REPORT FROM THE COMMISSION France Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2019-06-05
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: France, budget deficit, budget policy, budgetary control, budgetary expenditure, gross domestic product, macroeconomics, public debt, stability pact, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 5.6.2019  COM(2019) 529 final  REPORT FROM THE COMMISSION France  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

France 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

Article  126  of  the  Treaty  on  the  Functioning  of  the  European  Union  (TFEU  or  the  Treaty) 
lays  down  the  excessive  deficit  procedure  (EDP).  That  procedure  is  further  set  out  in 
Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the EDP1, 
which  is  part  of  the  Stability  and  Growth  Pact  (SGP).  Specific  provisions  for  euro-area 
Member States under the EDP are laid down in Regulation (EU) No 473/20132. 

According  to  Article  126(2)  TFEU,  the  Commission  has  to  monitor  compliance  with 
budgetary discipline on the basis of two criteria, namely: (a) whether the ratio of the planned 
or actual government deficit to gross domestic product (GDP) exceeds the reference value of 
3 %,  unless  either  the  ratio  has  declined  substantially  and  continuously  and  reached  a  level 
that comes close to the reference value; or alternatively, the excess over the reference value is 
only  exceptional  and  temporary  and  the  ratio  remains  close  to  the  reference  value;  and 
(b) whether the ratio of government debt to GDP exceeds the reference value of 60 %, unless 
it is sufficiently diminishing and approaching the reference value at a satisfactory pace3. 

Article 126(3) TFEU provides that, if a Member State does not fulfil the requirements under 
one or both of those criteria, the Commission has to prepare a report. That report must also 
“take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”. 

1  OJ L 209, 2.8.1997, p. 6. The report also takes into account the “Specifications on the implementation of the 
Stability  and  Growth  Pact  and  guidelines  on  the  format  and  content  of  stability  and  convergence 
programmes”, adopted by the Economic and Financial Committee on 5 July 2016, available at:  
http://ec.europa.eu/economy_finance/economic_governance/sgp/legal_texts/index_en.htm . 

2  Regulation  (EU)  No  473/2013  of  the  European  Parliament  and  of  the  Council  on  common  provisions  for 
monitoring  and  assessing  draft  budgetary  plans  and  ensuring  the  correction  of  excessive  deficit  of  the 
Member States in the euro area (OJ L 140, 27.5.2013, p. 11). 

3   The concepts of “sufficiently diminishing” and “satisfactory pace” are defined in Article 2(1a) of Regulation 
(EC) 1467/97 as being fulfilled if “the differential [of the debt ratio] with respect to the reference value has 
decreased  over  the  previous  three  years  at  an  average  rate  of  1/20th  per  year  as  a  benchmark”.  The 
Regulation  then  provides  that  “the  requirement  under  the  debt  criterion  shall  also  be  considered  to  be 
fulfilled if the budgetary forecasts of the Commission indicate that the required reduction in the differential 
will occur over the three-year period encompassing the two years following the final year for which data is 
available”.  Regulation  (EC)  1467/97  further  provides  that  “the  influence  of  the  cycle  on  the  pace  of  debt 
reduction”  should  be  taken  into  account.  Those  elements  have  been  translated  into  a  debt  reduction 
benchmark, as set out in the Code of Conduct on the SGP and endorsed by the Council. Compliance with the 
debt  benchmark  is  assessed  on  the  basis  of  three  different  configurations:  the  backward-looking,  the 
forward-looking and the debt reduction benchmark adjusted for the impact of the cycle. 

1 

 
 
 
                                                           
This report, which represents the first step in the EDP, analyses France's compliance with the 
deficit  and  debt  criterion  of  the  Treaty,  with  due  regard  to  the  economic  background  and 
other relevant factors. 

Data  notified  by  the  French  authorities  on  29  March  20194  and  subsequently  validated  by 
Eurostat5 show that the general government deficit in France reached 2.5% of GDP in 2018, 
while debt stood at 98.4% of GDP, above the 60% of GDP Treaty reference value. For 2019, 
the notification planned a deficit of 3.1% of GDP and a debt ratio of 98.9% of GDP. France’s 
2019  Stability  Programme  (the  Stability  Programme)  received  by  the  Commission  on  26 
April  2019  confirmed  those  plans.  The  Stability  Programme  plans  the  deficit  to  go  back 
below 3% of GDP in 2020. The Commission 2019 spring forecast, released on 7 May 2019, 
confirms those projections. 

Article 2(1a) of Regulation (EC) No 1467/97 provides that Member States that were subject 
to  an  EDP  on  8  November  2011  benefit  from  a  three-year  transition  period,  starting  in  the 
year following the correction of the excessive deficit, during which they are expected to make 
sufficient  progress  towards  compliance  with  the  debt  reduction  benchmark.  In  the  case  of 
France, the transition period covers the years 2018-2020 (i.e. three years after the correction 
of  the  excessive  deficit6).  The  "Specifications  on  the  implementation  of  the  Stability  and 
Growth  Pact  and  guidelines  on  the  format  and  content  of  stability  and  convergence 
programmes"  of  15  May  2017  spell  out  how  the  requirement  for  the  structural  balance  is 
defined and assessed. In particular, they define a minimum linear structural adjustment of the 
structural balance (MLSA) ensuring that the debt reduction benchmark is met by the end of 
the  transition  period.  The  notified  data  show  that  France  did  not  make  sufficient  progress 
towards compliance with the debt reduction benchmark  in 2018 (see Table 1), as the gap to 
the  required  MLSA  is  0.5  percentage  points  (pp.)  of  GDP.  According  to  the  Commission 
2019 spring forecast, France is not expected to make sufficient progress towards compliance 
with the debt reduction benchmark in 2019 and 2020, as the structural effort is projected to 
remain at 0.0% of GDP in both  years, compared to a  required MLSA of 0.9% and 1.8% of 
GDP, respectively.  

France's insufficient progress towards compliance with the debt reduction benchmark in 2018 
and the planned deficit for 2019 provide evidence of a prima facie existence of an excessive 
deficit  for  the  purposes  of  the  Stability  and  Growth  Pact  before,  however,  considering  all 
factors as set out below.  

The Commission has therefore prepared this report to comprehensively assess the insufficient 
progress  towards compliance with  the debt  reduction benchmark  and the  planned breach of 
the  3%  of  GDP  Treaty  reference  value  and  examine  whether  the  launch  of  an  EDP  is 

4  According to Regulation (EC) No 479/2009, Member States have to report to the Commission, twice a year, 
their planned and actual government deficit and debt levels. The most recent notification of France can be 
found  at:  https://ec.europa.eu/eurostat/documents/1015035/9720700/FR-2019-04.pdf/5cbc6cea-001d-45ea-
a00d-d3df1d36ff5e 

5  Eurostat  news  release  No  67/2019,  https://ec.europa.eu/eurostat/documents/2995521/9731224/2-23042019-

AP-EN/bb78015c-c547-4b7d-b2f7-4fffe7bcdfad 

6    Council  Decision  2018/924/EU  of  22  June  2018  abrogating  Decision  2009/414/EC  on  the  existence  of  an 
excessive deficit in France (OJ L 164, 29.6.2018, p. 44). All EDP-related documents for France can be found 
at:  https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-
governance-monitoring-prevention-correction/stability-and-growth-pact/corrective-arm-excessive-deficit-
procedure/closed-excessive-deficit-procedures/france_en. 

2 

 
 
                                                           
warranted after all relevant factors have been considered. Section 2 of the report examines the 
deficit criterion. Section 3 examines the debt criterion. Section 4 deals with public investment 
and  other  relevant  factors,  including  the  assessment  of  compliance  with  the  required 
adjustment path towards the medium-term budgetary objective (MTO). The report takes into 
account the Commission 2019 spring forecast. 

Table 1. General government deficit and debt (% of GDP) 

2. 

DEFICIT CRITERION 

France registered a headline deficit of 2.5% of GDP in 2018. Based on the Commission 2019 
spring  forecast  and  on  plans  in  the  Stability  Programme,  France’s  headline  general 
government  deficit  in  2019  is  expected  to  increase  to  3.1%  of  GDP,  thereby  exceeding  the 
3%  of  GDP  Treaty  reference  value.  Although  in  excess  of  3%  of  GDP,  the  general 
government deficit is planned to remain close to the Treaty reference value. 

At the same time, the excess over the Treaty reference value is not exceptional, as it neither 
results from an unusual event nor from a severe economic downturn for the purposes of the 
Treaty  and  the  SGP.  The  Commission  spring  forecast  projects  1.3%  real  GDP  growth  in 
2019,  0.3  percentage  points  lower  than  the  previous  year,  then  resuming  to  1.5%  in  2020 
(non-calendar adjusted) while the output gap is projected to be increasingly positive. 

The excess over the 3% of GDP reference value is temporary for the purposes of the Treaty 
and  the  SGP.  In  particular,  both  the  Stability  Programme  and  the  Commission  2019  spring 
forecast  project  the  deficit  to  return  to  below  the  reference  value  in  2020.  For  2020,  the 
Stability  Programme  plans  a  deficit  at  2.0%  of  GDP,  whereas  the  Commission  forecast 
projects  the  deficit  to  amount  to  2.2%  of  GDP.  The  difference  between  the  two  sets  of 
projections stems mainly form the customary no-policy change assumption underpinning the 
Commission  forecast.  Specifically,  the  Commission  forecast  for  2020  does  not  take  into 
account  savings  stemming  form  the  under  indexation  of  pensions,  as  that  measure  was 
cancelled  by  the  French  Constitutional  Council  at  the  end  of  2018.  For  the  outer  years 
covered by the Stability Programme, the deficit is planned at 1.6% and 1.2% of GDP in 2021 
and 2022, respectively. 

In  sum,  the  planned  deficit  for  2019  remains  close  to  but  above  the  3%  of  GDP  Treaty 
reference value. The excess is considered to be not exceptional, although temporary for the 
purposes of the Treaty and the SGP. Hence, the analysis suggests that prima facie the deficit 
criterion for the purpose of the Treaty and Regulation (EC) No 1467/97 is not fulfilled based 
on the Stability Programme and the Commission 2019 spring forecast before, however, due 
consideration is given to all relevant factors set out below.  

3 

COMSPCOMSPDeficit criterionGeneral government balance-3,6-3,5-2,8-2,5-3,1-3,1-2,2-2,0General government gross debt95,698,098,498,499,098,998,998,7Change in structural balance0,20,00,10,20,00,20,00,1Required MLSAn.r.n.r.n.r.0,70,90,81,81,4201520162017201820192020Debt criterionSource: 2019 Stability Programme (SP) and Commission 2019 spring forecast (COM) 
 
  
 
3. 

DEBT CRITERION  

In  2018,  the  government  debt-to-GDP  ratio  stabilised  at  98.4%.  The  debt-increasing  effect 
stemming  from  the  headline  primary  deficit  and  interest  expenditure  was  offset  mainly  by 
real GDP growth and the increase in the GDP deflator, both through the denominator effect, 
and by the marginally debt-reducing impact of stock-flow adjustments.  

The Commission 2019 spring forecast expects an increase to 99.0% of GDP in 2019, linked 
to  the  deterioration  of  the  primary  balance.  The  debt-reducing  impact  from  the  snowball 
effect is however projected to strengthen as a result of the increase in nominal GDP growth, 
whereas interest payments are expected to bottom-out. Stock-flow adjustments are expected 
to be just mildly positive.  

According to the Commission 2019 spring forecast, the government debt ratio is expected to 
decline  marginally  in  2020,  to  98.9%  of  GDP,  due  to  the  continued  debt-reducing  impact 
from the snowball effect. This is almost entirely compensated by the upward pressure from 
the  primary  balance,  although  lower  than  in  previous  years,  and  from  the  stock-flow 
adjustments. 

The debt projections contained in the Stability Programme are broadly in line with those of 
the Commission.  The debt  ratio is  projected increase to  98.9% of GDP at  the end of 2019, 
before declining to 98.7% of GDP in 2020. The difference with respect to the Commission's 
projection at  unchanged  policies  stems  mainly from  a lower planned headline deficit in  the 
Stability Programme for 2020, with broadly similar nominal GDP growth assumptions.   

Following the abrogation of the EDP in June 2018, France is subject to a three-year transition 
period  during  which  it  should  ensure  sufficient  progress  towards  compliance  with  the  debt 
reduction benchmark. That transition period started in 2018 and will end in 2020. In order to 
ensure  continuous  and  effective  progress  towards  compliance  during  the  transition  period, 
Member States should respect simultaneously the two conditions below:  

a.  First, the annual structural adjustment should not deviate by more than ¼% of 
GDP  from  the  MLSA  ensuring  that  the  debt  reduction  benchmark  is  met  by 
the end of the transition period;  

b.  Second,  at  any  time  during  the  transition  period,  the  remaining  annual 
structural adjustment should not exceed ¾% of GDP (unless the first condition 
implies an annual effort above ¾% of GDP); 

The notified data show that France did not make sufficient progress towards meeting the debt 
reduction  benchmark  in  2018  (see  Table  1),  as  the  gap  to  the  MLSA  amounted  to  0.5%  of 
GDP. France is nor forecast to make sufficient progress in 2019 and 2020. According to the 
Commission, the structural balance is forecast to barely change in 2019, thereby falling short 
of  the  required  improvement  of  0.9%  of  GDP  under  the  MLSA.  For  2020,  the  structural 
balance  is  also  projected  to  remain  largely  stable,  which  would  imply  a  sizeable  deviation 
from the required improvement of 1.8% of GDP under the MLSA. The projected deviations 
exceed  in  all  years  ¼%  of  GDP  and  the  remaining  annual  structural  adjustment  always 
exceeds ¾% of GDP over the transition period. Accordingly, France would exceed the room 
for manoeuvre embedded in the rule. 

On the basis of the scenario included in the Stability Programme, sufficient progress towards 
meeting  the  debt  reduction  benchmark  would  also  not  be  ensured  as  of  2019  as  the 
recalculated structural efforts are planned to fall short of the required improvements under the 

4 

 
 
MLSA  by  0.6%  of  GDP  in  2019  and  1.3%  of  GDP  in  2020.  The  lower  structural  effort 
estimated  by  the  Commission  for  2019  is  mainly  due  to  the  different  treatment  of  two 
measures  in  terms  of  their  one-off  nature,  with  a  total  impact  of  about  0.1%  of  GDP. 
Specifically, the Commission 2019 spring forecast treats as one-off the increase of the fifth 
instalment of corporate income tax, while it does not so for the change of recording of sales 
of Hertzian licences. 

Table 2: Debt dynamics 

Likewise, the lower fiscal effort by 0.1 pp. projected for 2020 by the Commission is due to 
the  customary  no-policy  change  assumption  in  the  Commission’s  projections.  Specifically, 
the  Commission  2019  spring  forecast  does  not  take  on  board  the  EUR  3.4  billion  savings 
stemming  from  the  under  indexation  of  pensions,  as  that  measure  was  cancelled  by  the 
French Constitutional Council at the end of  2018. Although the government has announced 
that  those  savings  will  be  attained,  the  measures  underpinning  them  are  not  sufficiently 
detailed at this stage. 

The  analysis  thus  suggests  that  prima  facie  the  debt  criterion  for  the  purpose  of  the  Treaty 
and  Regulation  (EC)  No  1467/97  is  not  fulfilled  based  on  the  2018  outturn  data  and  the 
Commission  2019  spring  forecast  as  well  as  the  Stability  Programme  before,  however,  due 
consideration is given to all relevant factors set out below. 

4. 

RELEVANT FACTORS 

Article  126(3)  TFEU  provides  that  the  Commission  report  “shall  also  take  into  account 
whether  the  government  deficit  exceeds  government  investment  expenditure  and  take  into 
account  all  other  relevant  factors,  including  the  medium-term  economic  and  budgetary 
position  of  the  Member  State”.  Those  factors  are  further  clarified  in  Article  2(3)  of 
Regulation  (EC)  No  1467/97,  which  also  provides  that  “any  other  factors  which,  in  the 

5 

2015201620172018COMCOMCOMCOMCOMSPCOMSPGovernment gross debt ratio 95.698.098.498.499.098.998.998.7Change in debt ratio b (1 = 2+3+4)0.72.40.50.00.60.5-0.1-0.2Contributions:• Primary balance (2)1.61.71.00.81.51.50.50.5• 'Snowball' effect (3)-0.10.3-0.9-0.7-0.9-0.9-1.0-1.1of which:     Interest expenditure2.01.81.71.71.61.51.61.5Real GDP growth-1.0-1.1-2.1-1.5-1.3-1.3-1.4-1.4Inflation (GDP deflator)-1.1-0.4-0.5-0.9-1.3-1.1-1.2-1.1• Stock-flow adjustment (4)-0.80.40.3-0.10.1-0.10.40.4Notes:20202019where t is a time subscript; D, PD, Y and SF are the stock of government debt, the primary deficit, nominal GDP and the stock-flow adjustment respectively, and i and y represent the average cost of debt and nominal GDP growth. The term in parentheses represents the “snow-ball” effect, measuring the combined effect of interest expenditure and economic growth on the debt ratio.Source: 2019 Stability Programme (SP) and Commission 2019 spring forecast (COM)a In percent of GDP.b The change in the gross debt ratio can be decomposed as follows:tttttttttttttYSFyyiYDYPDYDYD1*1111 
 
 
 
opinion  of  the  Member  State  concerned,  are  relevant  in  order  to  comprehensively  assess 
compliance with the deficit and debt criteria and which the Member State has put forward to 
the Council and to the Commission” need to be given due consideration.  

When assessing compliance on the basis of the deficit criterion, if the ratio of the government 
debt to GDP exceeds the reference value, relevant factors shall be taken into account in the 
steps leading to the decision on the existence of an excessive deficit if the double condition of 
the  overarching  principle  –  that,  before  those  relevant  factors  are  taken  into  account,  the 
general  government  deficit  remains  close  to  the  reference  value  and  its  excess  over  the 
reference value is temporary – is fully met. 

In  case  of  apparent  breach  of  the  debt  criterion,  the  analysis  of  the  relevant  factors  is 
particularly warranted  given that debt  dynamics  are to  a larger extent influenced by  factors 
outside  the  control  of  the  government  than  is  the  case  for  the  deficit.  This  is  recognised  in 
Article 2(4) of Regulation (EC) No 1467/97, which provides that the relevant factors shall be 
taken into account when assessing compliance on the basis of the debt criterion irrespective 
of the size of the breach. In that respect, at least the following three main aspects need to be 
considered (and have been considered in the past) when assessing compliance with the debt 
criterion given their impact on the debt dynamics and sustainability: 

1.  adherence to the MTO or the adjustment path towards it, which, is supposed to ensure 
sustainability  or  rapid  progress  towards  sustainability  under  normal  macroeconomic 
circumstances.  As  by  construction  the  country-specific  MTOs  take  into  account  the 
debt  level  and  implicit  liabilities,  compliance  with  the  MTO  or  the  adjustment  path 
towards it should ensure convergence of the debt ratios towards prudent levels at least 
in the medium term; 

2.  structural reforms, already implemented or detailed in a structural reform plan, which 
are  expected  to  enhance  sustainability  in  the  medium  term  through  their  impact  on 
growth,  thereby  contributing  to  bring  the  debt-to-GDP  ratio  on  a  satisfactory 
downward  path.  Overall,  adherence  to  the  MTO  (or  the  adjustment  path  towards  it) 
alongside  with  the  implementation  of  structural  reforms  (in  the  context  of  the 
European  Semester)  is  expected  under  normal  economic  conditions  to  bring  debt 
dynamics on a sustainable path through the combined impact on the debt level itself 
(through  the  achievement  of  a  sound  budgetary  position  at  the  MTO)  and  on 
economic growth (through the reforms).  

3.  unfavourable  macroeconomic  conditions,  and  in  particular  low  inflation,  which  can 
hamper  the  reduction  of  the  debt-to-GDP  ratio  and  make  compliance  with  the  SGP 
provisions  particularly  demanding.  A  low-inflation  environment  makes  it  more 
demanding for a Member State to comply with the debt reduction benchmark. Under 
such  conditions,  adherence  to  the  MTO  or  the  adjustment  path  towards  it  is  a  key 
relevant factor in assessing compliance with the debt criterion. 

In view of those provisions, the following subsections consider in turn (1) the medium-term 
budgetary  position,  including  an  assessment  of  compliance  with  the  required  adjustment 
towards  the  MTO  and  the  development  of  public  investment;  (2)  the  developments  in  the 
medium-term government debt position, its dynamics and sustainability; (3) the medium-term 
economic  position;  (4)  other  factors  considered  relevant  by  the  Commission;  and  (5)  other 
factors put forward by the Member State. 

6 

 
 
 
4.1. 

 Medium-term budgetary position 

Based on the ex-post assessment, France was broadly compliant with the required adjustment 
path  towards  the  MTO  in  2018.  As  regards  2019  and  2020,  given  that  there  is  a  risk  of 
significant  deviation  from  the  required  adjustment  path  towards  the  MTO,  the  fiscal 
adjustment is not expected to be sufficient to  comply with the preventive arm requirements 
for France.  

Headline, structural balance and adjustment towards the MTO  

Headline balance 

France's  headline  deficit  fell  from  2.8%  of  GDP  in  2017  to  2.5%  in  2018.  The  revenue-to-
GDP ratio declined by 0.1 pp. of GDP, whereas the expenditure-to-GDP ratio fell by 0.4 pp. 
of  GDP.  Based  on  the  Commission  2019  spring  forecast  and  on  plans  in  the  Stability 
Programme, France’s deficit in 2019 is expected to increase to 3.1% of GDP. For 2020, the 
Commission spring forecast projects the deficit to decline to 2.2% of GDP. 

The  projected  increase  of  the  headline  deficit  in  2019  compared  to  2018  stems  from  the 
statistical impact of the transformation of the tax credit for competitiveness and employment 
(CICE)  into  a  permanent  outright  reduction  of  employer's  social  contributions,  which 
accounts  for  about  0.9%  of  GDP  (see  section  4.4).  That  impact  is  considered  as  a  one-off, 
therefore having no negative impact per se on the projected fiscal stance. Without that effect, 
the headline deficit would be projected at 2.2% of GDP. 

MTO and structural balance 

In its Stability Programme, France confirmed its MTO at -0.4% of GDP. The MTO appears 
sufficiently stringent under what can be considered as normal economic conditions to ensure 
compliance  with  the  debt  rule  in  the  medium  and  long  term.  According  to  the  Stability 
Programme, France does not plan to achieve its MTO by 2022. Based on the information in 
the  Stability  Programme,  the  recalculated  structural  effort  planned  by  France  amounts  to 
0.2%, 0.1%, 0.2% and 0.3% of GDP in 2019, 2020, 2021 and 2022, respectively. According 
to the Commission 2019 spring forecast, the structural balance is expected to barely change 
in 2019 and 2020.  

Compliance with the recommended adjustment towards the MTO 

In  2017,  France  was  recommended  to  ensure  that  the  nominal  growth  rate  of  net  primary 
government expenditure does not exceed 1.2% in 2018, corresponding to an annual structural 
adjustment of 0.6% of GDP. Based on outturn data and the Commission forecast, the growth 
of  primary  government  expenditure,  net  of  discretionary  revenue  measures  and  one-offs, 
exceeded  the  expenditure  benchmark,  leading  to  a  deviation  of  0.3%  of  GDP  in  the 
underlying fiscal position, thus  pointing to some devation from the recommended adjustment 
path  towards  the  MTO  in  2018.  In  turn,  the  structural  balance  improved  by  0.2  percentage 
points  of  GDP  in  2018,  thus  also  pointing  to  some  deviation  by  0.4%  of  GDP  from  the 
recommended  structural  adjustment  of  0.6%  of  GDP  towards  the  MTO.  This  calls  for  an 
overall assessment. 

The overall assessment does not show any significant discrepancy between the two metrics. 
The  observed  revenue  windfalls  (by  0.1  pp.  of  GDP)  and  the  higher-than-average  potential 
growth used in its calculation (by also 0.1% of GDP) favoured the fiscal adjustement gauged 
with the change in the structural balance. However, the change in the structural balance was 
penalised by the pick-up in public investment (by 0.1% of GDP) linked to the local electoral 

7 

 
 
cycle. Accordingly, the overall assessment points to some deviation from the recommended 
adjustment path towards the MTO in 2018. 

In  2018,  France  was  recommended  to  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.  According  to  the  the  Commission  2019  spring  forecast,  the 
growth  of  nominal  primary  government  expenditure,  net  of  discretionary  revenue  measures 
and one-offs, is expected to exceed the applicable expenditure benchmark of 1.4% in 2019, 
by  a  margin  of  0.8%  of  GDP,  thus  pointing  to  a  risk  of  significant  deviation  from  the 
recommended  adjustment  path  towards  the  MTO.  The  change  in  the  structural  balance  is 
estimated  at  0.0%  of  GDP,  falling  short  of  the  required  adjustment  by  0.6%  of  GDP,  also 
pointing to a risk of significant deviation. This calls for an overall assessment.  

The overall assessment shows that the fiscal effort measured by the change in the structural 
balance is mainly favoured by the projected revenue windfalls by 0.2% of GDP, the forecast 
decline  in  interest  payments  and  the  estimated  potential  groth  above  its  medium-term 
average.  Those  factors  are  offset  only  in  part  by  the  projected  acceleration  of  public 
investment  in  2019  linked  to  the  electoral  cycle.  Therefore,  the  growth  of  nominal  primary 
government  expenditure,  net  of  discretionary  revenue  measures  and  one-offs,  is  deemed  to 
provide a more accurate picture of the underlying fiscal effort.  

Accordingly,  the  overall  assessment  points  to  a  risk  of  significant  deviation  from  the 
recommended adjustment path towards the MTO in 2019.  Taking 2018 and 2019 together, 
the average deviation from the expenditure benchmark pillar amounts to 0.6% of GDP, while 
the  average  shortfall  in  the  accumulated  change  in  the  structural  balance  would  amount  to 
0.5% of GDP, thereby confirming a risk of significant deviation in 2019.     

As for 2020, based on the Commission 2019 spring forecast, the growth of nominal primary 
government expenditure, net of discretionary revenue measures and one-offs, is expected to 
exceed the applicable expenditure benchmark of 1.2%, leading to a deviation of 0.7% of GDP 
in  the  underlying  fiscal  position,  thus  pointing  to  a  risk  of  significant  deviation  from  the 
recommended  adjustment  path  towards  the  MTO.  The  change  in  the  structural  balance  is 
estimated  at  0.0%  of  GDP,  falling  short  of  the  required  adjustment  by  0.6%  of  GDP  and 
pointing also to a risk of significant deviation. The overall assessment does not show material 
differences between the two metrics. Taking 2019 and 2020 together, the average deviation 
from the expenditure benchmark pillar amounts to 0.7% of GDP, while the average shortfall 
in  the  accumulated  change  in  the  structural  balance  would  amount  to  0.6%  of  GDP,  also 
pointing to a risk of significant deviation from the recommended adjustment path towards the 
MTO in 2020. 

Public investment 

According  to  the  Commission  2019  spring  forecast,  public  investment  is  projected  to  rise 
from  3.4%  of  GDP  in  2018  to  3.5%  in  2019  due  to  an  acceleration  of  local  government 
investment in the run-up to municipal elections in 2020. In 2020, however, public investment 
is  forecast  to  decline  to  3.4%  of  GDP,  also  linked  to  the  deceleration  of  local  investmet 
projects in the year when municipal elections are held. In 2017 and 2018 public investment 
was lower than the general government deficit and is projected to remain so until 2020.  

The French government launched an ambitious Investment Plan (Grand Plan d'Investissement 
2018-2022)  in  the  second  half  of  2017.  The  main  objective  of  the  plan  was  to  promote  a 
reorientation of the structure of the French economy by ensuring an environmental transition, 

8 

 
 
enhancing individual and social skills by promoting education, fostering competitiveness via 
innovation  and  promoting  digitisation.  The  Investment  Plan  aimed  to  mobilise  additional 
public spending on investment worth EUR 30 billion spread over five years (1.3% of GDP). 
However,  its  overall  final  impact  will  depend  on  the  multiplier  effect  of  public  funds  on 
private sector's resources and to its ability to effectively boost total factor productivity.  

4.2.  Medium-term government debt position 

Debt dynamics 

Public debt rose steadily between 2013 and 2017, from 93.4% to 98.4% of GDP, due to the 
cumulated high general government deficits recorded over the same period as well as by the 
low  nominal  GDP  growth  in  most  of  the  years.  In  2018,  the  public  debt-to-GDP  ratio 
stabilised  at  98.4%.  The  debt-increasing  effect  stemming  from  the  headline  primary  deficit 
and  interest  expenditure  was  offset  by  real  GDP  growth,  the  increase  in  prices  (inflation 
effect), both through the denominator effect, and by the marginally debt-reducing impact of 
stock-flow adjustments.  

According to the Commission 2019 spring forecast, the public debt ratio is expected to peak 
at  99.0%  of  GDP  in  2019  and  start  to  decrease  in  2020.  The  primary  deficit  is  planned  to 
temporarily  increase  to  1.5%  in  2019  due  to  the  above-mentioned  impact  of  the 
transformation  of  the  CICE  into  an  outright  cut  in  social  contributions.  Once  that  effect 
vanishes, the primary deficit is forecast to narrow to 0.5% of GDP in 2020.  

The  snowball  effect  contibuted  to  offsetting  the  impact  of  the  primary  deficit  in  2017  and 
2018,  mainly  due  to  the  acceleration  in  nominal  GDP  growth  (both  from  its  real  and  price 
components). While real growth lost some momentum in 2018, inflation accelerated so that 
the joint debt-reducing effect only declined by 0.2 pps. In turn, interest payments declined by 
0.1  pp.  of  GDP  in  2017,  to  1.7%,  and  remained  at  that  level  in  2018.  For  2019  and  2020, 
despite the projected deceleration of GDP in real terms, the contribution of nominal growth to 
debt  reduction  is  forecast  to  strengthen  due  to  the  projected  increase  in  inflation,  while  the 
interest burden on government debt is forecast to decline by an additional 0.1 pp. of GDP.  

The stock-flow adjustments are expected to be marginally positive in 2019, whereas in 2020 
they are set to contribute to increasing the public debt ratio by 0.4 pps. Their debt-increasing  
contribution  is  mainly explained by the net  impact  of premium  on debt  issuance ("prime et 
décote à l'émission net de l'étalement des primes passées") and the residual budgetary effects 
in cash terms of the CICE transformation after 2019. 

Debt  projections  in  the  2019  Stability  Programme  are  largely  in  line  with  the  Commission 
forecast. 

Interest expenditure 

In  line  with  the  general  trend  in  the  euro  area,  interest  rates  on  French  debt  instruments 
remain at historical lows. The ten-year bond yield averaged 0.55% during the first quarter of 
2019. The spread between French and German bonds has been broadly stable since 2014, at 
around 40 basis points. More concretely, it averaged  38, 49, 39 and 48 basis points in 2016, 
2017, 2018 and the first quarter of 2019, respectively, compared to a maximum of 154 basis 
points  at  the  end  of  November  2011.  The  implicit  interest  rate  has  shown  a  broadly  steady 
decline since 2008, from 4.6% to 1.8% in 2018. According to the Commission 2019 spring 

9 

 
 
forecast, the implicit interest rate on government debt is projected to decline further to 1.7% 
in 2019 and 2020.  

Debt sustainability 

The  French  authorities  have  been  using  favourable  market  conditions  to  refinance  the 
outstanding debt against much lower rates at longer maturity. The average maturity of total 
outstanding  debt  has  increased  to  almost  7.9  years  in  2018  compared  to  7.8  years  in  2017. 
Specifically, the average maturity is above 8 years for medium and long-term debt. 

Moreover, 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 addition, 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. 

The sustainability indicators have been updated  with  the Commission  2019 spring  forecast. 
Based on the S0 indicator, no significant  sustainability  challenges are  expected in  the short 
term  in  spite of the high public debt  ratio. While the fiscal  sub-index of  S0 indicates some 
short-term  vulnerabilities,  notably  driven  by  the  cyclically-adjusted  deficit  and  the  high  net 
government  debt,  the  financial  and  competitiveness  sub-index  points  to  low  risk.  The  low 
short-term  risk  is  confirmed  by  the  ‘AA  stable’  rating  given  by  the  three  major  rating 
agencies to French government debt. 

However,  France  faces  a  high  public  debt  sustainability  risk  in  the  medium  term.  The  S1 
indicator is used to assess medium-term sustainability challenges. According to that indicator, 
an additional cumulative gradual improvement in the French structural primary balance of 5.0 
pps. of GDP would be required over five years (starting from 2021) to reduce the debt ratio to 
60  %  of  GDP  by  2033.  Its  value  is  primarily  related  to  the  high  level  of  government  debt, 
contributing  3.0  percentage  points  of  GDP.  The  unfavourable  initial  budgetary  position 
(defined as the gap to the debt-stabilising primary balance) would contribute 1.6 percentage 
points  of  GDP  and  the  remaining  0.4  pps.  would  be  due  to  the  projected  increase  in  age-
related public spending.  

Public  debt  projections  are  especially  sensitive  to  interest  rate  and  growth  developments. 
Higher interest rates or lower projected annual GDP growth would lead to higher debt ratios 
after 10 years by around 6 pps. of GDP. 

The  long-term  fiscal  sustainability  risk  indicator  S2  is  at  0.4  %  of  GDP.  In  the  long-term, 
France therefore appears to face low fiscal sustainability risks, primarily related to the initial 
budgetary position, contributing 1.9 percentage points of GDP, which is largely offset by the 
projected decline in age-related expenditure, mainly in pensions. Nevertheless, given the high 
medium-term  risks,  the  overall  long-term  fiscal  sustainability  risks  are  assessed  as  medium 
for France. 

Sufficient  progress  towards  France's  MTO,  as  required  by  the  Stability  and  Growth  Pact, 
would put the debt on a sustained downward path, falling to 79% of GDP by 2029. However, 
the fiscal effort required for reaching the MTO is substantial, considering that the structural 
deficit is estimated at 2.5% of GDP in 2020 at unchanged policies. 

10 

 
 
4.3.  Medium-term economic position 

Since 2016, real GDP growth has been above potential in France. Between 2012 and 2016, a 
deceleration  of  economic  activity  and  a  protracted  period  of  low  inflation  made  debt 
reduction more difficult. Nominal growth increased starting 2017 and is expected to remain 
robust until 2020. Hence, it cannot be argued that macroeconomic conditions are a mitigating 
factor in explaining France’s lack of sufficient progress towards meeting the debt reduction 
benchmark in 2018. 

France made some progress in addressing the 2018 Country Specific Recommendations7. In 
particular,  it  undertook  important  structural  reforms  to  reform  the  vocational  system  and 
made some progress in moderating developments in the minimum wage, symplifying the tax 
system and reducing red tape so as to support competitiveness.  

Cyclical conditions, potential growth and inflation 

The French economy proved to be rather resilient following the global economic recession in 
2009. Economic activity decreased by 2.9% in 2009 but rebounded in 2010 and 2011. It then 
slowed down markedly in 2012 and gradually recovered afterwards, with GDP growth close 
to  an  annual  average  of  1%.  GDP  growth  increased  significantly  in  2017,  to  2.2%,  but 
moderated  in  2018  and  is  expected  to  further  decline  in  2019  and  2020,  while  remaining 
above potential. 

Potential growth has declined since the 2008 financial crisis, as observed in most major euro 
area  economies.  The  growth  rate  of  potential  GDP  decreased  from  1.8%  on  average  from 
2000  to  2008  to  just  1.0%  between  2009  and  2018.  It  is  projected  to  gradually  regain 
momentum and reach 1.3% in 2020. In the case of France, the slowdown in potential GDP 
growth mostly reflects the continuation of a long-term trend of declining gains in total factor 
productivity,  which  have  been  only  partly  compensated  recently.  Somewhat  lower  capital 
accumulation has also weighed on potential growth, despite the gross investment rate of the 
non-financial corporations being relatively resilient throughout the crisis. 

According to the Commission’s estimates based on the 2019 spring forecast, the output gap 
closed in 2017 and is expected to become positive afterwards, with GDP growth remaining 
above potential. The output gap is projected to reach 0.7% in 2020. 

After  a  protracted  period  of  low  domestic  price  growth  until  2016,  inflation  in  France  rose 
from 1.2% in 2017 to 2.1% in 2018. Price pressures in 2018 were mostly driven by oil prices 
and  increases  in  tobacco  and  energy  taxes.  Hence,  the  GDP  deflator  remained  significantly 
below  inflation  as  measured  by  the  HICP  in  2018,  at  0.9%,  and  is  expected  to  increase  to 
1.3%  in  both  2019  and  2020,  close  to  HICP  inflation.  Nominal  GDP  is  thus  expected  to 
increase from 2.5% in 2018 to 2.7% in 2019 and 2.9% in 2020. 

7 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018H0910(09)&from=EN 

11 

 
 
 
                                                           
Table 3: Macroeconomic and budgetary developmentsa 

Structural reforms 

Since 2017, France has engaged in a comprehensive set of reforms that aim to contain public 
expenditure, lower the tax burden on companies and make the labour market more flexible. 
Reforms  have  gained  momentum  but  their  full  implementation  remains  crucial  and  further 
reforms are warranted. The effects of the labour market reform adopted in 2017 have started 
to  materialise  and  improvements  in  the  business  environment  should  be  amplified  with  the 
new PACTE law, adopted in 2019. The investment plan (Grand plan d'investissement 2018–
2022)  could  also  help  boost  growth  and  employment.  The  plan's  priorities  are  considered 
appropriate to address deficiencies characterising the French economy. Significant challenges 
persist,  in  particular,  concrete  actions  remain  warranted  to  implement  the  planned 
expenditure savings to put public debt on a steady downard trajectory.  
In its 2019 Country Report8, the Commission assessed that France has made some progress in 
addressing  the  2018  Country  Specific  Recommendations  and  that  the  reform  agenda  has 
continued  despite  a  slowdown  in  economic  activity.  More  specifically,  France  has  made 
substantial  progress  in  pursuing  the  reform  of  vocational  education  and  training.  Some 
progress  was  made  in  moderating  developments  in  the  minimum  wage,  simplifying  the  tax 
system and reducing red tape. Only limited progress has been made in 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. Measures to decrease public expenditure and increase its efficiency are still not 
sufficiently defined.  

8 See Commission Staff Working Document SWD (2019) 1009 final, 27.2.2019, "Country Report France 2019. 

Including an In-Depth Review on the prevention and correction of macroeconomic imbalances".   

12 

 2015201620172018COMCOMCOMCOMCOMSPCOMSPReal GDP (% change)b1.11.22.21.61.31.41.51.4GDP deflator (% change)1.10.20.70.91.31.21.31.2Potential GDP (% change) 0.91.01.11.21.21.41.31.4Output gap (% of potential GDP)-1.2-1.00.00.40.50.40.70.5General government gross debt95.698.098.498.499.098.998.998.7General government balance-3.6-3.5-2.8-2.5-3.1-3.1-2.2-2.0Primary balance-1.6-1.7-1.0-0.8-1.5-1.5-0.5-0.5One-off and other temporary measures0.0-0.10.0-0.2-0.9-1.0-0.1-0.1Government gross fixed capital formation3.43.43.33.43.53.53.43.4Cyclically-adjusted balance-2.9-2.9-2.8-2.8-3.4-3.3-2.6-2.3Cyclically-adjusted primary balance-0.9-1.0-1.0-1.1-1.8-0.8-1.0-0.7Structural balancec-2.8-2.8-2.7-2.6-2.6-2.3-2.5-2.2Structural primary balance-0.8-1.0-1.0-0.9-0.9-0.8-0.9-0.720202019Source: 2019 Stability Programme (SP) and Commission 2019 spring forecast (COM)c Cyclically-adjusted balance excluding one-off and other temporary measures.a In percent of GDP unless specified otherwise.Notes:b Calendar-adjusted only in the SP. 
 
 
 
                                                           
In 2018,  France's  macroeconomic imbalances (mainly related to  high public debt  and weak 
competitiveness  dynamics)  stopped  deteriorating  but  remained  elevated.  As  a  result,  the 
Commission concluded that France still displays macroeconomic imbalances9. 

The government is envisaging to propose measures in 2019 to simplify the functioning of the 
pension  system  and  to  reform  the  unemployment  benefit  system.  On  pensions,  a  law  is 
planned to be adopted to progressively unify the rules of the different pension schemes that 
currently  co-exist  with  a  view  to  improving  the  transparency,  equity  and  efficiency  of  the 
system.  A  more  efficient  pension  system  could  help  mitigate  public  finance  sustainability 
risks  in  the  medium  term.  In  addition,  the  planned  reform  of  the  unemployment  benefit 
system may contribute to reduce labour market segmentation and promote transitions towards 
open-ended contracts. The latest agreement among social partners allowed limiting the debt 
of  the  unemployment  benefit  system  to  EUR  37.1  billion  at  the  end  of  2018.  New 
negotiations between social partners on the unemployment benefits system took place at the 
beginning of 2019. The  aims were 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.  Social  partners  have  failed  to  find  an  agreement  on  a  new  set  of  rules 
though. The reform now stands in the hands of the government, which is committed to find 
an agreement before the end of 2019. 

4.4. 

Other factors considered relevant by the Commission 

Another factor considered relevant by the Commission is the statistical and one-off nature of 
the  deficit  and  debt  increases  associated  with  the  transformation  of  the  tax  credit  for 
competitiveness  and  employment  (CICE)  into  a  permanent  reduction  of  employer's  social 
contributions. 

The CICE is a scheme created in 2013. It aims at reducing social contributions of employers 
through  a  payable  tax  credit  on  corporate  taxes,  based  on  gross  wages  paid  to  employees 
during  a  given  year.  In  national  accounts,  that  tax  credit  is  treated  as  a  subsidy  and  it  is 
recorded with a delay from one up to three years compared to the relevant year of the claim. 

The specific recording approach and the replacement of the CICE by an equivalent reduction 
in social contributions produce two effects. On the one hand the reduction of contributions is 
registered as soon as it is implemented (i.e. 1 January 2019). On the other hand, the claims 
under the CICE corresponding to employees in staff in 2018 generate a subsidy which is also 
to be registered in 2019 although the CICE is no longer in place. The combination of these 
two effects generates a one-off double-cost in the year of the transformation of around 0.9% 
of GDP. Without that one-off effect the headline deficit in 2019 would be projected at 2.2% 
of GDP. 

Overall,  the  change  from  CICE  to  a  reduction  in  social  contributions  entails  a  transitory 
budgetary effect that does not lead to a sustained change in the budgetary position. As such, it 
is regarded as a one-off  for the purposes of the Stability and Growth Pact and its impact is 
removed from the calculation of the fiscal effort under the preventive arm of the Pact. 

9 See Commission Communication COM (2019) 150 final, 27.02.2019 "  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".  

13 

 
 
                                                           
The  replacement  of  the  CICE  by  a  reduction  in  social  contributions  in  a  budgetary  neutral 
manner responds to the Country Specific Recommendation 2 (sub-part 1) addressed to France 
in 2017. Specifically, that recommendation read “Consolidate the measures reducing the cost 
of  labour  to  maximise  their  efficiency  in  a  budget-neutral  manner  and  in  order  to  scale  up 
their  effects  on  employment  and  investment”,  for  which  progress  has  been  considered  as 
substantial in 2019. 

4.5. 

Other factors put forward by the Member State 

On  31  May  2019,  the  French  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous sections already broadly covers the key factors put forward by the authorities. 

Specifically,  regarding  the  deficit  criterion,  the  French  authorities  argue  that  the  planned 
breach  of  the  3%  of  GDP  reference  value  in  2019  is  temporary,  limited  and  exceptional  in 
that  it  stems  from  the  exceptional  cost  linked  to  the  transformation  of  the  CICE  into  a 
permanent outright cut in social contributions, without which the deficit would be at 2.3% of 
GDP. The headline deficit in 2020 is planned to go down to 2% of GDP.  

On the other hand, the authorities argue that public expenditure has been strongly contained, 
given that it declined in  real  terms in  2018 (by 0.3%). Moreover, the  authorities claim  that 
that such an expenditure retrenchment will continue in the future. Specifically, in 2019, the 
growth of public expenditure in real terms is planned to be much lower than the average over 
the last ten years, thanks to the under indexation of social benefits, the upcoming savings on 
unemployment  benefits  and 
local 
governments. 

implementation  of  contracts  with 

the  effective 

At the same time, according to the French authorities, the public finance trajectory sketched 
in the Stability Programme 2019 confirms the commitment to reduce taxes further in order to 
support employment and households’ purchasing power. 
the  measures 
adopted in response to the yellow vests crisis aim at ensuring the acceptability of the reforms 
undertaken and mainly frontload already planned actions. 

this  respect, 

In 

Consequently, the authorities recall that the trajectory towards the MTO has been adapted to 
the  new  conditions,  including  the  possibly  of  a  lower-than-expected  GDP  growth  over  the 
coming years. 

Regarding the debt criterion, the French authorities argue that, after taking into account the 
margin  of  tolerance  allowed  by  the  Treaty,  the  observed  structural  adjustment  of  0.2%  of 
GDP  in  2018  implies  compliance  with  the  effort  required  under  the  preventive  arm  of  the 
SGP. 

Accordingly, the authorities claim that the foreseen convergence towards the MTO tabled in 
the Stability Programme 2019 ensures the sustainability of public debt. 

 5. 

CONCLUSIONS 

The general government gross debt stood at 98.4% of GDP at the end of 2018, well above the 
60%  of  GDP  Treaty  reference  value.  France  did  not  make  sufficient  progress  towards 
meeting  the  debt  reduction  benchmark  in  2018.  This  suggests  that  before  consideration  is 

14 

 
 
 
given  to  all  relevant  factors,  the  debt  criterion  as  defined  in  the  Treaty  does  not  appear  to 
have been fulfilled prima facie in 2018.  

Moreover, the headline general government deficit in 2019 is planned to increase to 3.1% of 
GDP, thereby remaining close to but exceeding the 3% of GDP Treaty reference value. The 
excess is considered to be not exceptional, although temporary for the purposes of the Treaty 
and the SGP.  Hence, the analysis suggestst  that, before  considering  all relevant  factors, the 
deficit criterion for the purpose of the Treaty is not fulfilled. 

In line with  the Treaty, this  report examined the  relevant  factors to  assess compliance  with 
the deficit and debt criteria. 

Regarding  the  debt  criterion,  based  on  an  overall  assessment  of  compliance  with  the 
preventive arm, France broadly complied with the recommended adjustment path towards the 
MTO in 2018. Moreover, short-term sustainability risks are low. 

Regarding  the  planned  breach  of  the  3%  of  GDP  reference  value  in  the  Treaty,  the 
Commission  considers  that  the  planned  deviation  in  2019  is  marginal  and  temporary. 
Moreover,  the  deficit  increase  to  3.1%  is  solely  due  to  the  one-off  statistical  impact  of  the 
transformation  of  the  tax  credit  for  competitiveness  and  employment  (CICE)  into  a 
permanent  outright  reduction of employer's social  contributions,  which  amounts to  0.9% of 
GDP.  

Overall,  France has  made some progress  in  implementing the structural  reforms  announced 
since 2017 that aim to address the Country Specific Recommendations, notably in the area of 
competitiveness, employment, education, vocational training and taxation. They are expected 
to  contribute  to  enhancing  the  economy's  growth  potential  and  reducing  the  risks  of 
macroeconomic  imbalances,  thereby  having  a  positive  impact  on  debt  sustainability  in  the 
medium to long term.  

The analysis presented in this report includes the assessment of all the relevant factors and 
notably:  (i)  the  fact  that  France  is  found  to  be  broadly  compliant  with  the  recommended 
adjustment path towards the MTO in 2018; (ii) short-term sustainability risks are low; (iii) 
the breach of the 3% of GDP reference value in 2019 is marginal, temporary and solely due 
to  a  one-off  effect,  and  (iv)  the  implementation  of  growth-enhancing  structural  reforms  in 
recent  years  in  response  to  the  Country  Specific  Recommendations  addressed  to  France, 
several  of  which  are  considered  to  help  improve  debt  sustainability.  The  analysis  suggests 
that  the  deficit  and  debt  criteria  as  defined  in  the  Treaty  and  in  Regulation  (EC)  No 
1467/1997 should be considered as currently complied with. At the same time, as France is 
assessed to be at risk of significant deviation in 2019 and 2020, additional fiscal measures are 
to be taken as of 2019 to ensure compliance with the adjustment path towards the MTO. 

15