average)11.210.010.010.711.7:Youth unemployment rate (% active population aged 15-24)24.924.224.724.622.321.1Gender gap in part-time employment (aged 20-64):23.122.722.221.921.2Gender pay gap1 (in undadjusted form)15.515.515.315.315.4:Education and training indicators201320142015201620172018Adult participation in learning(% of people aged 25-64 participating in education and  training)17.818.418.618.818.7:Underachievement in education2::23.5:::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)44.043.745.043.644.3:Variation in performance explained by students' socio-economic status3::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. 
Source: Eurostat, OECD. 

78 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare8,99,09,19,19,2:Disability2,02,02,12,02,1:Old age and survivors14,314,614,614,614,6:Family/children2,52,52,52,52,4:Unemployment2,02,02,02,02,0:Housing0,80,80,80,80,8:Social exclusion n.e.c.0,90,90,91,01,0:Total31,431,932,131,932,1:of which: means-tested benefits3,43,53,53,53,5: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)10,110,09,99,89,8:Children at risk of poverty or social exclusion (% of people aged 0-17)*23,220,821,621,222,622,3At-risk-of-poverty  rate1 (% of total population)14,113,713,313,613,613,3In-work at-risk-of-poverty rate (% of persons employed)8,07,88,07,57,97,4Severe material deprivation rate2  (% of total population)5,34,94,84,54,44,1Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan1,00,91,11,31,70,9Tenant, rent at market price7,55,26,34,66,24,0Proportion of people living in low work intensity households4 (% of people aged 0-59)8,48,19,68,68,48,1Poverty thresholds, expressed in national currency at constant prices*113211124811283113301147811634Healthy life years (at the age of 65)Females10,410,710,710,710,6:Males9,49,810,49,89,5:Aggregate replacement ratio for pensions5 (at the age of 65)0,70,70,70,70,70,7Connectivity dimension of the Digital Economy and Society Index (DESI)6::49,151,252,655,2GINI coefficient before taxes and transfers*49,249,048,449,049,649,1GINI coefficient after taxes and transfers*30,530,129,229,229,329,3 
 
 
 
  
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

(1) Value added in constant prices divided by the number of persons employed. 
(2) Compensation of employees in current prices divided by value added in constant prices. 
(3) The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.  
(4) Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing 
over the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if 
received 75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the 
application is still pending or don't know. 
(5) Percentage population aged 15-64 having completed tertiary education. 
(6) Percentage population aged 20-24 having attained at least upper secondary education. 
(7) 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 . 
(8) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR). 
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). 

79 

Performance indicators201220132014201520162017Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry1.181.730.942.212.042.34Labour productivity growth in construction-4.770.96-1.961.970.172.68Labour productivity growth in market services0.330.560.950.850.120.26Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry0.920.120.520.63-0.70-0.38ULC growth in construction5.791.141.85-0.532.26-0.51ULC growth in market services1.310.690.430.260.792.05Business environment201220132014201520162017Time needed to enforce contracts3 (days)390395395395395395Time needed to start a business3 (days)6.56.54.54.03.53.5Outcome of applications by SMEs for bank loans40.590.600.530.510.320.23Research and innovation201220132014201520162017R&D intensity2.232.242.232.272.25:General government expenditure on education as % of GDP5.505.505.505.505.40:Employed people with tertiary education and/or people employed in science and technology as % of total employment474849495050Population having completed tertiary education5282930303131Young people with upper secondary education6848688878888Trade balance of high technology products as % of GDP0.670.750.790.930.900.54Product and service markets and competition200320082013OECD product market regulation (PMR)7, overall1.771.521.47OECD PMR7, retail3.763.802.64OECD PMR7, professional services2.202.452.34OECD PMR7, network industries83.372.772.51 
 
 
 
   
C. Standard Tables 

Table C.6:  Green growth 

(1) All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices) 
  Energy intensity: gross inland energy consumption (Europe 2020-2030) (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) 
(2) Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP. 
(3) Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the 
HICP. 
(4) Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change). 
(5) Real unit energy cost: real energy costs as % of total value added for the economy. 
(6) Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR).  
(7) Real unit energy costs for manufacturing industry excluding refining : real costs as % of value added for  manufacturing 
sectors. 
(8) Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP. 
(9) Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; 
figures excl. VAT. 
(10) Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste. 
(11) Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP. 
(12) 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. 
(13) Transport energy intensity: final energy use in transport sector including international aviation, (in kgoe) divided by 
transport industry gross value added (in 2010 EUR). 
(14) Transport carbon intensity: GHG emissions in transport sector divided by gross value added of the transport activities. 
(15) Energy import dependency: net energy imports divided by gross inland energy consumption plus consumption of 
international maritime bunkers. 
(16) Aggregated supplier concentration index:  Herfindahl-Hirschman index for net imports of crude oil and NGL, natural gas 
and hard coal. Smaller values indicate larger diversification and hence lower risk. 
(17) Diversification of the energy mix: Herfindahl-Hirschman index of the main energy products in the gross inland 
consumption of energy. 
* 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). 

80 

Green growth performance201220132014201520162017MacroeconomicEnergy intensity kgoe / €0.130.130.120.120.120.12Carbon intensity kg / €0.240.240.220.220.22-Resource intensity (reciprocal of resource productivity)kg / €0.380.380.370.350.340.35Waste intensity kg / €0.17-0.16-0.15-Energy balance of trade % GDP-3.3-3.1-2.5-1.8-1.4-1.7Weighting of energy in HICP%9.939.459.859.418.978.72Difference between energy price change and inflation %3.32.91.3-0.7-1.82.5Real unit of energy cost% of value added11.210.69.69.910.2-Ratio of environmental taxes to labour taxesratio0.080.090.080.090.09-Environmental taxes% GDP2.02.02.02.22.32.3Sectoral Industry energy intensity kgoe / € 0.080.080.070.070.070.07Real unit energy cost for manufacturing industry excl. refining% of value added14.914.213.414.014.7-Share of energy-intensive industries in the economy% GDP5.65.85.75.75.75.7Electricity prices for medium-sized industrial users€ / kWh0.090.090.100.100.090.10Gas prices for medium-sized industrial users€ / kWh0.040.040.040.040.040.03Public R&D for energy % GDP0.050.050.040.050.040.07Public R&D for environmental protection% GDP0.010.010.010.020.010.01Municipal waste recycling rate%37.738.739.840.841.842.9Share of GHG emissions covered by ETS*%23.723.822.121.222.4-Transport energy intensitykgoe / €0.590.600.600.630.630.61Transport carbon intensitykg / €1.541.561.561.621.64-Security of energy supplyEnergy import dependency%48.448.146.246.047.448.6Aggregated supplier concentration indexHHI7.98.68.88.28.5-Diversification of energy mixHHI0.300.300.320.320.300.30 
 
 
 
 
ANNEX D: INVESTMENT GUIDANCE ON COHESION POLICY 

FUNDING 2021-2027 FOR FRANCE 

Building  on  the  Commission  proposal  for  the  next  Multi-Annual  Financial  Framework  for  the  period 
2021-2027  of  2  May  2018  (COM  (2018)  321),  this  Annex  D  presents  the  preliminary  Commission 
services views on priority investment areas and framework conditions for effective delivery for the 2021-
2027 Cohesion Policy. These priority investment areas are derived from the broader context of investment 
bottlenecks, investment needs and regional disparities assessed in the report. This Annex(74) provides the 
basis  for  a  dialogue  between  France  and  the  Commission  services  in  view  of  the  programming  of  the 
cohesion  policy  funds  (European  Regional  Development  Fund  and  European  Social  Fund  Plus).  Given 
that the only less developed French regions are among the outermost regions, and that the latter receive a 
substantially higher European Regional Development Fund envelope, in addition to the specific allocation 
granted to offset the additional cost related to their handicap listed in article 349 of the TFUE, this Annex 
consistently stresses the specific situation of the outermost regions.  

Policy Objective 1: A Smarter Europe – Innovative and smart industrial transformation 

Despite being a strong innovator, France's innovation performance remains below that of EU innovation 
leaders  and  shows  much  disparity  among  regions.  France  is  not  on  track  to  meet  its  total  research  and 
development intensity target  of 3% for 2020. National and regional  needs and potential  are  to be taken 
into  account,  as  well  as  regional  innovation  smart  specialisation  strategies  and  synergies  with  Horizon 
Europe  and  InvestEU.  Internal  disparities  will  have  to  be  considered  when  increasing  regional 
investments in research and development to levels closer to the ones of the most advanced French regions 
(e. g. Ile-de-France and Midi-Pyrénées). 
High  priority  investment  needs (75)  are  identified  to  enhance  research,  development  and  innovation 
capacities,  in  particular  to  improve  collaboration  and  collaborative  schemes  (e.  g.  clusters)  between 
public research institutions and private  companies and contribute to increase the competitiveness of the 
French  economy  by  developing  new  processes,  new  technologies,  and  new  products  that  can  be 
implemented in the production sector to increase competitiveness. 

Priority investment needs have therefore been identified to: 

  On  the  basis  of  the  updated  regional  innovation  smart  specialisation  strategies,  increase  the 
attractiveness  of  French  research  development  and  innovation  activities  at  regional  level,  including 
through recruit of highly qualified and skilled researchers; 

  support the transformation and the development of new value chains, by supporting the development 
of the necessary skills, technologies and infrastructures and by stimulating the integrated cooperation 
in new value chains across programmes and across borders; 
reap the benefits of digitisation for citizens, small and medium sized enterprises and governments, in 
particular in inter-regional projects. 

 

France  performs  below  the  EU  average  on  entrepreneurial  activity  and  the  small  and  medium  sized 
enterprises regional competitiveness index shows high internal disparities. High priority investment needs 
have  therefore  been  identified  to  enhance  growth  and  competitiveness  of  Small  and  medium  sized 
enterprises    and  to    implement  a  smart  industrial  transformation  and  induce  more  connections  among 
actors (clustering) in particular to: 

  contribute  to  the  generation  of  new  start-ups  through  the  facilitation  of  the  integration  of  Research 
Development & Innovation outcomes into the economic exploitation by new small and medium sized 
enterprises  in the productivity and services sectors; 

  contribute to the scaling-up of the newly created start-ups, assist young heads of Small and medium 

sized enterprises  in the early stage of life of their enterprise (e. g. nurseries); 

(74)  This Annex is to be considered in conjunction with the Proposal for a Regulation of the European Parliament and of the Council 
on the European Regional Development Fund and on the Cohesion Fund COM(2018) 372 and the Proposal for a Regulation of 
the  European  Parliament  and  of  the Council  on the  European  Social  Fund  Plus  COM(2018)  382, in particular  as  regards  the 
requirements for thematic concentration and urban earmarking outlined in these proposals.  

(75)  The intensity of needs is classified in three categories in a descending order - high priority needs, priority needs, needs. 

81 

 
 
 
 
                                                           
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for France 

  contribute to improve the position of French small and medium sized enterprises within EU internal 

and external markets including through cross-border and transnational cooperation. 

Policy Objective 2: A low carbon and greener Europe – Clean and fair energy transition, Green 
and blue investment, circular economy, climate adaptation and risk prevention 

In line with the 2030 European energy and climate targets, France ambitions to produce more renewable 
energy  and  improve  energy  efficiency,  leading  to  a  40%  cut  in  greenhouse  gas  emissions  compared  to 
1990 levels.  

High  priority  investment  needs  have  therefore  been  identified  to  promote  renewable  energy,  and  in 
particular : 
  support  deployment  of  renewables  including  an  efficient  use  of  biomass  (e.g.  small  scale 

 

infrastructures for the production of renewable energy); 
increase  the  share  of  renewable  energy  in  the  cooling  systems  and  in  the  electricity  sectors  in  the 
outermost regions which are disconnected from the European electricity grid; 
  support actions in line with the "Clean Energy for Islands" initiative (Corsica). 

High  priority  needs  have  therefore  been  also  identified  to  promote  energy  efficiency  measures,  and  in 
particular to contribute to energy efficiency in: 
 
the social and private (low revenue owners) residential sector; 
  services (including social, education and health infrastructures); 
 
 

industry (buildings and emissions of Greenhouse gases from processes); 
infrastructures,  technologies  and  skills  to  foster  transition  to  low-carbon  production  in  industrial 
clusters  where  proximity  provides  conditions  for  circular  economy,  industrial  symbiosis  and  other 
ways to foster resource and energy efficiency. 

Furthermore  high  priority  investment  needs  have  therefore  been  identified  to  promote  the  transition 
toward a circular economy. 

High priority investment needs have therefore been also identified to promote supply of drinkable water, 
waste water treatment and municipal waste collection and management in the French outermost regions, 
in particular through supporting: 
 

infrastructures of waste water treatment and networks of clean water supply (only if the connection of 
citizens to the network is ensured and controlled); 

  small scale infrastructures for clean treatment of waste and support investments to accelerate the clean 

energy transition. 

France  is  concerned  by  the  protection  of  biodiversity,  as  it  is  one  of  the  10  Member  States  with  the 
highest  number  of  species  under  threat  and  that  it  is  the  Member  State  with  the  larger  number  of 
biogeographical regions. Investment  needs have therefore been identified to enhance biodiversity, green 
infrastructure in the urban environment, and reducing pollution in particular to contribute to protect and 
value  terrestrial  and  marine  biodiversity  and  their  fragile  natural  ecosystems,  also  in  cooperation  with 
neighbouring islands/territories. 

In  France,  negative  impacts  of  climate  change,  including  floods  in  the  river  basins  (Loire,  Rhône)  and 
coastal  areas  (Atlantic  regions),  and  of  major  natural  hazards  are  increasingly  felt.  High  priority 
investment  needs  have  therefore  been  identified  to  promote  climate  change  adaptation,  risk  prevention 
and disaster resilience. 

Policy Objective 3: A more connected Europe – Mobility and regional Innovation and 
Communication Technology connectivity 
In  the  French  outermost  regions  coverage  by  next  generation  access  networks  is  currently  much  lower 
than  European  average.  Priority  investment  needs  have  therefore  been  identified  to  enhance  digital 
connectivity in the outermost regions. In a few rural areas of metropolitan France, the roll out of the high 

82 

 
 
 
 
 
 
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for France 

speed broadband has not been completed yet. Investment needs have been identified in rural areas where 
it will be demonstrated that the European Regional Development Fund participation has an added value to 
complete the existing roll out of the high-speed broadband networks. 
The  French  outermost  regions  suffer  from  accessibility  problems  via  maritime  and  aerial  links.  Poor 
public transport and underdeveloped road infrastructures perpetuate dependence on individual transport. 
Priority investment needs have therefore been identified to promote sustainable multimodal mobility, and 
in particular to support: 
 

transport  investment  aimed  at  offsetting  additional  costs  due  to  remoteness  may  be  regarded  as  a 
priority  for  the  European  Regional  Development  Fund  investment  in  first  instance  with  the  support 
from the specific allocation; 
transnational actions aiming at better connecting the outermost regions with their neighbours. 

 

Policy Objective 4: A more social Europe – Implementing the European Pillar of Social Rights 

France  faces  persistent  labour  market  challenges,  in  particular  for  people  with  low  skills,  migrant 
background  and  those  living  in  deprived  areas.  High  priority  investment  needs  have  therefore  been 
identified to improve access to employment, in particular of the young, long-term unemployed and 
inactive  people,  promoting  self-employment  and  the  social  economy,  and  to  modernise  labour 
market institutions and services, in particular to: 
  provide  outreach  measures,  in  particular  for  the  inactive  and  young  people  not  in  education, 

employment and training, especially in outermost regions; 

  provide integrated support and training tailored to the needs of jobseekers and inactive ; 
  support measures to improve hiring practices and to fight discrimination; 
  provide support for self-employment and (social) entrepreneurship; 
  anticipate long-term employment trends in the design of national and regional skills strategies; 
  modernise labour market institutions and services towards an integrated approach. 
France suffers from a persistent skills mismatch, due to a weak initial vocational education and training 
and uneven access to continuous training, and from high early school leaving in deprived areas and in the 
outermost regions. High priority investment needs have therefore been identified to improve the quality, 
effectiveness  and  labour  market  relevance  of  education  and  training,  to  promote  equal  access  to, 
and  completion  of,  quality  and  inclusive  education  and  training,  in  particular  for  disadvantaged 
groups, and to promote lifelong learning, notably flexible upskilling and reskilling, and in particular 
to: 
  provide  targeted  outreach  and  support  to  prevent  early  school  leaving,  especially  in  outermost 

Regions; 

  provide targeted support for early intervention, including second-chance schools; 
  develop competences of teachers, trainers, school leaders and higher education staff;  
 
 
  promote  vocational  education  and  training  as  a  quality  career  pathway  and  strengthen  work-based 

in the outermost regions, contribute to building new and improving existing education infrastructures; 
facilitate mobility of learners, education and training staff, especially in outermost regions; 

learning; 

  upgrade the basic skills of the adult population and support the validation of competencies; 
  provide continuous guidance and training for professional mobility. 
Social inclusion remains a challenge, notably in deprived areas and for people with a migrant background, 
and  access  to  healthcare  is  worsening  in  rural  areas  and  in  the  outermost  regions.  High  priority 
investments needs have therefore been identified to foster active inclusion, to promote socio-economic 
integration of third country nationals, and, in the outermost regions, to enhance the equal and timely 
access to quality, sustainable and affordable services, in particular to: 
  develop and deploy integrated active inclusion policies;  
  support measures to improve access to employment for a diverse workforce; 
  organise awareness raising and engagement  to fight discrimination; 
 

in  the  outermost  regions,  contribute  to  building  new  and  improving  existing  health  infrastructures, 
moving away from a hospital-centred model to more outpatient, primary and community-based care. 

83 

 
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for France 

Policy Objective 5 –  A Europe  closer  to  citizens  by  fostering  the  sustainable  and  integrated  
development  of urban, rural and coastal areas and local initiatives 
The cohesion of the various French territories is a permanent challenge that requires specific and targeted 
measures  to  face  the  multiple  needs.  A  flexible  response  adapted  to  the  evolution  of  each  territory 
involving the local actors and combining the relevant resources, needs to be implemented on the basis of 
integrated and sustainable strategies. Given its numerous maritime and terrestrial borders and strong links 
with  neighbouring  countries,  France  should  support  transnational  and  cross  border  cooperation,  the  EU 
Strategy  for  the  Alpine  and  Atlantic  macro  regions,  and  the  integration  of  outermost  regions  in  their 
neighbouring environment. 
High  priority  investment  needs  have  therefore  been  identified  to  foster  the  integrated  development  in 
various types of areas through integrated territorial investments, Community-Led Local Development and 
other specific tools, in particular: 
 

increase  the  socioeconomic  integration  of  marginalised  communities,  migrants  and  disadvantaged 
groups, through integrated measures including housing and social services. 

In urban areas, in the frame of an integrated strategy, contribute to: 
 

regenerate  deprived  areas  as  well  as  integrate  people  with  a  migrant  background  through  missing 
investments in education or health infrastructure; 

  culture and tourism. 

In  remote  rural  and  coastal  areas,  improve  the  management  of  natural  resources  in  the  frame  of  an 
integrated strategy. 

In the outermost Regions: 
  enhance and protect biodiversity and improve the environment, also in cooperation with neighbouring 

islands/territories; 

  support  clean  energy  and  clean  public  transport  (including  specific  infrastructures  allowing  better 
energy performance of public transport e. g. reserved access to cities but excluding rolling stock). 

In the cross-border areas, facilitate the cross-border labour mobility (mobility of commuters using clean 
public transport). 

Factors for effective delivery of Cohesion policy 

  broader use of financial instruments and/or contributions to France compartment under InvestEU for 

all revenue-generating and cost-saving activities; 

  consequences  of  the  decentralisation  to  regions  are  taken  on  board  by  increasing  the  overall  audit 
capacity, by streamlining regional uniform procedures and by reducing the number of programmes;  
  strengthen  administrative  capacity  in  the  outermost  regions  to  reinforce  the  legal  and  regular 
implementation of the funds and to support local authorities in charge of implementing strategies in 
the areas concerned by the Integrated Territorial Investment tools; 

  support  regions  in  industrial  transition,  by  taking  account  of  the  lessons  learnt  in  Hauts-de-France, 
Centre-Val-de-Loire  and  Grand-Est  during  the  implementation  of  the  Commission  pilot  project  on 
industrial  transition,  in  particular  by  facilitating  the  adoption  of  new  technologies,  fostering 
decarbonisation, supporting inclusive growth and adapting the labour forces' skills to future needs; 
 
improve more efficient measures to prevent and address conflict of interest, fraud and corruption; 
  strong involvement of local authorities, social partners and civil society organisations in programming 

and implementation remains a key factor of success; 
(social) innovation and experimentation should be supported as much as possible. 

 

84 

 
 
 
 
 
 
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