COMMISSION STAFF WORKING DOCUMENT Country Report France 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: France, economic situation, green economy, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  SWD(2020) 509 final  COMMISSION STAFF WORKING DOCUMENT Country Report France 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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(2020) 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* 
4.5.  Environmental sustainability 

Annex A: Overview Table 

Annex B: Debt Sustainability Assessment 

Annex C: Standard Tables 

Annex D: Investment guidance on Just Transition Fund 2021-2027 for France 

Annex E: Progress towards the Sustainable Development Goals (SDGs) 

References 

LIST OF TABLES 

Table 1.1: 
Table 2.1: 
Table 3.1: 
Table 3.2: 
Table 4.2.1: 
Table 4.5.1: 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 

Key economic and financial indicators 

Assessment of 2019 CSR implementation (*) 

Outward spill-over heat map 

MIP Assessment Matrix (*) 

Financial soundness indicators - all banks in France 

Total greenhouse gas emissions per capita (*), tons of CO2 equivalent 

Financial market indicators 

Headline Social Scoreboard indicators 

Labour market and education indicators 

Social inclusion and health indicators 

1 

4 

8 

17 

21 

26 

26 
36 
39 
49 
63 

70 

77 

78 

84 

85 

90 

16 
19 
22 
23 
37 
63 
78 
79 
80 
81 

 
 
 
Table C.5: 
Table C.6: 
Table E.1: 

Product market performance and policy indicators 

Green Growth 

Indicators measuring France’s progress towards the SDGs 

LIST OF GRAPHS 

Potential GDP growth breakdown 

Breakdown of the current account 

Contributions to GDP growth (2012-2021) 

Non-financial corporation consolidated debt 

Breakdown of unit labour cost rate of change 

Export shares (% of national exports) by quality level 

Share of market services in export value added (2014) 

Graph 1.1: 
Graph 1.2: 
Graph 1.3: 
Graph 1.4: 
Graph 1.5: 
Graph 1.6: 
Graph 1.7: 
Graph 1.8: 
Graph 1.9: 
Graph 2.1:  Overall multiannual implementation of 2011-2019 CSRs to date 
Graph 4.1.1:  Fiscal effort and public debt 
Graph 4.1.2:  Public debt in France and in the euro area 
Graph 4.1.3:  Public debt projections in France 
Graph 4.1.4:  French fiscal rules and MTBF indices vs EU average 
Graph 4.1.5:  Structural Balance targets versus outturns 
Graph 4.1.6:  Environmental taxes as percentage of  total revenues from taxes and social 

Housing market - Overvaluation gaps 

Interest burden evolution 

contributions in France and the EU 

Graph 4.1.7:  Environmental tax revenues as percentage of GDP in France and the EU 
Graph 4.2.1:  Annual growth rate of loans 
Graph 4.3.1:  Employment by type (thousand), year-on-year changes 
Graph 4.3.2:  Long term evolution of labour market indicators 
Graph 4.3.3:  Share of temporary employees and transition rates from temporary to permanent 

contracts (age group 15-64) 

Graph 4.3.4:  Evolution of the task content of jobs (skills) in France, 2000-2018 
Graph 4.4.1:  Labour productivity growth per sector 
Graph 4.4.2:  Average share of 'zombie firms' between 2010 and 2015 
Graph 4.4.3: 
Graph 4.4.4:  Contribution of intangible capital growth to productivity growth (2015), by asset 
Graph 4.4.5:  Turnover and employment of multinationals abroad, by country of origin (to rest of the 

Investment levels by sector (% of GDP) 

world) 

Graph 4.4.6:  Business churn rates (%) of active companies in selected business services sectors for 

France and the EU 
Graph 4.4.7:  Regional competitiveness index 
Graph 4.4.8:  Greenhouse gas emissions per NUTS2 regions 
Graph 4.5.1:  Targets and emissions under the effort sharing legislation (% change from 2005) 

2 

82 
83 
85 

8 
9 
10 
11 
11 
12 
13 
14 
14 
17 
26 
27 
28 
30 
31 

34 
34 
36 
39 
39 

40 
40 
49 
50 
50 
51 

51 

57 
61 
62 
63 

 
 
 
Graph 4.5.2:  Greenhouse gas emissions by sector with projections 
Graph 4.5.3:  Capital investment needs for 2021-2027 in the waste sector (€ mn). Top 6 EU. 

LIST OF BOXES 

Box 2.1: EU funds and programmes to address structural challenges and to foster growth and 

competitiveness in France 

Box 3.2: Euro-area spillovers 

Box 4.1.3: Assessing the redistributive impact of some measures favourable to households’ 

disposable income 

Box 4.3.4: Monitoring performance under the European Pillar of Social Rights 

Box 4.4.5: Investment challenges and reforms 

Box 4.4.6: The Investment Plan for Europe and InvestEU 

Box 4.4.7: Impact of business environment reforms 

Box 4.5.8: Energy renovation of buildings 

64 
68 

20 
25 

35 
48 
52 
53 
59 
67 

3 

 
 
 
 
 
EXECUTIVE SUMMARY 

France  has  sustained  its  reform  efforts  yet 
further  measures  are  needed  to  continue 
improving  the  performance  of  the  French 
economy (1). Some structural challenges persist, in 
particular  high  government  debt  and  high 
unemployment.  France  has  also  experienced  a 
productivity  slowdown  that  calls  for  continued 
progress 
investment 
implementing  the  recent  vocational  education  and 
training reform, as well as measures to improve the 
business  environment.  At 
time, 
expenditure control will be important to bring debt 
on a sustained downward path. The pension system 
reform  is  planned  for  adoption  by  the  end  of  the 
year 2020.  

skills 

same 

swift 

and 

the 

in 

Economic  growth  moderated  in  2019  and  is 
expected to remain close to potential in the near 
future. Gross Domestic Product (GDP) growth has 
decreased since its peak in 2017 and reached 1.2% 
in  2019  (2).  It  is  expected  to  remain  close  to  its 
potential  growth  rate  in  2020  and  2021,  at  1.1% 
and 1.2% respectively. French domestic demand is 
set  to  be  resilient  in  2020  and  2021,  following  a 
temporary decrease at the end of 2019. Consumer 
spending  would  benefit  from  purchasing  power 
gains  registered  since  the  end  of  2018  resulting 
from  lower  unemployment  and  inflation,  higher 
wages  and  supportive  fiscal  measures.  Investment 
growth  is  expected  to  ease  –  down  from  high 
levels  –  but  remain  robust  overall  following 
favourable  financing  conditions.  In  line  with 
domestic  demand,  import  growth  is  set  to  gain 
momentum.  By  contrast, 
the 
international environment is expected to weigh on 
exporters  compared  to  the  particularly  dynamic 
years of 2017 and 2018. 

the  weakening 

(1)  This  report  assesses  France’s  economy  in  light  of  the 
European  Commission’s  Annual  Sustainable  Growth 
Strategy  published  on  17  December  2019.  In 
this 
document, the Commission sets out a new strategy on how 
to address not only the short-term economic challenges but 
also  the  economy's  longer-term  challenges.  This  new 
economic agenda of competitive sustainability rests on four 
dimensions: i) environmental sustainability, ii) productivity 
gains, iii) fairness and iv) macroeconomic stability.  At the 
the  Alert 
the  Commission  published 
same 
Mechanism  Report  (AMR)  that  initiated  the  eighth  round 
of  the  macroeconomic  imbalance  procedure.  The  AMR 
found that France  warranted an in-depth review, which is 
presented in this report 

time, 

(2)  The  GDP  growth  figures  are  non-calendar  adjusted.  In 
2017,  calendar  adjusted  GDP  growth  reached  2.4%.  In 
2018,  2019  and  2021,  calendar  adjusted  GDP  growth 
remained unchanged.  However, for 2020  it is projected to 
reach 1.0%. 

Labour  market  conditions  are  improving  but 
unemployment  remains  high,  particularly  for 
disadvantaged  groups.  Despite  the  slowdown  in 
economic activity since the beginning of 2018, the 
unemployment  rate  declined  further  and  reached 
8.4%  in  Q42019.  The  situation  for  young  people 
has also improved. However, those with low skills 
those  with  a  migrant  background  face 
and 
difficulties  in  integrating  in  the  labour  market. 
Reforms are ongoing to increase their employment 
prospects.  Finally,  some  sectors  appear  to  face 
emerging skills shortages and mismatches. 

France’s  competitiveness  continues  to  show 
mixed results. After falling for many years, export 
market  shares  have  recently  stabilised,  but  losses 
have not recovered.  The current account remained 
broadly stable and the net international investment 
position  marginally  improved.  In  terms  of  cost 
competitiveness,  the  cost  of  labour  (measured  as 
unit labour costs) has grown more moderately than 
in  other  euro  area  and  EU  countries,  with 
developments  in  wages  remaining  contained  in  a 
context  of  sluggish  productivity  growth.  In  terms 
of  non-cost  competitiveness,  French  exports  of 
goods  are  of  overall  medium  to  high  quality. 
France  maintains 
in 
aeronautics, cosmetics and beverages. 

highest 

quality 

the 

After a temporary rebound to 3.1% of GDP in 
2019, the deficit is set to decline to 2.2% of GDP 
in  2020.  The  breach  of  the  3%  of  GDP  deficit 
threshold  in  2019  is  minor  and  temporary,  due  to 
the  one-off  impact  of  changes  to  the  employment 
and  competitiveness  tax  credit  (CICE)  into  a 
permanent  cut  in  employers’  social  contributions. 
The  measures  adopted  at  the  end  of  2018  in 
response  to  the  ‘Gilets  jaunes’  movement,  aimed 
to 
income, 
entailed  a  net  deficit-increasing  impact  of  around 
0.3%  of  GDP  in  2019.  Further  measures  taking 
effect  in  2020  were  adopted  in  April  2019. These 
measures  include  a  permanent  cut  in  personal 
income  tax  (worth  €5bn,  i.e.  0.2%  of  GDP),  the 
reindexation of pensions below €2,000 per month, 
and  an  increase  in  minimum  pensions  (both 
amounting to €1.5 bn, or 0.1% of GDP).  

improve  households’  disposable 

High  government  debt  is  set  to  rise  slightly. 
After stabilising in 2018, the government debt ratio 
is set to rise by 0.5 pps. in 2019, to reach 98.9% of 
GDP.  In  2020,  government  debt  is  forecast  to 
remain  at  98.9%  of  GDP,  before  rising  further  to 

4 

 
                                                           
Executive summary 

99.2%  in  2021,  which  would  widen  the  gap  with 
the euro area average. While risks to the financing 
of debt remain  limited in the  short term thanks to 
favourable conditions for the State and a large and 
diversified  investors  base,  the  high  debt  level 
limits the scope to respond to adverse shocks. 

 

 

 

reforming the pension system; 

labour  market  integration  and  ensuring 
equal opportunities; 

improving 
performance; and 

research 

and 

innovation 

and 

factors 

information 

the  potential 

infrastructure  and 

and 
suboptimal 

Reforms  and  targeted  investment  in  skills, 
research  and 
digital 
innovation  have 
to  unlock 
productivity gains in the economy.  According to 
the  French  National  Productivity  Board,  the  weak 
productivity  growth  of  French  businesses  can  be 
explained  in  part  by  factors  common  to  most  EU 
countries.  Country-specific 
such  as 
France’s comparatively low skilled workforce, low 
communication 
uptake  of 
technologies 
innovation 
performance also play a role. The implementation 
of several investment plans as well as the ongoing 
reform  efforts  will  contribute  to  addressing  these 
challenges.  The  full  impact  of  these  measures  on 
to  materialise. 
productivity  will 
Moreover, 
in  research  and 
innovation  is  still  hampered  by  the  complexity  of 
the research and innovation ecosystem. Continued 
efforts  are  crucial  to  improve  the  impact  and 
efficiency  of  public  support  for  research  and 
innovation  and  reinforcing  the  links  between 
science and business. 

the  performance 

time 

take 

 

reducing regulatory restrictions.   

There has been no progress in further detailing and 
implementing the specific measures outlined in the 
Public Action 2022 programme. 

and 

France  performs  relatively  well  on 
the 
employment and social indicators highlighted in 
the  Social  Scoreboard  that  underpins  the 
European  Pillar  of  Social  Rights.  Poverty  and 
inequality  are  below  the  EU  average  and  overall 
the social protection system is effective. Access to 
also 
healthcare 
comparatively  good.  However,  the  unemployment 
rate remains above the EU average, despite several 
years  of  decline.  Labour  market 
integration 
remains  more  difficult  for  disadvantaged  groups. 
On  the  quality  of  jobs,  the  incidence  of  in-work 
poverty is low, but the segmentation of the labour 
market  into  different  levels  of  job  security  and 
social protection represents a persisting challenge. 

childcare 

services 

is 

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

2019 

has 

been 

There 
in 
implementing  measures to facilitate firms’  growth 
(PACTE Law in 2019).  

substantial 

progress 

Regarding progress in reaching the national targets 
under  the  Europe  2020  strategy,  France  has 
reached  the  targets  for  reducing  early  school 
leaving 
educational 
attainment.  By  contrast,  additional  efforts  are 
needed  to  meet  the  targets  on  reducing  poverty, 
investing  in  R&D,  using  renewable  energy  and 
improving energy efficiency. 

increasing 

tertiary 

and 

There has been some progress in:   

 

 

 

 

addressing skills shortages and mismatches 

focusing 
towards cleaner energy; 

investment 

to  ensure 

the  move 

improving the digital infrastructure; and 

continuing efforts to simplify the tax system. 

There has been limited progress in: 

France  performs  very  well  in  terms  of  the 
United  Nations  Sustainable  Development 
Goals (3).  Progress  can  be  observed  in  all  SDG 
goals  over  the  past  five  years  and  in  particular  in 

(3)  Within the scope of its legal basis, the European Semester 
can help drive national economic and employment policies 
towards the achievement of the United Nations Sustainable 
Development  Goals  (SDGs)  by  monitoring  progress  and 
ensuring  closer  coordination  of  national  efforts.  The 
present report contains reinforced analysis and monitoring 
on the SDGs. A new annex (Annex E) presents a statistical 
assessment of trends in relation to SDGs in France during 
the past five years, based on Eurostat’s EU SDG indicator 
set.  

5 

 
                                                           
 
consumption 

‘Responsible 
production’ 
(SDG 13).  At  the  same  time,  significant  deviation 
can be observed in indicators linked to government 
debt (Partnership for the goals - SDG 17).   

and 

findings  of 

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

in-depth 

the 

  While recent competitiveness developments 
are  positive,  several vulnerabilities  remain. 
Cost-competitiveness  has  improved  recently 
as  France  benefited  from  moderate  growth  in 
the cost of labour compared to most euro area 
or  EU  countries.  This  came  about  because  of 
the combined effect of a moderate increase in 
labour  productivity 
real  wages  and 
growth. Recent reforms aimed to improve the 
business  environment  and  improve  business 
competitiveness,  while  further  measures  to 
increase  the  performance  of  the  innovation 
ecosystem are warranted. 

low 

  No  fiscal  consolidation  is  planned  in  the 
short  term.  The  structural  deficit  remains 
high  and  it  will  be  difficult  to  reduce  high 
government debt, which stands close to 100% 
of GDP, in the absence of fiscal consolidation. 
While  the  tax  burden  has  been  cut  by  almost 
one  percentage  point,  cuts  in  government 
spending  are  proving  much 
to 
accomplish.  A  quantification  of  overall 
savings  and  macroeconomic  impacts  of  the 
Public Action 2022 is still missing.  

slower 

  Private  debt  is  high  and  on  the  rise..  The 
level  of  debt  for  both  households  and  non-
is  high  and  has 
financial  corporations 
continued  increasing,  contrary  to  other  EU 
Member  States  with  high  levels  of  private 
debt. The French authorities will carry out an 
assessment  of  the  rules  adopted  to  mitigate 
risks  to  the  financial  system  as  a  whole 
(macroprudential measures) in 2020. 

  Although  the  situation  is  improving,  the 
French  labour  market  continues  to  face 
structural problems. These include persistent 
high 
skills 
mismatches  and  entrenched  labour  market 
segmentation.  Recent  reforms  on  vocational 
education and training aim at addressing these 

unemployment, 

emerging 

Executive summary 

structural problems in the labour market. Their 
implementation requires close monitoring and 
assessment. 

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

  France is rolling out  an investment plan to 
address 
its  environmental  sustainability 
challenges.  The  Great  plan  for  investment 
supports  moves  towards  a  greener  economy 
focusing on energy efficiency of buildings and 
incentives to switch to less polluting vehicles. 
However,  based  on  current  policies,  France 
would miss its 2030 GHG reduction target for 
the  non-ETS  sectors  by  a  significant  margin, 
according to national projections. Simulations 
show 
public 
investment stimulus in France would increase 
domestic GPD and result in positive spillovers 
in the rest of the euro area. 

budgetary-neutral 

that 

a 

and 

  The  Commission’s  proposal  for  a  Just 
Transition Mechanism under the next multi-
annual  financial  framework  for  2021-2027 
includes  a  Just  Transition  Fund,  a  dedicated 
scheme  under 
a  new 
InvestEU, 
government  loan  facility  with  the  EIB.  It  is 
designed  to  ensure  that  the  transition  towards 
EU  climate  neutrality  is  fair  by  helping  the 
most affected regions in France to address the 
social  and  economic  consequences.  Key 
priorities  for  support  by  the  Just  Transition 
Fund,  set  up  as  part  of  the  Just  Transition 
Mechanism,  are 
in  Annex  D, 
identified 
building  on  the  analysis  of  the  transition 
challenges outlined in this report. 

  The 

tax 

carbon 

designed 

increase  has  been 
suspended  since  2019 
following  social 
supporting 
unrest.  Carefully 
measures  could  facilitate  the  acceptance  of 
future  environmental  taxes.  In  the  context  of 
social  fairness,  a  citizens'  climate  convention 
to  define 
has  been  given 
measures to achieve climate  targets by  spring 
2020.  

the  mandate 

 

to  cut 
Increased  efforts  are  needed 
greenhouse  gas  emissions  in  the  residential 
sector.  The  residential  sector  is  the  second 

6 

 
largest  emitter  of  greenhouse  gas  emissions 
after  transport.  Public  and  private  investment 
need  to  prioritise  actions  to  make  progress  in 
improving  energy  efficiency  of  buildings  as 
required by the 2019 climate  and energy law, 
which plans to decrease the number of thermal 
sieves. 

  The business environment is improving but 
difficulties remain for businesses wanting to 
scale up, which weighs on their capacity to 
export. High taxes on production also affect 
business  competitiveness.  France  has  a 
relatively 
low  number  of  high-growth 
businesses.  The  PACTE  law  (Plan  d’action 
pour  la  croissance  et  la  transformation  des 
entreprises)  addresses  some  of  the  barriers  to 
business  creation  and  growth.  France  stands 
out for its level of taxes on production (3.2 % 
of GDP), one of the highest in the EU. Under 
the  ‘Pacte  Productif’,  the  French  authorities 
announced  a  review  of  taxes  on  production 
and 
business 
competitiveness 
environmental 
sustainability. 

improvements 

and 

for 

than 

competition. 

  The  level  of  restrictive  rules  is  higher  in 
France 
in  other  EU  countries, 
particularly  in  some  services,  which  could 
restrict 
Redesigning 
requirements  on  the  access  and  exercise  of 
professions 
innovation, 
competition  and  professional  mobility,  would 
have  a  positive  economic  impact.  Additional 
restrictions  have  been 
imposed  on  retail 
services  that  could  be  detrimental  to  retailers 
and affect other businesses. 

stimulate 

to 

  Some groups experience more difficulties in 
accessing  the  labour  market.  In  particular, 
the 
low-skilled  people  with  a  migrant 
background  and  non-EU  born  women  have 
persistently 
lower  employment  rates.  The 
more difficult integration on the labour market 
is  reflected  in  a  significantly  higher  risk  of 
poverty. 

  The 

French 

education 

persisting 

experiencing 
inequalities.  According 
Programme 
Assessment 

for 
scores, 

International 
the 

to 

system 

is 
socioeconomic 
the  OECD 
Student 
educational 

Executive summary 

status 

socio-economic 

performance  of  15-year  olds  in  France  is 
above  the  EU  average.  However,  the  link 
between 
and 
performance remained among the strongest in 
the  EU,  while  having  a  migrant  background 
also  impacts  negatively  education  outcomes. 
Comprehensive 
being 
reforms 
implemented, including a number of measures 
to  reduce  inequalities  starting  from  early 
childhood  (lowering  the  age  of  compulsory 
education 
in 
disadvantaged schools). 

and  halving 

class 

size 

are 

  Access 

to 

social  housing  remains  a 
challenge.  Although  facing  an  increasing 
demand,  the  supply  of  new  social  housing 
continues to decline. Unmet demand for social 
housing is of particular concern for vulnerable 
groups  such  as  single  parent  households  that 
are  more  at  risk  of  poverty.  The  ‘Housing 
First’  strategy  rolled  out  by  the  government 
represents a positive step, yet remains limited 
in scope. 

gap 

  Socio-economic gaps across French Regions 
are  significant.  Indicators  point  to  a  major 
economic 
regions 
between 
(including  the  Ile-de-France  region)  and  the 
rest  of  the  country.  The  outermost  regions 
experience 
in 
education, healthcare and access to the labour 
market of vulnerable groups. 

vulnerabilities 

specific 

some 

7 

 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth 

to  1.2% 

lifted  by 

rising  wages, 

GDP growth in France continued moderating in 
in  2019,  after 
2019.  It  decreased 
registering  1.7%  in  2018  and  2.3%  in  2017 (4). 
Private  consumption  picked  up  mildly,  despite 
significant  gains  in  purchasing  power.  The  latter 
falling 
has  been 
unemployment  and  inflation  and  supportive  fiscal 
measures. Corporate investment remained buoyant 
despite  the  slowdown  of  economic  activity  and 
significantly, 
public 
notably local investment. Following a downturn in 
2018,  household 
increased 
moderately in 2019. After a strong contribution to 
GDP growth in 2018, net exports slightly weighed 
on GDP growth in 2019. Import growth rose, while 
export  growth  decreased  as  external  demand  lost 
momentum.    

investment  growth 

accelerated 

investment 

Graph 1.1:  Contributions to GDP growth (2012-2021) 

Source: European Commission, 2020a 

GDP  growth  is  set  to  decrease  slightly  in  2020, 
before  recovering  in  2021.  Following  a  decrease 
at the end of 2019 due to temporary factors such as 
strikes  against  the  pension  reform,  economic 
activity  is  set  to  rebound,  supported by  a  resilient 
domestic  demand.  Private  consumption  growth  is 
forecast to increase somewhat in 2020 and remain 
broadly  stable  in  2021,  boosted  by  gains  in 
purchasing  power  already  registered  in  2019. 
Higher consumer spending is expected to partially 

(4)  The annual GDP growth figures are non-calendar adjusted.  

8 

compensate  for  the  slowdown  in  investment  over 
the  next  few  years.  Corporate investment is  set to 
decelerate,  but  to  remain  dynamic,  supported  by 
favourable financing conditions. Public investment 
is  set  to  weaken  due  to  local  elections  in  the  first 
quarter of 2020. In addition, net exports are set to 
weigh slightly on growth. GDP growth is expected 
to  reach  1.1%  in  2020  and  1.2%  in  2021  (see 
Graph 1.1 and European Commission, 2020a).  

Risks 
to  economic  growth  are  balanced. 
Negative risks mainly stem from the external side, 
while  domestic  risks  are  tilted  to  the  upside. 
Persistent  uncertainties  on  the  international  front 
(including  trade  policies  and  the  threat  that  the 
U.S. may impose several duties on French exports) 
could  weigh  on  French  exports  and  investment 
(European  Commission  2019a).  Conversely,  the 
expected  rebound  in  the  first  half  of  2020  could 
prove more robust with higher stockpiling. Private 
consumption  could  also  be  more  dynamic  than 
expected  as 
the  saving  rate  and  consumer 
confidence remain high. 

Potential growth   

GDP  growth  is  set  to  remain  close  to  its 
potential,  which  is  estimated  at  1.1%  in  2019. 
According  to  the  Commission’s  estimates,  the 
output  gap  turned  positive  in  2018.  It  is  set  to 
slightly 
in  2019,  reaching  0.7%  of 
potential GDP, and remain broadly stable in 2020 
and 2021. 

increase 

Potential  growth  has  been  improving  slowly 
since  2015.  The  growth  rate  of  potential  GDP 
decreased  on  average  from  1.8%  from  2000  to 
2008  to  just  1.0%  between  2009  and  2019, 
reaching  an  all-time  low  of  0.8%  in  2015.  Since 
then,  it  has  been  gradually  recovering  and  is 
expected  to  reach  1.3%  in  2021.  This  slowdown 
has  been  observed  in  most  major  euro  area 
economies.  In  France,  as  in  other  European 
economies,  there  has  been  a  gradual  decrease  in 
the  contribution  of  total  factor  productivity  over 
the  2000s,  combined  with  a  drop 
the 
contribution of capital accumulation following the 
2008 
(see  Graph 1.2).  The 
total  factor  productivity  has 
contribution  of 
improved  since  2010,  but  remains  contained. 
Common  global 
the 
factor  productivity.  For 
slowdown 

factors  partly  explain 

financial  crisis 

total 

in 

in 

 
   
                                                           
in 

the  slowdown 

example,  the  increasing  share  of  services  in  the 
economy  or 
technological 
progress. However, France has room to increase its 
performance  with  respect  to  its  specific  factors  to 
lift  the  contribution  of  total  factor  productivity  in 
the  medium-term.  For  example,  this  includes 
skills,  competition  or  innovation  (see  Section 
4.4.1).  On  capital  accumulation,  according  to  the 
Commission’s  estimates, 
investment  ratio 
dropped  from  around  24%  of  potential  output  in 
2008 to around 21% in 2015. A recovery has been 
observed since then, and now the investment ratio 
benefits  from  a  sharp  rise  in  investment  over  the 
past  few  years.  The  contribution  of  capital 
accumulation 
remains 
nevertheless below pre-crisis levels. 

to  potential  growth 

the 

Graph 1.2: 

Potential GDP growth breakdown 

Source: European Commission, 2019 autumn forecast 

Inflation 

Inflation is set to remain broadly stable in 2020 
and 2021. Inflation (based on the HICP indicator) 
dropped to 1.3% in 2019, from 2.1% in 2018, due 
to lower oil prices and lower tax increases (5). It is 
forecast  to  decrease  marginally  to  1.2%  in  2020, 
before going back to 1.3% 2021. Core inflation is 
set  to  increase  slightly,  in  line  with  the  services 
component. 

(5)  Compared  to  2018,  the  increase  in  taxes  on  tobacco  was 
more  spread  over  the  year  in  2019  and  there  was  no 
increase in taxes on energy. 

1. Economic situation and outlook 

Labour market 

The  labour  market  continues  to  improve,  but 
challenges  remain 
(see  Section  4.3).  The 
unemployment rate declined slowly from 10.4% in 
2015 to 8.4% in Q4-2019 and is now more than 2 
percentage  points  above  the  EU  average  (6.3%  in 
Q4-2019). The employment rate stood at 71.4% in 
job  creation  remained 
Q3-2019  and  overall 
dynamic  in  2019.  Job  creation  is  subsequently 
forecast to slow down  gradually, as the decline in 
GDP  growth  is  set  to  spread to  the  labour  market 
and  the  impact  of  some  employment  enhancing 
measures is set to fade away gradually (6). Overall, 
the  labour  market  appears  to  be  tightening.  The 
gap  between  the  unemployment  rate  and  its 
structural  level  (NAWRU)  has  been  gradually 
closing since 2015. Business surveys also report an 
increase  in  difficulties  hiring  workers  since  the 
start of the recovery (Dares, 2016). Rising unfilled 
vacancies (7)  and  shortages  in  some  professions 
and sectors, despite a high level of unemployment, 
can also suggest a skills mismatch. Between 2015 
and 2018, nominal (non-price adjusted) wages rose 
at  a  moderate  pace  while  real  (adjusted  for  price) 
wages  grew  broadly  in  line  with  productivity. 
Consistent with labour market tightening, the mild 
pick-up  in  nominal  wage  growth  observed  since 
2015 is expected to continue in 2019 and is set to 
stabilise after that. 

Regional disparities 

steadily 
Regional  disparities  have  been 
increasing  in  metropolitan  France  during  the 
last  decade.  Two  regions  had  a  GDP  per  head 
above  the  EU  average  in  2017,  namely  Île-de-
France  at  177%  of  the  EU  average  and  Rhône-
Alpes  at  104% (8).  At  the  other  end  of  the 

(6)  For  example,  the  transformation  of  the  tax  credit  for 
competitiveness  and  employment  (Crédit  d’Impôt  pour  la 
Compétitivité  et  l’Emploi)  and  the  additional  reduction  in 
employers’  social  contributions  for  workers  around  the 
minimum wage at the end of 2019. 

(7)  The ratio between vacant posts and the sum of vacant and 
occupied posts (job vacancy rate) reached 1.4% in Q1-2019 
(against 0.6% on average for the period 2012Q1-2015Q4), 
its highest value since the series is available (2003). Since 
2010,  EUROSTAT  publishes  harmonised  quarterly  and 
annual  data  of  the  job  vacancy  rate  (an  indicator  widely 
used,  along  with  the  unemployment  rate,  to  detect  and 
explain labour market mismatches). 

(8)  Some  paragraphs  of  this  Country  report  refer  to  French 
regions as before the administrative reorganization of 2015 
(Law  No.  2015-991  of  August  7,  2015  on  the  new 
territorial organization of the Republic). This is due to the 

9 

0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%040506070809101112131415161718192021Total labour (hours) contributionCapital accumulation contributionTFP contributionPotential GDP growth   
                                                           
                                                           
1. Economic situation and outlook 

Competitiveness 

Export  market  shares  have  broadly  stabilised 
since 2013 after declining in the 2000s. Over the 
five years to 2018, export market shares remained 
flat  in  both  the  goods  and  services  sectors.  In  the 
goods  sector,  the  improvement  in  2015  and  2016 
was followed by a deterioration in 2017 and 2018. 
The  evolution  is  more  volatile  in  the  services 
sector,  with  a  deterioration  in  2015  and  2017 
followed  by  an  improvement  in  2016  and  2018. 
Moderate  unit  labour  cost  growth  in  aggregate 
since  2013  might  have  helped  to  stabilise  the 
export  market  shares.  Nevertheless,  the  relatively 
high level of taxes on production (see Section 4.1), 
the  structure  of  the  French  production  processes 
relying  more  on  high  unit  labour  cost  sectors  and 
the  decline  in  average  quality  of  exported  goods 
might  have  limited  the  improvement  of  market 
shares.  Overall,  export  market  shares  are  forecast 
not to improve in the next few years. 

Graph 1.3: 

Breakdown of unit labour cost rate of change 

Source: European Commission, 2019 autumn forecast 

Growth in unit labour cost was moderate in the 
past  few  years.  Nominal  unit  labour  costs  have 
grown by 2.4% over the three years to 2018, which 
is below the EU average. On a year-on-year basis, 
the increase in unit labour cost growth observed in 
2018  is  mostly  explained  by  a  decrease  in  labour 
productivity  growth,  which  is  set  to  continue 
decreasing  in  2019  (see  Graph  1.3).  Despite  a 
slowdown  in  economic  activity,  job  creation 
remained dynamic in 2018  and 2019. Following a 
temporary  decrease  in  2019  due  to  a  statistical 

average. 

spectrum,  Picardie  and  Lorraine  were  at  75%  of 
the  EU 
In  metropolitan  France, 
divergences  are  growing  between  the  capital  and 
the  poorest  regions.  The  growth  rate  of  GDP  per 
head is the highest in the capital region, while it is 
generally  lower  for  poorer  regions.  Disparities  in 
GDP  per  head  are  linked  to  regional  differences 
observed in the labour market (see Section 4.4.5). 

In the outermost regions, several vulnerabilities 
persist.  GDP  per  head  as  a  percentage  of  the  EU 
average is relatively lower in the outermost regions 
The 
compared 
unemployment  rate  is  also  much  higher  in  those 
regions (see Section 4.4.5).    

to  metropolitan 

France. 

Social developments 

While  the  French  social  protection  system  is 
overall  effective 
in  reducing  poverty  and 
inequality, the share of people at risk of poverty 
slightly  increased  in  2018  (see  Section  4.3) (9). 
France is characterised by relatively low inequality 
in equivalised household disposable income, and a 
tax  and  benefit  system  effective  in  reducing 
poverty. In 2018, the share of income received by 
the  top  20%  of  households  was  4.2  times  higher 
than  that  of  the  bottom  20%.  This  ratio  has  been 
gradually decreasing from the peak of 4.6 in 2011. 
The  relative  share  of  income  of  the  top  20%  of 
households in France is lower than the EU average 
of 5.2. Overall, the French social protection system 
appears  to  be  effective  in  terms  of  reducing 
poverty  and  inequality  in  disposable  income. 
Social  transfers  reduced  the  risk  of  poverty  by 
44.4% in 2018 (10), more than 10 percentage points 
above the EU average. The share of population at-
risk-of-poverty  and  social  exclusion  (17.4%)  also 
stood well below the EU average in 2018 (21.9%). 
However,  contrary  to  the  EU  average  and  peer 
countries,  the  share  of  people  at-risk-of-poverty 
slightly increased in 2018, driven by a marked rise 
in  the  rate  of  severe  material  deprivation  rate  (up 
by  0.6  percentage  points  compared  to  2017, 
reaching 4.7% in 2018). 

incomplete  availability  of  statistics  relating  to  all  French 
regions, in particular the outermost regions. For the  latter, 
statistics have not been systematically updated since 2015. 
(9)  The year in this paragraph refers to the EU SILC (statistics 
on  income,  social  inclusion  and  living  conditions)  survey 
year, and corresponds to income data of the previous year. 
(10)  The at-risk of poverty cut-off point is defined here as 60% 
of median equivalised income. Pensions are excluded from 
social transfers.  

10 

-3-2-101234504050607080910111213141516171819*20*21*Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour cost                                                                                   
     
1. Economic situation and outlook 

artefact (11), growth in  unit labour cost is  forecast 
to recover in 2020 and 2021. In 2020, employers’ 
are  forecast  to  benefit  fully  from  additional 
reductions  in  employers’  social  contributions  for 
workers close to the minimum  wage level. This is 
expected to help contain the growth in unit labour 
cost.  In 2021, wages are set to accelerate  slightly, 
as labour productivity gradually picks up. 

particularly  to  the  increase  in  the  adjusted  unit 
labour  cost (13).  In  this  regard,  the  evolution  of 
domestic  and  foreign  unit  labour  costs  in  the 
services  sector  had  a  higher  impact  on  the  labour 
costs  of  the  aggregate  exporting  sector  in  France 
than in its neighbouring countries. 

Graph 1.5: 

Export shares (% of national exports) by quality 
level 

Graph 1.4: 

Share of market services in export value 
added (2014) 

Source: Commission's calculation based on World Input-
Output Database 

Source: European Commission 

The  important  role  services  play  in  France 
continues to weigh on cost-competitiveness. The 
content  of  domestic  services  in  total  exports  in 
France  increased  from  37%  in  2000  to  40%  in 
2014.  In  2014,  it  was  higher  than  in  major 
competitor  countries  (30%,  32%  and  33%  in 
Germany,  Spain  and  Italy,  respectively)  (see 
Graph 1.4)  (12).  While  the  average  labour  costs 
converged  in  recent  years  with  those  of  main 
competitors,  labour  costs  in  services  remained 
among the highest in the EU. Taking into account 
both the fragmentation of production processes and 
the  evolution  of  sectoral  unit  labour  costs,  Cézar 
and  Cartellier  (Banque  de  France,  2019a)  show 
contribute 
that 

domestic 

services 

sectors 

(11)  The drop in unit labour cost in 2019 (see Graph 1.3) is due 
to  the  transformation  of  the  tax  credit  for  competitiveness 
and  employment  (Crédit  d’Impôt  pour  la  Compétitivité  et 
l’Emploi)  into  a  direct  reduction  in  employers’  social 
security contributions. However, the impact of this measure 
on  unit  labour  cost  mostly  reflects  a  statistical  artefact, 
resulting  from  the  amendment  of  a  measure  that  was 
recorded  as  a  subsidy  until  2018,  into  a  measure  directly 
impacting nominal compensation per employee. 

(12)  This  conclusion  is  also  confirmed  using  the  OECD 

database. 

On non-cost competitiveness, the composition of 
French exports shifted towards medium quality 
goods compared to the early 2000s. According to 
Burton  and  Kizior  (forthcoming),  in  non-price 
component of exports (proxy for ‘quality’), France 
ranks  11th  among  37  countries  (OECD  and  EU 
countries), which suggests an overall medium-high 
quality  of  the  French  exports.  The  share  of  high 
quality  products  on  total  exports  is  lower  than  in 
Germany  and  Italy,  but  higher  than  in  Spain.  In 
contrast  to  these  neighbouring  countries,  French 
export  shares  in  high  quality  products  decreased 
markedly between 2003 and 2016 (see Graph 1.5). 
Consequently, the share of middle and low quality 
products  in  total  exports  increased,  underpinning 
exposure  to  relatively  price  elastic  demand,  and 
more  intense  competition,  notably  from  emerging 
economies.  Survey  studies  also  support 
the 
perception  of  medium  quality  French  products 
being often overpriced (Rexecode, 2019). 

(13)  Adjusted  unit  labour  costs  are  computed  as  an  average  of 
unit labour costs in national and imported sectors weighted 
by the participation of each sector in exports. 

11 

0102030405060DEUESPFRAITADomestic shareForeign share01020304050607020032016200320162003201620032016DEESFRITHigh qualityMedium qualityLow quality   
                                                           
  
                                                           
External position 

The small current account deficit has been and 
is  set  to  remain  broadly  stable.  In  2018,  net 
borrowing  by  corporations  and  the  public  sector 
was  higher  than  households’  net  lending.  As  a 
result, the current account posted a small deficit of 
-0.6%  of  GDP  (14),  broadly  in  line  with  its  2017 
level  (see  Graph  1.6).  According  to  balance  of 
payments  data,  the  trade  deficit  remained  broadly 
stable  in  2018,  at  around  -1%  of  GDP (15).  The 
trade  deficit  in  goods  deteriorated  in  2018  due 
mainly to higher oil prices. This deterioration was 
compensated  by  an  improvement  of  the  trade 
surplus  in  services.  According  to  the  Commission 
2019  autumn  forecast,  the  overall  trade  deficit  is 
set  to  improve  slightly  in  2019  on  the  back  of 
lower  oil  prices.  It  is  expected  to  deteriorate 
slightly 
to 
accelerate,  and  to  remain  stable  in  2021.  France 
surplus, 
has  a 
supported  by  direct  investment  revenues  (see 
Section  4.4.1),  which  improved  further  in  2018. 
However,  this  improvement  was  offset  by  a 
deterioration  in  the  secondary  income  deficit.  In 
the  public  administration  current 
particular, 
transfers deficit (including payments to the EU and 
to  international  organisations)  worsened  in  2018. 
The current account deficit is set to broadly follow 
the  evolution  of  the  trade  deficit,  and  despite  a 
temporary  improvement  in  2019,  there  should  be 
little change going forward. 

imports  are  forecast 

significant  primary 

in  2020  as 

income 

international 

investment  position 
The  net 
remains negative. It went from -16.6% of GDP in 
2017  to  -16.4%  of  GDP  in  2018,  benefiting  from 
positive  valuation  effects  linked  to  fluctuations  in 
market prices and exchange rate (16). However, the 
readings  of  France’s  net  international  investment 
position  deteriorates,  reaching  -33%  of  GDP  in 
2018, if account is taken of those components that 
(17) 
are  considered  more 

to  default 

likely 

(14)  It remained stable at 0.6% of GDP in national account data 
while it slightly improved from -0.7% of GDP in 2017 to -
0.6% of GDP in 2018 in balance of payments data. 

(15)  It  improved  by  0.3  percentage  points  in  national  account 
data (from -1.1% in 2017 to -0.8% of GDP in 2018). 
(16)  The value of French assets owned by foreigners decreased 
in relation to the external assets owned by French residents. 
(17)  The  net  international  investment  position  excluding  non-
defaultable instruments (NENDI) as percentage of GDP is 
a  subset  of  the  net  international  investment  position  that 
abstracts  from  its  pure  equity-related  components  (i.e. 
foreign  direct  investment,  equity  and  equity  shares)  and 

1. Economic situation and outlook 

in  French 

for  most  of 

(European  Commission  2019b).  Net  direct 
investments  account 
the  net 
international investment position on the asset side 
and  increased  markedly  in  2018,  driven  by  a 
significant  growth 
foreign  direct 
investments  due  to  some  major  mergers  and 
acquisitions.  By  contrast,  portfolio  investments 
deteriorated  in  2018.  General  government  still 
accounts for most of the negative net international 
investment  position  (almost  -50%  of  GDP),  while 
the private sector shows a strong position (close to 
50% of GDP). Monetary and financial institutions, 
the  central  bank,  held  a  negative 
excluding 
position 
continued 
in 
deteriorating since then.   

2012,  which 

has 

Graph 1.6: 

Breakdown of the current account 

Source: Eurostat (balance of payment) 

the 

levels 

below 

predicted 

France’s  external  position 
indicators  stand 
below the levels suggested by the fundamentals, 
without raising prudential concerns. The current 
account  and  net  international  investment  position 
remain 
by 
fundamentals, which are surpluses of 0.3% of GDP 
(18)  and  6%  of  GDP,  respectively.  However 
according  to  the  Commission’s  estimates,  the 
current  account  level  in  2018  is  close  to  the 
cyclically-adjusted  one  and  seems  broadly  in  line 
to  stabilise 
investment 
position at its current level over the next 10 years. 
investment 
Furthermore, 

international 

international 

the  net 

the  net 

from  intracompany  cross-border  foreign  direct  investment 
debt (European Commission, 2018a). 

(18)  For  details  regarding  the  estimation  of  current  accounts 

based on fundamentals, see Coutinho and al., 2018. 

12 

-5-3-1135010203040506070809101112131415161718% of GDPSecondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsTrade balanceCurrent account balance                                                           
   
                                                                                   
1. Economic situation and outlook 

ratio  already  above  the  level  suggested  by  the 
country’s  fundamentals.  Among  the  countries 
with a positive non-financial corporations debt gap 
relative to a prudent indicative threshold, France is 
one  of  the  few  cases  where  deleveraging  did  not 
take  place  in  2018.  The  debt  of  non-financial 
corporations  reached  88.9%  of  GDP  in  2018, 
which  according  to  Commission  estimates  is  22 
percentage points above what fundamentals would 
suggest.  It  is  also  above  a  level  that  justifies 
prudential  concerns  (see  Graph  1.7) (21).  Positive 
net  credit  flows  continued  increasing  in  2019. 
However,  the  share  of  non-financial  corporations’ 
interest  payments  on  their  total  value  added 
continued to decline in 2018 to 5.1%. This was due 
to  low  and  falling  interest  rates,  reaching  their 
lowest  level  in  decades  despite  being  78%  higher 
than  in  the  euro  area  (see  Graph  1.8).  The 
proportion of short-term debt on total debt in non-
financial  corporations  has  decreased  slowly  since 
the  crisis,  from  around  34%  to  around  30%  in 
2018.  This  acts  as  a  mitigating  risk  factor.  To 
reduce  the  risks  associated  with  high  private  debt 
of non-financial corporations, the High Council for 
Financial  Stability  (Haut  Conseil  de  Stabilité 
Financière) 
macroprudential 
introduced 
instruments (see Section 4.2). 

Household debt continued rising but the level is 
still  in  line  with  the  fundamentals.  Household 
debt-to-GDP has been increasing steadily over the 
last  decade  and  is  now  above  the  prudential 
the  Commission (22). 
thresholds  estimated  by 
However,  at  60%  of  GDP,  the  level  of  household 
debt  in  2018  is  estimated  to  be  close  to  the 
fundamentals  according 
the  Commission’s 
estimates. Household debt has increased more than 
the  fundamentals-based  benchmark,  and  it  will 
surpass  it  if  trends  do  not  change.  Consumer 
spending loans marginally increased in 2018 up to 
in 
7.3%  of  GDP,  but 

the  mortgage  stock 

to 

(21)  Prudential  thresholds  represent  the  debt  threshold  beyond 
which  the  probability  of  the  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 
(European Commission 2017 and 2018b).  

(22)  Fundamentals-based  benchmarks  allow  assessing  private 
debt  against  values  that  can  be  explained  on  the  basis  of 
economic  fundamentals,  and  are  derived  from  regressions 
capturing  the  main  determinants  of  credit  growth  and 
taking into account a given initial stock of debt. Prudential 
thresholds 
level  beyond  which 
the  debt 
probability of a banking crisis is relatively high. 

represent 

position  level  does  not  raise  prudential  concerns 
(19).  

Private debt 

have 

corporations 

non-financial 

Private  debt  continued  to  increase  in  2018, 
reaching  148.9%  of  GDP (20).  In  the  current 
environment of low interest rates, both households 
and 
been 
contributing to the  increasing private  debt ratio in 
France.  In  particular,  non-financial  corporations 
have been  leveraging further, namely  from 86.9% 
of  GDP  in  2017  to  88.9%  in  2018.  Households’ 
debt  also  continued  rising  (at  one  of  the  highest 
rates  in  the  EU),  reaching  60%  of  GDP  in  2018 
from  58.5%  in  2017.  By  contrast,  private  debt  in 
the euro area as a whole has been falling in every 
year since 2009. 

Graph 1.7:  Non-financial corporation consolidated debt 

Source: European Commission, Eurostat 

Non-financial 
been 
corporations 
leveraging  further  despite  recording  a  debt 

have 

(19)  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 (Turrini and Zeugner 2019). 

(20)  Indicator  based  on  national  accounts  data  and  commonly 
agreed methodology of the MIP scoreboard. Private sector 
debt  is  the  stock  of  liabilities  held  by  non-financial 
(S.11)  and  households  and  non-profit 
corporations 
institutions 
(S.14,  S.15).  The 
serving  households 
instruments taken into account are debt securities (F.3) and 
loans (F.4). Data are presented in consolidated terms. 

13 

020406080100969800020406081012141618%GDPNon-financial corporation debt, consolidatedFundamentals-based benchmark, consolidatedPrudential benchmark, consolidated   
                                                           
                                                           
1. Economic situation and outlook 

percentage  of  GDP  increased  by  1.6  percentage 
points  in  2018,  reaching  44.1%  of  GDP  in  2018. 
While  French  households’  interest  payments,  as  a 
share  of  their  gross  disposable  income,  is  at 
historical  lows  and  in  line  with  other  euro  area 
countries,  the  share  of  household  income  devoted 
to  debt  repayment  has  continued  increasing.  For 
example,  the  share  of  households  with  a  debt-
service-to-income  ratio  above  33%  has  increased 
by  5  percentage  points  since  2015  (Haut  Conseil 
de  Stabilité  Financière,  2019a).  Supporting  this 
aggregate 
credit 
the 
(Observatoire  des  Crédits  aux 
observatory 
Ménages)  noted  that  in  2018,  out  of  all  the 
borrowers,  50%  of  respondents  classified  the 
repayment  of  their  debt  as  a  high  burden  despite 
the  cut  in  interest  rates  (the  burden  remains 
nevertheless bearable for the majority of them). 

households 

finding, 

that 

limit 

sources 

end of 2018 are set at a fixed interest rate (Autorité 
de  contrôle  prudentiel,  2018),  which  limits  the 
impact  of  a  potential  rise  in  interest  rates.  Two 
potential 
additional 
vulnerabilities from macroeconomic shocks are (i) 
the  high  social  protection  in  France,  and  (ii)  the 
double-selection  procedure  of  borrowers,  where 
these  are  evaluated  by  lenders  as  well  as  mutual 
guarantee societies. Despite this, the High Council 
for  Financial  Stability  pointed  out  that  credit 
standards  have  loosened  across  the  board,  with 
increasing  maturities, 
loan-to-value  and  debt 
service-to-income ratios (Haut Conseil de Stabilité 
Financière,  2019a  and  2019b).  French  authorities 
have  taken  several  macroprudential  measures  to 
address  the  growing  vulnerabilities,  including  in 
the residential real estate market (see Section 4.2).  

Graph 1.8: 

Interest burden evolution 

Graph 1.9:  Housing market - Overvaluation gaps 

Source: Eurostat 

Housing 

While  real  house  price  growth  has  been  very 
contained in France since 2011, some indicators 
continue  to  suggest  risks  of  overvaluation. This 
is due to the significant growth in the 2000s, which 
has  yet  to  be  undone  (see  Graph  1.9).  The 
European  Systemic  Risk  Board  has  identified 
medium-term vulnerabilities in the housing market 
in France as a source of systemic risk to financial 
stability, which could have negative effects on the 
real  economy  (European  Systemic  Risk  Board, 
2019).  However,  the  High  Council  for  Financial 
Stability  has  not  found  evidence  of  possible  risks 
associated  with  a  potential  fall  in  property  prices 
(Haut  Conseil de  Stabilité  financière, 2019a). The 
reason being that 94.6% of outstanding loans at the 

(1) Overvaluation gap estimated as an average of the 
price/income, price/rent and fundamental model valuation 
gaps. Long-term values are computed over 1995-2016. 
Source: European Commission 

Public finances 

little 

looking 

The  public  deficit  dropped  to  2.5%  of  GDP  in 
2018; 
structural 
forward, 
improvement  is  envisaged.  According  to  the 
Commission  2019  autumn  forecast,  the  general 
government deficit is set to rise to 3.1% of GDP in 
2019. This is due to the one-off deficit-increasing 
impact of 0.9% of GDP mainly stemming from the 
replacement  of  the  tax  credit  for  employment  and 
la 
competitiveness 
Compétitivité  et  l’Emploi)  by  a  permanent  cut  in 
social  contributions.  As  this  effect  fades  away  in 
2020, the general government deficit is forecast to 

d’Impôt 

(Crédit 

pour 

14 

02468101214050607080910111213141516171819Q3% of value added and GDIInterest payments / gross disposable income, HouseholdsInterest payments / gross disposable income, Households, EA19Interest payments / value added, Non-financial CorporationsInterest payments / value added, Non-Financial Corporations, EA19-30-20-100102030010203040506070809101112131415161718% deviation of current priceModel-based valuations gapPrice to income vs historical averagePrice to rent vs historical averageOverall valuation gap   
   
1. Economic situation and outlook 

decline  to  2.2%  of  GDP.  However,  the  structural 
deficit  is  not  expected  to  register  any  material 
improvement  in  2019  and  2020.  In  2020,  the 
the 
deficit-increasing  measures  adopted  after 
Broad  National  Debate  (Grand  débat  national) 
(see  Section  4.1)  are  set  to  be  partially  offset 
mainly  by 
interest 
the  projected  decline 
payments  and  by  postponing  the  cut  in  the 
corporate  income tax rate  for large companies.  At 
unchanged  policies,  the  deficit  is  projected  to 
remain at 2.2% of GDP in 2021. 

in 

The  public  debt-to-GDP  ratio  will  increase 
further,  to  about  99%  of  GDP,  by  2021.  The 
public  debt-to-GDP  ratio  has  hovered  around 
98.4%  in  2017  and  2018.  However,  according  to 
the  Commission  2019  autumn  forecast,  it  is 
expected  to  increase  by  0.5  percentage  points  of 
GDP in 2019. It is then projected to rise further, to 
99.2%  in  2021,  due  to  persistently  high  structural 
deficits (see Section 4.1).  

Sustainable Development Goals 

Overall, France performs very well in achieving 
the  Sustainable  Development  Goals.  According 
to  Eurostat’s  Sustainable  Development  Goals 
(SDGs) indicators (see Annex E), France performs 
better  than  the  EU  average  in  nearly  all  the 
indicators  related  to  inequalities  for  SDG  1  -  No 
poverty,  SDG  5  -  Gender  equality,  and  SDG  10  - 
Reduced  inequalities.  France  has  been  making 
progress in all the goals over the past five years. In 
particular, 
and 
production’  (SDG 12)  and  ‘Peace  and  justice’ 
(SDG 16).  However,  basic  education  indicators 
(Underachievement in reading, maths and science, 
SDG  4  -  Quality  education)  are  on  a  persistent 
deviation 
term).  Lower 
performances  can  also  be  observed  in  SDG 8  - 
Decent Work and Economic Growth and SDG 17 - 
Partnerships for the goals. 

‘Responsible 

consumption 

(short 

long 

and 

15 

 
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators 

Source:  Eurostat and ECB as of 4-2-2020, where available; European Commission for forecast figures (Winter forecast 2020 for 
real GDP and HICP, Autumn forecast 2019 otherwise) 

16 

2004-072008-122013-1620172018201920202021Real GDP (y-o-y)2.30.40.92.31.71.21.11.2Potential growth (y-o-y)1.81.20.91.01.11.11.21.3Private consumption (y-o-y)2.30.61.11.40.9...Public consumption (y-o-y)1.71.51.31.50.8...Gross fixed capital formation (y-o-y)3.9-0.90.74.72.8...Exports of goods and services (y-o-y)4.51.23.03.93.5...Imports of goods and services (y-o-y) 6.01.24.03.91.2...Contribution to GDP growth:Domestic demand (y-o-y)2.50.51.12.11.3...Inventories (y-o-y)0.2-0.10.20.2-0.3...Net exports (y-o-y)-0.40.0-0.4-0.10.7...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.50.30.20.10.10.10.20.2Capital accumulation (y-o-y)0.80.60.40.50.50.60.60.6Total factor productivity (y-o-y)0.60.30.40.40.40.50.50.5Output gap2.1-0.8-1.5-0.10.50.70.80.7Unemployment rate8.79.010.39.49.18.58.28.0GDP deflator (y-o-y)2.11.10.80.50.81.41.21.2Harmonised index of consumer prices (HICP, y-o-y)1.91.90.51.22.11.31.21.3Nominal compensation per employee (y-o-y)2.92.41.32.01.8-0.21.41.9Labour productivity (real, person employed, y-o-y)1.50.20.51.30.7...Unit labour costs (ULC, whole economy, y-o-y)1.52.00.70.61.0-0.40.91.3Real unit labour costs (y-o-y)-0.50.90.00.10.2-1.7-0.30.1Real effective exchange rate (ULC, y-o-y)0.7-0.3-0.11.00.7-4.2-1.6-0.6Real effective exchange rate (HICP, y-o-y)0.0-1.2-0.40.62.5-1.3-0.9-0.7Net savings rate of households (net saving as percentage of net disposable income)9.210.08.58.18.4...Private credit flow, consolidated (% of GDP)8.65.64.16.87.9...Private sector debt, consolidated (% of GDP)110.9131.7141.4145.5148.9...of which household debt, consolidated (% of GDP)42.953.056.158.560.0...of which non-financial corporate debt, consolidated (% of GDP)68.078.885.386.988.9...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)2.64.23.72.82.5...Corporations, net lending (+) or net borrowing (-) (% of GDP)0.90.90.1-0.1-0.4-0.2-1.0-0.8Corporations, gross operating surplus (% of GDP)18.017.417.417.417.218.117.517.5Households, net lending (+) or net borrowing (-) (% of GDP)2.33.72.92.32.42.92.82.5Deflated house price index (y-o-y)9.8-0.3-1.82.31.5...Residential investment (% of GDP)6.36.46.06.36.4...Current account balance (% of GDP), balance of payments0.2-0.7-0.6-0.7-0.6-0.5-0.6-0.7Trade balance (% of GDP), balance of payments0.1-1.3-0.6-1.1-1.1...Terms of trade of goods and services (y-o-y)-0.7-0.41.6-1.3-1.30.40.10.0Capital account balance (% of GDP)0.00.00.00.00.1...Net international investment position (% of GDP)-4.8-11.9-14.5-16.6-16.4...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)-6.7-23.8-29.5-31.9-33.0...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)175.3239.1238.3230.7236.1...Export performance vs. advanced countries (% change over 5 years)-4.3-9.0-5.1-0.4-2.2...Export market share, goods and services (y-o-y)-4.4-4.01.4-3.3-0.11.0-0.9-1.1Net FDI flows (% of GDP)1.71.50.80.42.3...General government balance (% of GDP)-3.0-5.5-3.8-2.8-2.5-3.1-2.2-2.2Structural budget balance (% of GDP)..-2.8-2.7-2.7-2.7-2.6-2.6General government gross debt (% of GDP)65.683.195.598.498.498.998.999.2Tax-to-GDP ratio (%) (3)44.644.947.648.348.447.347.146.9Tax rate for a single person earning the average wage (%) (4)28.227.928.729.228.7...Tax rate for a single person earning 50% of the average wage (%) (4)17.619.219.718.818.4...(1) NIIP excluding direct investment and portfolio equity sharesKey economic and financial indicators - Franceforecast(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(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash benefits, expressed as a percentage of gross wage earnings(2) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-controlled branches. 
    
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

59% 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  (CSRs)  addressed  to  France 
have  recorded  at  least  “some  progress”  while 
27% of these CSRs recorded “limited progress” 
or “no progress” (see Graph 2.1). Major reforms 
have  been  adopted  in  the  field  of  vocational 
education and the training system, the functioning 
of the labour market and business environment.  

Graph 2.1:  Overall multiannual implementation of 2011-

2019 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 2020 Country report. 
Source: European Commission 

On  public  finances,  despite  the  reduction  over 
the  years,  in  a  low  interest  rates  environment, 
public  deficit  remains  high  and  public  debt 
keeps  on  the  rise.  Efforts  have  been  made  to 
control  public  spending  dynamics  at  all  levels  of 
public  administration.  However,  significant  tax 
cuts carried out in parallel have hampered a faster 
fiscal  consolidation,  which  is  now  on  the  back 
burner  until  the  end  of  the  presidential  term  and 
beyond.  Although  falling,  in  2018,  the  level  of 
general  government  expenditure,  at  56%  of  GDP, 
remained  the  highest  in  the  euro  area  and  the  EU 
as a whole (47% and 45.8%, respectively). So far, 
the  contribution  of  the  spending  review  in  the 
framework  of  the  broader  Public  action  2022 
programme lacks proper quantification and as such 
its macroeconomic impact cannot be assessed (see 

Section  4.1).  In  turn,  the  reform  of  the  pension 
system,  originally  envisaged  for  2019,  has  been 
put off and is now planned for adoption by the end 
of  2020.  According  to  the  information  available, 
the  main  objectives  of  the  reform  appear  in  line 
with the CSRs addressed to France. 

to 

and 

revise 

improve 

contracts 

the 
taken 
Action  has  been 
functioning of the labour market and reform of 
the  vocational  education  and  training  system.  
The  functioning  of  the  labour  market  has  been 
reformed in 2016 and 2017 to incentivise hiring on 
permanent 
collective 
bargaining  and  social  dialogue.  An  important 
reform  of  the  vocational  education  and  training 
system  has  been  implemented  since  2018.  It 
addresses  major  challenges  such  as  the  need  to 
increase  access  to  training  for  low  skilled  and 
improve  the  labour  market  relevance  and  quality 
provided  by  the  vocational  education  and  training 
system.  However,  the  most  vulnerable  categories 
of  workers  (young,  low-qualified  workers,  and 
people  with  a  migrant  background)  are  at  a 
disadvantage  in  terms  of  labour  market  access. 
Specific  initiatives  to  increase  their  employment 
opportunities  are  being 
implemented  while 
persisting  difficulties  and  inequalities  continue  to 
affect  people  with  a  migrant  background  (See 
Section 4.3).  

restrictions 

Efforts  to  improve  the  business  environment 
are  mixed.  France  has  implemented  a  range  of 
reforms  covering  measures  to  facilitate  firms’ 
growth  (PACTE  Law  in  2019),  simplification  of 
the  taxation  system  (ESSOC  Law  in  2018)  and 
reducing 
the  services  sector 
in 
(‘Macron  Law’  in  2015).  However,  the  level  of 
regulatory restrictions in services remains high and 
barriers  to  entry  (see  Section  4.4)  leading  to  low 
competition  persist.  In  addition,  limited  progress 
has been made to address the high level of taxes on 
production 
(see  Section  4.1)  weighing  on 
companies. 

transition  and 

There  is  also  room  to  improve  investment-
related  economic  policy.  France  has  made  some 
progressed  in  focusing  investment  to  ensure  the 
energy 
its  digital 
infrastructure. However, there is a need to simplify 
the  overall  research  and  innovation  ecosystem. 
Recent evaluations of the R&D tax incentive (CIR) 
point  to  a  limited  impact  of  the  instrument  on 

improve 

to 

17 

No Progress2%Limited Progress25%Some Progress59%Substantial Progress13%Full Implementation1% 
  
2. Progress with country-specific recommendations 

innovation and productivity (see Section 4.4). The 
assessment of this CSR does not take into account 
the  contribution  of  the  EU  2021-2027  cohesion 
policy funds (23).  

the 

country 

In 2019, France has made some progress (24) in 
addressing 
specific 
recommendations  (see  Table  2.1).  Substantial 
progress  has  been  made  in  implementing  the 
measures  to  foster  the  growth  of  firms.  Some 
progress  has  been  made  in  addressing  skills 
shortages and  mismatches,  focusing investment to 
ensure the energy transition, improving the digital 
infrastructure  and  continuing  the  simplification  of 
the tax system. Limited progress has been made in 
reforming the pension system, fostering integration 
labour  market  and  ensuring  equal 
the 
on 
opportunities, 
and 
the 
innovation  performance  and  reducing  regulatory 
restrictions. There has been  no progress in further 
specifying and implementing concrete measures of 
Public action 2022 programme. 

improving 

research 

Upon  request  from  a  Member  State,  the 
Commission  can  provide  tailor-made  expertise 
via the Structural Reform Support Programme 
(SRSP)  to  help  design  and  implement  growth-
enhancing  reforms.  Since  2017,  such  support  is 
being  provided  to  France  through  the  progressive 
deployment of seven projects. The Commission is 
providing the authorities with support to foster the 
development of a strategic department, to improve 
digital  interoperability  in  pensions’  payments,  to 
design  and  evaluate  innovative  interventions  for 
specific  diseases  (HIV  and  hepatitis  C), 
to 
facilitate  the  implementation  of  France's  housing 
policy  and  to  raise  awareness  about  the  issue  of 
financial mis-selling. 

(23)  The  regulatory  framework  underpinning  the  programming 
of  the  2021-2027  EU  cohesion  policy  funds  has  not  yet 
been  adopted  by  the  co-legislators,  pending  inter  alia  an 
agreement on the multiannual financial framework (MFF). 
(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 Annex A. This 
overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact.  

18 

 
 
 
                                                           
 
 
 
 
 
 
 
 
2. Progress with country-specific recommendations 

Table 2.1: 

Assessment of 2019 CSR implementation (*) 

(1) The overall assessment of CSR 1 does not include an assessment of compliance with the Stability and Growth Pact 
Source: European Commission 
(*) The assessment of CSR 3 does not take into account the contribution of the EU 2021-2027 cohesion policy funds. The 
regulatory framework underpinning the programming of the 2021-2027 EU cohesion policy funds has not yet been adopted 
by the co-legislators, pending inter alia an agreement on the multiannual financial framework (MFF) 

19 

France Overall assessment of progress with 2019 CSRs : Some CSR 1: Ensure that the nominal growth rate of net primary expenditure does not exceed 1,2 % in 2020, corresponding to an annual structural adjustment of 0,6 % of GDP. Use windfalls gains to accelerate the reduction of the general government debt ratio. Achieve expenditure savings and efficiency gains across all sub-sectors of the government, including by fully specifying and monitoring the implementation of the concrete measures needed in the context of Public Action 2022. Reform the pension system to progressively unify the rules of the different pension regimes, with the view to enhance their fairness and sustainability. Limited progress  Not Assessed   Not Assessed  No progress in further implementing ‘Public Action 2022’  Limited progress in reforming the pension system CSR 2: Foster labour market integration for all job seekers, ensure equal opportunities with a particular focus on vulnerable groups including people with a migrant background and address skills shortages and mismatches. Limited progress  Limited progress in fostering integration on the labour market and ensuring equal opportunities  Some progress in addressing skills shortages and mismatches CSR 3: Focus investment-related economic policy on research and innovation (while improving the efficiency of public support schemes, including knowledge transfer schemes), renewable energy, energy efficiency and interconnections with the rest of the Union, and on digital infrastructure, taking into account territorial disparities. Some progress  Limited progress in improving the research and innovation performance  Some progress in focusing investment to ensure energy transition  Some progress in improving digital infrastructure CSR 4: Continue to simplify the tax system, in particular by limiting the use of tax expenditures, further removing inefficient taxes and reducing taxes on production. Reduce regulatory restrictions, in particular in the services sector,and fully implement the measures to foster the growth of firms. Some progress  Some progress in simplifying the tax system   Limited progress in reducing regulatory restrictions  Substantial progress in implementing the measures to foster the growth of firms.   
 
  
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes to address structural challenges and to foster growth 
and competitiveness in France 

France is benefiting from EU support. The financial allocation from the EU Cohesion policy funds (1) for 
France amounts to €28.5 billion in the current Multiannual Financial Framework, equivalent to around 0.2% 
of the GDP annually. By the end of 2019, some €25.9 billion (around 91% of the total amount planned) were 
allocated to specific projects, while €11.9 billion were reported as spent by the selected projects (2), showing 
a level of implementation above the EU average. 

While  bringing  about  a  more  harmonious  development  through  reducing  economic,  social  and 
territorial disparities, EU Cohesion policy funding also supports structural challenges in France.  The 
Cohesion policy programmes have allocated €4 billion for smart growth, €3.5 billion for sustainable growth 
and sustainable transport and €6.7 billion for inclusive growth. In 2019, following a performance review (3) 
€1.4 billon have been made available for France within performing priorities. 

EU Cohesion  policy funding is contributing to transformations of the French economy by promoting 
growth  and  employment  via  investments,  among  others,  in  research,  technological  development  and 
innovation,  competitiveness  of  enterprises,  sustainable  transport,  employment,  labour  mobility,  skills  and 
social inclusion. By 2019, investments driven by the European Regional Development Fund (ERDF) have 
already  led  to  connect  to  high  speed  broadband  more  than  one  million  households,  over  1,600  new 
researchers have been recruited, and support was already decided for 162,000 enterprises including 48,500 
start-ups,  generating  36,880  new  jobs.  The  European  Social  Fund  (ESF)  supported  the  labour  market 
integration of job seekers including through access to training and counselling. By 2019, the social inclusion 
of  900  000  persons  was  supported.  European  structural  and  investment  (ESI)  funds  contributed  to  the 
reduction of greenhouse gas emissions by four million tons of CO2. As an example, the COMPETITIV´eko 
project  is  promoting  cross-border  cooperation  and  knowledge  exchange  between  SMEs,  business  clusters, 
technological centres and economic development agencies in the Basque Country and Navarre in Spain, and 
Nouvelle Aquitaine in France. Aimed at boosting the competitiveness of companies with few resources, it 
focuses on areas within the regions’ smart specialisation strategies. This will enable each region to develop 
its own competitive advantages where common interests exist. 

Agricultural and fisheries funds and other EU programmes also contribute to addressing investment 
needs. The European Agricultural Fund for Rural Development support for €16.6 billon including national 
co-financing,  mainly  to  support  agri-environmental  and  climate  type  of  measures,  which  aim  to  improve 
biodiversity, water quality and soil protection. The European Maritime and Fisheries Fund contributed to the 
tune of €774 million. France also benefits from other programmes, such as the Connecting Europe Facility, 
which allocated EU funding of €1.9 billion to specific projects on strategic transport networks, and Horizon 
2020, which allocated €5.1 billion (benefiting to 1,129 SMEs for a total of €719 million). 

EU  funding  contributes  to  mobilise  private  investment.  By  allocating  about  €650  million  as  loans, 
guarantees  and  equity,  European  and  Structural  Investment  Funds  supported  programmes  alone  mobilised 
additional capital (4). These are expected to leverage additional private investment of about €890 million. 

EU  funds  already  invest  in  line  with  the  Sustainable  Development  Goals  (SDGs).  In  France  European 
Structural and Investment Funds support 14 out of the 17 SDGs and up to 98% of the spending is contributing 
to these goals. 

(1)  European  Regional  Development  Fund,  European  Social  Fund,  Youth  Employment  Initiative,  including  national  co-

financing. 

(2)  https://cohesiondata.ec.europa.eu/countries/FR.  Note:  for  the  programs  for  which  data  were  not  reported  by  the 

regulatory deadline of 31.01.2020, the previously reported data were used. 

(3)  The  performance  review  is  regulated  by  Article  22  of  Regulation  (EU)  No  1303/2013,  whereby  5-7%  of  overall 
resources  allocated  are  released  to  performing  priority  axes  of  the  operational  programmes,  the  amount  includes 
national co-financing. 

(4)  Member  States’  reporting  on  financial  instruments  based  on  Article  46  of  Regulation  No  1303/2013,  cut-off  date 

31/01/2020. 

20 

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

DEPTH REVIEW 

The 2020 Alert Mechanism report concluded that a 
new  in-depth  review  should  be  carried  out  for 
France  to  assess  the  persistence  or  unwinding  of 
the imbalances (European Commission, 2019b). In 
February  2019,  France  was  identified  as  having 
(European 
macroeconomic 
Commission,  2019).  In  particular,  these  related  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  of  the  macroeconomic 
imbalance procedure (MIP) in-depth review that is 
contained in various sections in this report* (25).  

imbalances 

Imbalances and their gravity 

Developments  on  French 
competitiveness 
continue  to  be  mixed.  In  recent  years,  export 
market  shares  remained  flat  after  years  of  losses. 
Comparing  export  performance  against  other 
advanced  economies  (26),  France’s  total  export 
market shares fell slightly over the last five  years. 
The  current  account  balance  has  been  recording 
only  small  deficits  for  a  number  of  years,  yet 
remaining  below  values  implied  by  fundamentals, 
which  would  suggest  a  marginally  positive 
reading.  The  net  international  investment  position 
(NIIP) 
remained  broadly  constant, 
-16.4%  of  GDP  in  2018,  when  fundamentals 
would point to something slightly positive. 

General  government  debt  is  high.  In  2018,  the 
French  general  government  debt-to-GDP  ratio 
remained stable at a high level, namely at 98.4% of 
GDP.  However,  according  to  the  Commission 
2019  autumn  forecast,  France’s  public  debt  is  set 
to have risen to almost 99% of GDP in 2019 and to 
increase further in the next two years. This means 
that  the  recent  economic  expansion  has  not  been 
accompanied by fiscal consolidation.   

Private debt is also high and increasing more or 
less  continuously  since  the  early  2000s.  In 
particular,  it  reached  almost  149%  of  GDP  in 

(25)  Analyses relevant for the in-depth review can be found in 
the  following  sections  indicated  by  an  *:  Public  finances 
(Section  4.1);  Financial  sector  (4.2);  Labour  market  (4.3) 
and Competitiveness reforms and investment (Section 4.4).  
(26)  It  includes  34  OECD  countries  (21  EU  MSs  and  13  non-

EU countries). 

2018.  Both 
corporations contributed to this ratio.  

households 

and 

non-financial 

Competitiveness  and  productivity  weight  on 
France's  economic  growth,  which  in  turns 
impacts  debt  burdens  and  deleveraging.  Cost 
competitiveness  has  been  a  concern  and  non-cost 
competitiveness  has  also  been  dampened.  Low 
productivity  growth  has  also  affected  France, 
while  the  relevance  of  exports  to  GDP  increased 
less than in the rest of the euro area. 

The large  size  of the French economy can be a 
source  of  cross  border  spillovers  to  other  EU 
Member  States. France is an important trade and 
financial partner for many EU Member States and 
in  particular  to  neighbouring  countries  (see  Table 
3.1).  Box  3.1  provides  a  quantitative  estimate  of 
how an increase of public investment in France can 
have positive effects on its own domestic GDP and 
relevant spillovers to other Member States. 

Evolution, prospects and policy responses 

Fiscal  consolidation 
is  on  hold.  The  2020 
budgetary  plan  does  not  outline  any  fiscal 
consolidation  progress  for  2020.  The  reform  to 
unify  the  different  pension  schemes  currently  co-
existing,  originally  announced  for  2019,  has  been 
postponed,  and  the  impact  of  actions  aimed  at 
achieving  meaningful  expenditure  savings  and 
efficiency  gains  across  all 
sub-sectors  of 
government  under 
the  Public  action  2022 
programme,  have  not  yet  been  specified.  Macro 
prudential instruments to limit banks’ exposure to 
highly  indebted  large  non-financial  corporations 
and  to  increase  banks’  capital  buffers  to  make 
them more resilient to periods of stress have been 
introduced. 

Cost  competitiveness  has  remained  broadly 
stable  over  the  past  year,  although  some 
indicators  measuring  the  evolution  over  a 
longer  period  have  to  be  closely  monitored.  In 
2018  alone,  unit  labour  costs  increased  by  1%, 
resulting  from  the  combined  effect  of  a  moderate 
increase 
labour 
productivity  growth.  Growth  in  nominal  unit 
labour  costs,  based  on  the  three-year  indicator  up 
to 2018 was more contained than in the rest of the 

in  real  wages  and 

low 

the 

reaching            

21 

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

Table 3.1: 

Outward spill-over heat map 

Cross-border  figures  for  France,  expressed  as  a  percentage  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 - 2017, Imports (in value added) - 2015, Financial liabilities - 2017, Financial assets - 2017, Liabilities 
(to banks) - 2019-Q2, Bank Claims - 2019-Q2. 
Source: IMF, OECD, TiVa, BIS and Commission services 

EU  average  despite  having  accelerated  slightly, 
reaching  2.4%.  The  real  effective  exchange  rate 
(REER)  appreciated  by  4.5%  between  2015  and 
2018,  reflecting  much  of  the  euro  appreciation 
after  the  marked  2015  depreciation.  However,  in 
2019  some  nominal  depreciation  was  again 
observed (as in other euro area countries). In terms 
of non-price competitiveness, while French exports 
of  goods  are  overall  of  medium-high  quality, 
France continued to maintain the highest quality in 
the  sectors  in  which  it  specialises,  such  as 
aeronautics, cosmetics and beverages.  

benefits  (prime  d’activité).  The  unemployment 
benefit  reform, 
implemented  since  November 
2019,  modifies  eligibility  criteria  and  introduces 
specific  sectoral  incentives  and  disincentives  for 
employers  if  they  use  short-term  contracts.  To 
improve  the  efficiency  of  social  benefits,  the 
government  is  planning  to  merge  different  ones 
into a universal activity income (Revenu universel 
d’activité).  The  link  between  training,  labour 
market and needs of firms has also been improved, 
with  firms  being  able  to  have  their  own  learning 
centres for apprenticeships (See Section 4.3). 

(Loi 

relative  à 

la  croissance  et 

initiatives  have  been  adopted 

Several 
to 
improve the business environment. The PACTE 
law 
la 
transformation  des  entreprises)  was  adopted  in 
May 2019 to foster the growth of firms. Measures 
were  announced  in  some  specific  services  sectors 
to increase competition and moderate prices.  The 
services  in  which  measures  have  been  already 
adopted include the sale of automotive spare parts, 
driving  schools  and  health  insurance.  Efforts  to 
streamline the tax system are ongoing (Loi pour un 
Etat  au  service  d’une  société  de  confiance, 
ESSOC’).  In  terms  of  innovation  performance, 
diagnostics  of  the  R&D  tax  credit  (Crédit  Impot 
Recherche)  were  proposed  but  they  need  to  be 
extended  to  include  the  macroeconomic  impact. 
On digitalisation, the French government unlocked 
€3.3  bn  to  boost  additional  private  investment  in 
rolling out ultra-fast broadband across the country.   

Adopted and announced labour market reforms 
are  going  in  the  right  direction,  but  their 
benefits  will  take  time  to  fully  materialise. 
Reforms aim to increase the labour participation of 
specific groups and to increase the overall skills of 
the  labour  force.  In  this  regard,  French  workers 
earning  close  to  the  minimum  wage  have  been 
supported by a significant increase in their in-work 

Overall assessment  

France  is  characterised  by  high  indebtedness 
and still weak, although stable competitiveness, 
in a context of low productivity growth. Despite 
stable export market shares and a continuing small 
current  account  deficit,  low  productivity  growth 
still  weighs  on  French  competitiveness.  France’s 
general government debt remains high and is set to 
rise  somewhat  further  in  the  following  two  years. 
Risks  stemming  from  high  public  debt  are 
compounded by high and increasing private debt. 

France has introduced ambitious reforms while 
public  expenditure  remains  high.  France  has 
taken  further  ambitious  measures,  notably  in  the 
areas  of  business  environment,  labour  market  and 
apprenticeship  and  vocational  education.  These 
reforms will take time to fully materialise and will 
require  close  monitoring.  As  for  public  finances, 
fiscal  consolidation  efforts  have  been  put  on  hold 
and  the  current  budgetary  strategy  does  not 
guarantee  a  reduction  of  the  high  public  debt.

22 

ATBEBGHRCYCZDEDKEEELESFIFRHUIEITLTLULVMTNLPLPTROSESISKUKImports2.114.91.90.70.14.23.41.41.31.14.413.73.732.519.71.21.97.52.85.421.73.95.31.8Imports (in value added)1.44.71.60.90.72.42.11.21.10.82.71.02.13.11.81.85.60.91.62.02.02.62.51.41.92.71.3Financial liabilities11.963.93.51.916.62.020.914.64.92.413.917.6 1.387.917.21.71477.94.148.060.71.29.70.67.68.63.338.6Financial assets13.476.88.04.421.510.811.710.62.732.529.410.7 5.176.928.62.21097.02.331.171.99.119.75.912.010.24.527.7Liabilities (to banks)2.63.44.20.47.16.91.63.210.82.50.69.8Bank claims2.745.51.51.011.820.54.63.00.31.37.44.41.614.616.50.5229.00.29.213.68.48.66.04.88.42.08.1EU partner 
 
  
 
3. Summary of the main findings from the MIP in-depth review 

Table 3.2: 

MIP Assessment Matrix (*) 

(Continued on the next page) 

23 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) Competitiveness Competitiveness in France has shown a mixed-picture for a number of years, with low productivity growth weighing on competitiveness.  Export market shares have stabilised over the recent past after years of losses, as France has benefited from its geographical positioning. Unit labour costs have grown more moderately than in other euro area and EU countries as wage developments have been contained in a context of sluggish productivity growth.  In terms of non-price competitiveness, while French exports of goods are overall of medium-high quality, France has continued to maintain the highest quality in the sectors in which France is mainly specialised, such as aeronautics, cosmetics and beverages. The relevance of exports to GDP increased less than in the rest of the euro area. The current account balance and the net international investment position (NIIP) have been slightly negative for several years, with a deficit of -0.6% of GDP and at        -16.4% of GDP respectively, in 2018. The fundamentals of the French economy would however suggest somewhat higher readings on both dimensions. The growth of total export market shares remained flat in 2018 on a year-over-year basis and are estimated that may have declined in 2019. Overall, export market shares are forecast not to improve in the next few years.  Wage and minimum wage dynamics are set to remain moderate. Nevertheless, labour productivity is expected to remain subdued and improve only, which prevents a faster recovery of cost-competitiveness. Nominal unit labour costs are set to exceptionally decrease in 2019 due to the one-off impact of the transformation of the CICE into a permanent reduction in social contributions. In 2020 and 2021, their evolution should be similar to the one of 2018 and earlier years.  Non-cost competitiveness is expected to improve over the medium-term, when the effects of the recently announced and undertaken policy actions will fully materialise. The current account deficit is forecast to remain contained and broadly stable over the next years. The transformation of the CICE into a permanent reduction in employers' social security contributions has been implemented in 2019. This came in parallel with an additional reduction of employers' social contributions for employees below 1.6 times the minimum wage; the reduction should be incremental, up to a null contribution at minimum wage level.  The unemployment benefit reform, implemented since November 2019, adopted a ‘bonus-malus’ system expected to reduce excessive reliance on temporary jobs in some sectors, and changed the eligibility criteria and compensation rules to make them more conducive to employment. Action had been taken also in earlier years to improve the functioning of the labour market, notably the El Khomri law of 2016 and the 2017 revision of the labour law for improving social dialogue and strengthening collective bargaining within firms. The latter reform aims at improving firms' ability to adapt more swiftly to changes in the macroeconomic environment, and at enhancing productivity through an optimised allocation of the workforce through sectors and regions. The PACTE Law aiming at fostering firms' growth was adopted in May 2019. At the same time, the Great plan for investment provides €57 bn for investments across different sectors of the economy for the period 2018-2022.  
 
 
  
 
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 

24 

Public debt General government debt at a very high level, being expected to have increased to around 99% of GDP in 2019. Such a high debt level constitutes a vulnerability for the economy as it reduces the fiscal space available to respond to future shocks (see Section 4.1) and weighs on growth prospects, by crowding out productive public expenditure and requiring a higher tax burden. On the positive side, government debt management is of good quality and the government has benefited from the very low sovereign yields environment to lengthen the average maturity of sovereign debt, thereby mitigating refinancing risks. The investor base is diverse, both by type and geographically, with the government sector crucially accounting for France's negative total NIIP. Risks stemming from the high public debt are compounded by the also high and increasing private debt (148.9% of GDP in 2018). While households’ debt is still broadly in line with fundamentals, both fundamentals-based benchmarks and prudential concerns point to more significant deleveraging needs for non-financial corporations.  France’s public debt is still growing even if only slightly mainly due to the continued high French primary deficit. At current trends for age-related expenditures, the simulated debt trajectory by year 2030 points to high medium-term sustainability risks. The Commission 2019 autumn forecast projects the headline deficit target to be at 3.1% and 2.2% of GDP in 2019 and 2020, respectively. Although the financial sector does not face immediate risks, pressures from the combination of high public and private debt, in particular the high and increasing debt of non-financial corporations,  may increase in the future under adverse economic conditions.  The budgetary strategy of France remains risky in that, according to the Commission 2019 autumn forecast, only marginal or even no structural efforts are projected. The projected structural efforts for 2019 and 2020 fall short of the effort recommended by the preventive arm of the Stability and Growth Pact.   This hampers public debt to decline at an appropriate pace and raises medium-term sustainability challenges. The original government’s plan to reduce public expenditure by more than 3 percentage points of GDP over five years by 2022 is proving challenging. The spending reviews have not been reinforced. The quantification of savings and efficiency gains in the context of the ‘Public action 2022’ programme is not available and thereby their macroeconomic impact cannot be assessed. The fiscal consolidation efforts are back-loaded until the end of the current government term and beyond, which constitutes an additional risk to the overall budgetary strategy.  Macroprudential measures have been taken by the High council for financial stability (HCSF). First, to limit to 5% the exposure of banks to highly indebted large non-financial corporations (NFCs). Second, to require banks to hold more capital against their French assets (risk weighted), reaching 0.25% as of July 2019 and 0.5% as of April 2020.  Conclusions from in-depth review analysis  France is characterised by a high indebtedness and weak, although stabilised competitiveness, in a context of low productivity growth. Associated vulnerabilities have cross-border relevance.  While recent competitiveness developments are somewhat tilted to the positive side, several vulnerabilities remain. After falling for many years, export market shares have recently stabilised but losses have not been recovered. The current account, close to balance, remains stable. Cost competitiveness improved in the recent past. Nevertheless, nominal unit labour costs are set to slightly accelerate while productivity growth remains moderate, preventing a faster recovery of cost-competitiveness. Unemployment continues to decrease but remains high, and the labour market continues to be segmented. Some elements of the business environment weigh on the non-cost competitiveness. Public debt stood at 98.4% of GDP in 2018, and it is projected to have increased to around 99% of GDP in 2019 and then rise further, to 99.2% in 2021.  Several reforms adopted in recent years are set to improve the responsiveness and performance of the labour market, and the French authorities have continued to implement their reform agenda in the last year. In particular, reform efforts have been made to improve the business environment and enhance firms’ competitiveness, while further measures to increase the performance of the innovation ecosystem and to remove barriers for competition, especially in services, are warranted. While progress has been observed in certain policy areas, further action is warranted to address France’s economic imbalances, especially regarding the fiscal consolidation agenda.   
 
  
 
 
3. Summary of the main findings from the MIP in-depth review 

Box 3.2: Euro-area spillovers 

Simulations  with  the  European  Commission’s  QUEST  model  (1)  illustrate  the  size  of  the 
potential domestic impact and potential spillovers to other euro-area countries. Following the 
2019 Country-specific recommendations on investment-related policy measures, the Commission 
QUEST  model  is  used  for  a  standardised  simulation  exercise  to  assess  the  potential  theoretical 
domestic  and  cross-border  impact  resulting  from  a  public  investment  package.  The  standardised 
scenario displayed in this box is based on an increase in the public investment level in France by 
1%  of  current  GDP  over  10  years(2)  under  the  working  hypothesis  that  this  increase  in  public 
investment is financed by an increase in the consumption tax by 1% of current GDP, assuming ex-
ante budget neutrality. Given that public investment has positive output effects, the ex-ante budget 
neutrality imposed in the simulation turns into an ex-post improvement in the government primary 
balance,  mainly  linked  to  positive  tax  base  effects.  Monetary  policy  is  assumed  to  remain 
constrained at the zero bound for 6 quarters, after which the constraint is phased out gradually.  

A  sustained  increase  in  public  investment  would  have  a  positive  domestic  impact  on  GDP 
and cross-border spillovers. The simulation suggests a positive impact on the level of French real 
GDP of around 0.6% in the first year, increasing gradually to reach a cumulative impact of 1.6% 
after 10 years (see table below). This positive impact originates from the positive effect of public 
investment  on  productivity.  In  addition,  the  expected  impact  on  the  real  GDP  of  the  rest  of  the 
euro  area  would  approximately  amount  to  0.3%,  representing  an  initial  spillover  of  half  the 
domestic  impact.  This  spillover  effect  is  driven  by  an  increased  external  demand  and  by  higher 
domestic  demand  originating  from  the  temporary  decline  in  the  real  interest  rate.(3)  The  GDP 
spillover  to  the  rest  of  the  euro  area  weakens  once  the  real  interest  effect  has  vanished,  but  it 
remains  positive  also  in  the  longer  term.  While  this  standardised  exercise  assumes  a  domestic 
impact  of  a  national  public  investment  program,  the  overall  impact  on  the  euro  area  could  be 
potentially higher in the case of a coordinated investment program at the euro area level.  

Note: Results in % or pps (Trade balance and government debt) deviation from baseline.  
Source: European Commission 

(1)  Detailed 

information 

at: 
http://ec.europa.eu/economy_finance/research/macroeconomic_models_en.htm.  In  this  simulation,  monetary  policy 
rates in the euro area are assumed to remain unchanged during the first two years. 

applications 

available 

QUEST 

model 

and 

the 

on 

is 

(2)  For a purpose of illustration, the  Grand Plan d'Investissement aims at mobilising €57 bn of investments in France in 
2018-2022, for sustaining the environmental transition (€21 bn), enhancing skills (€15 bn), improving innovation (€14 
bn),  and  digitalising  public  services  (€8  bn).  The  €  57  bn  investment  plan  amounts  to  around  2.5%  of  GDP  over  5 
years. 

(3)  Rest of the euro area inflation increases temporarily due to higher demand and a euro depreciation, whereas nominal 

rates are initially stuck at the zero bound. 

25 

2020202120222023202420252026202720282029FranceGDP0.630.600.630.750.901.071.231.371.511.62Consumer prices1.591.631.581.501.401.301.201.101.000.92Labour productivity0.310.450.620.800.951.121.271.411.551.70Trade balance (%GDP)0.090.040.040.050.070.080.080.080.070.06Government debt (%GDP)-0.65-0.90-1.17-1.41-1.69-2.00-2.35-2.74-3.15-3.61Rest of euro areaGDP0.310.300.220.170.150.150.150.150.150.14Consumer prices0.250.570.780.921.021.091.131.151.151.14Labour productivity0.120.140.140.130.120.120.120.120.120.11Trade balance (%GDP)0.110.01-0.03-0.04-0.04-0.04-0.04-0.04-0.04-0.04Government debt (%GDP)-0.14-0.39-0.49-0.52-0.52-0.50-0.48-0.45-0.41-0.36 
 
 
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION*  

Deficit developments 

confirming  no 

After a temporary rebound in 2019, the French 
general  government  deficit  is  set  to  stabilise  at 
2.2%  of  GDP  until  2021.  In  2018,  the  general 
government  deficit  decreased  to  2.5%  of  GDP. 
However,  the  structural  deficit  remained  high  (at 
2.7%  of  GDP), 
structural 
improvement since 2015 and considerably far from 
France’s medium-term objective of -0.4% of GDP 
(see  Graph  4.1.1).  The  headline  deficit  is  set  to 
pick  up  to  3.1%  of  GDP  in  2019.  The  increase 
above  the  3%  threshold  is  however  small  and 
temporary,  due  to  the  one-off  impact  of  the 
transformation  of  the  tax  credit  for  employment 
and  competitiveness  (CICE)  into  a  permanent 
reduction  in  employers’  social  contributions,  with 
no  impact  on  the  structural  deficit.  According  to 
the  Commission  2019  autumn  forecast,  public 
deficit  is  projected  to  decline  to  2.2%  of  GDP  in 
2020,  mainly  due  to  the  fading  of  this  one-off 
impact, and to remain at that level in 2021.  

Graph 4.1.1:  Fiscal effort and public debt 

(1) Commission 2019 autumn forecast for data from 2019 
onwards.   
Source: European Commission. Ameco database 

remains  on 

Fiscal  consolidation  has  been  put  on  hold  and 
public  debt 
rise.  The 
consolidation strategy over the current presidential 
term  was  outlined  in  the  multiannual  public 
finances  programming 
for  2018-2022. 
initial  adoption  in  2018, 
However,  since  its 

law 

the 

consolidation 
targets  have  been  progressively 
back-loaded. While the objective to reduce the tax 
burden  by  one  percentage  point  by  the  end  of  the 
presidential  term  is  almost  already  achieved, 
reducing government expenditure is proving much 
slower.  As  a  result,  the  original  objectives  of 
cutting  the  deficit  by  more  than  2  percentage 
points  and  reducing  debt  by  more 
than  5 
percentage points by 2022 have been considerably 
scaled  down.  The  2020  draft  budgetary  plan  does 
not  outline  any  progress 
terms  of  fiscal 
consolidation  in  2020.  Moreover,  the  underlying 
reduction  of  the  expenditure-to-GDP  ratio  is, 
largely,  due  to  the  planned  decline  in  public  debt 
servicing  costs.  This  is  broadly  confirmed  by  the 
Commission 2019 autumn forecast, which projects 
only  a  slight 
the  structural 
balance, of 0.1 pps., in 2020 (27), and no structural 
effort  in  2021.  This  is  insufficient  to  put  public 
debt on a steady downward trend. 

improvement 

in 

in 

New  measures,  mainly  tax  cuts,  aimed  at 
further  enhancing  household’s  purchasing 
power  are  envisaged  for  2020  (see  Box  4.1.1). 
The  measures  adopted  at  the  end  of  2018  in 
response  to  the  ‘Gilets  jaunes’  movement,  aimed 
to improve households’ purchasing power, entailed 
a  net  deficit-increasing  impact  of  around  0.3%  of 
GDP in 2019. Additional measures taking effect in 
2020  were  adopted  in  response  to  this  movement 
and following the conclusion of the broad national 
debate  (Grand  Débat  National)  in  April  2019. 
These  include  a  permanent  €5  bn  reduction  in 
personal income tax (0.2% of GDP), reviewing the 
indexation  of  pensions  below  €2,000  per  month, 
and  the  increase  in  minimum  pensions  (together 
reaching €1.5 bn, or 0.1% of GDP).  

The  fiscal  strategy  on  the  spending  side  relies 
on  control  of  public  expenditure  dynamics  and 
growth-friendly  spending  programmes.  After 
the  unprecedented  decline  in  real  terms  by  0.3 
pps.in 2018, according to the 2020 draft budgetary 
plan,  public  expenditure  in  nominal  terms,  net  of 

(27)  The divergence between the fiscal adjustment projected by 
the  Commission  in  2020  and  the  one  tabled  by  French 
authorities  stems  from  a  different  appreciation  of  whether 
some measures can be considered structural or “one-off”. 

*An  asterisk 

indicates 

the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
section 3 for an overall summary of main findings) 

the  analysis 

that 

in 

26 

90919293949596979899100-0.4-0.20.00.20.40.60.81.01.22012201320142015201620172018201920202021Change in the structuralbalanceChange in the structuralprimary balancePublic debt (right axis)% GDP% GDPforecast 
  
                                                           
4.1. Public finances and taxation* 

gap with the euro area, where overall public debt is 
projected  to  decline  by  almost  6  pps  to  84.1%  of 
GDP  between  2018  and  2021  (see  Graph  4.1.2). 
Such  a  divergent  trend  is  explained  by  the 
persistent  French  primary  deficits  projected  over 
the  forecast  horizon,  as  opposed  to  primary 
surpluses for the euro area average. 

Graph 4.1.2:  Public debt in France and in the euro area 

tax credits, is set to rise by 2.1% and 1.8% in 2019 
and  2020,  respectively.  These  imply  increases  in 
real  terms  of  1.1%  and  0.6%  in  the  same  years. 
to 
The  government  has  given  high  priority 
programmes  aimed  to  promote  long-term  growth. 
Under  the  current  five-year  great  investment  plan 
(Grand Plan d'Investissement), the priorities are to 
(i)  accelerate  ecological  transition,  (ii)  create  a 
skill-based society, (iii) foster competitiveness and 
innovation, 
digital 
transformation  of  the  public  sector  (See  Section 
4.4).  

achieve 

(iv) 

and 

the 

Social  protection  and  healthcare  represent 
more  than  half  of  total  public  expenditure.  At 
56% in 2018, the ratio of public expenditure over 
GDP  in  France  remains  the  highest  in  the  EU. 
Social  protection  remains  the  biggest  ticket  item, 
accounting  for  almost  43%  of  total  government 
expenditure  in  2018.  Expenditure  on  healthcare 
and  education,  key  to  increase  human  capital, 
represented  14.5%  and  9.1%  of  total  public 
spending,  respectively.  In  turn,  expenditure  on 
general  public  services  and  on  economic  affairs 
amounted  to  11.0%  and  10.2%  of  the  total, 
respectively.  The  latter  includes,  among  others, 
expenditure  on 
transport,  energy,  on  general 
economic,  commercial  and  labour  affairs  and  on 
research and development. 

Debt sustainability analysis and fiscal risks (28)  

Despite  general  government  debt  stabilising  in 
2018,  it  is  projected  to  rise  further  until  2021. 
The public debt ratio, at 98.4% of GDP, remained 
broadly  stable  in  2018  compared  with  2017. 
However,  according  to  the  Commission  2019 
autumn forecast, the public debt ratio is set to rise 
by 0.5 pps. in 2019. In 2020, public debt is forecast 
to remain at 98.9% of GDP, before rising again to 
99.2%  in  2021.  Upward  revisions  to  the  deficit, 
also  due  to  the  measures  put  forward  by  the 
government  in  response  to  the  ‘Gilets  jaunes’ 
movement  at  the  end  of  2018  and  in  April  2019 
after  the  broad  national  debate  (Grand  Débat 
National)  entailed  deficit-increasing  effects  for 
2019  and  2020  that  have  prevented  public  debt 
from  entering  a  declining  trend.  Therefore,  public 
debt  is  set  to  remain  at  high  levels,  widening  the 

(28)  This section is based on the 2018 Ageing Report (European 
Commission,  2018c)  and  the  2019  Debt  Sustainability 
Report (European Commission, 2020b). 

Source: Ameco database, European Commission 2019 
autumn forecast. 

In  spite  of  the  high  public  debt  ratio,  no 
material  short-term  sustainability  challenges 
are  observed.  Short-term  sustainability  risks  are 
assessed  by  the  indicator  S0  (29).  For  France,  the 
overall  S0  indicator flags  no  significant  risk. 
However, the short-term fiscal sub-index indicates 
high risk, with some increasing vulnerabilities with 
respect  to  previous  years,  linked  to  the  persistent, 
relatively  high  cyclically-adjusted  deficits  and  the 
increase  of  already  high  public  debt.  In  any  case, 
the overall absence of any material short-term risk 
remains confirmed by the ‘AA stable’ rating given 
by  the  three  major  rating  agencies  to  French 
government debt. Short-term risks are mitigated by 
the  diversification  of  the  investors’  base  and  the 
long  average  maturity  of  total  outstanding  debt, 
that  has increased to around  8.2 years in 2019. In 

(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. 

27 

505560657075808590951002000200120022003200420052006200720082009201020112012201320142015201620172018201920202021FranceEuro area% of GDP                                                           
  
                                                           
4.1. Public finances and taxation* 

the  share  of  non-resident  holders  of 
turn, 
government  debt  securities,  which 
is  evenly 
distributed  between  euro  area  and  non-euro  area 
residents, has  slightly increased to around  55% in 
2019. 

Graph 4.1.3:  Public debt projections in France 

to 

Medium-term  sustainability  risks  remain  high. 
the  debt  sustainability  analysis 
According 
baseline scenario, at unchanged policies, the public 
debt ratio is projected to fall by some 2 pps. until 
2030,  the  last  projection  year,  when  public  debt 
would stand at 96.8% of GDP. This decline is due 
to  an  increasingly  larger  debt-reducing  snowball 
effect  (e.g.  the  difference  between  the  implicit 
interest  rate  on  government  debt  and  the  nominal 
growth rate of the economy) that more than offsets 
the  projected high primary deficits, aggravated by 
the  increase  in  age-related  expenditure  over  the 
(see  Annex  B).  The  S1 
projection  period 
(30),  which  measures 
sustainability 
term, 
sustainability 
indicates  a  high  medium-term  risk,  mainly  due  to 
insufficient  fiscal  effort  to  reduce  public  debt  to 
60% of GDP. 

indicator 
risks  over 

the  medium 

An  improvement  in  the  structural  primary 
balance  is  required  to  progressively  reduce 
public debt. The S1 sustainability indicator shows 
a  sustainability  gap  of  3.9  pps.  of  GDP.  Most  of 
the  required  adjustment  (3.4  pps.)  relative  to  the 
baseline  scenario is attributable to the  debt ratio’s 
distance from the 60% reference value and 0.4 pps. 
to  the  projected  increase  in  age-related  public 
spending.  The  sustainability  gap  has  reduced  by 
more  than  1  point  with  respect  to  2019  spring’s 
projections  due  to  more  favourable  interest  rate 
assumptions,  which  more  than  offset  the  effect 
from  lower  projected  nominal  growth  and  higher 
primary  deficits.  Under 
these  conditions,  a 
marginal  improvement  in  the  structural  primary 
balance is enough to stabilise the public debt ratio. 
However,  public  debt  projections  are  particularly 
sensitive  to  interest  rate  and  growth  assumptions. 
Adverse assumptions on these two variables would 
lead  to  significantly  higher  debt  ratios  after  10 
years (see Graph 4.1.3). 

(30)  The  S1 

indicator  measures 

the  cumulative  gradual 
improvement  in  the  structural  primary  balance,  relative  to 
the baseline scenario,  required over 5 years as of 2022 to 
reduce the debt ratio to 60% of GDP by 2034. 

Source: European Commission. 2019 DSM 

France  is  deemed  to  be  at  medium  fiscal 
sustainability  risk  when  assessed  over  the  next 
50  years.  The 
long-term  fiscal  sustainability 
indicator S2 (31) shows that an improvement of the 
structural  primary  balance  of  only  0.2%  of  GDP 
would  be  required  to  stabilise  the  debt-to-GDP 
ratio  over  the  long-term.  This  low  value  is  due  to 
the  favourable  demographics  that  help  mitigate 
sustainability  risks.  Age-related  expenditure  is 
projected to decrease by 1.9 pps. of GDP over the 
next 50 years. This is due to the projected decline 
in public pension expenditure by 2.2 pps. of GDP, 
whereas  healthcare  and  long-term  care  spending 
are  projected  to  rise  only  moderately,  by  0.3  pps. 
and  0.5  pps.  of  GDP,  respectively.  The  projected 
healthcare  expenditure  stands  below 
the  EU 
average  increase  of  0.9  pps.  of  GDP.  Despite  the 
low  S2  indicator,  the  implied  fiscal  adjustment 
might  lead  to  debt  stabilising  at  high  levels,  for 
which  this  indicator  should  be  taken  with  some 
caution  for  high-debt  countries.  Moreover,  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  long  term. 
More  adverse  scenarios  involving  more  dynamic 
healthcare  and  long-term  care  spending  would 
imply a significant increase in sustainability gaps.  

(31)  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.  

28 

949698100102104BaselineHigher interest rate scenario (1 pp)Lower growth scenario (-0.5 pps)Enhanced higher interest rate scenario (2 pp)% GDP                                                           
  
                                                           
4.1. Public finances and taxation* 

pension  system.  Following  some  social  unrest  in 
response to the reform, the government engaged in 
new  broad  consultations  with  social  partners  and 
stakeholders  to  gather  the  broadest  consensus 
possible.  According  to  announcements,  the  return 
to balance of the pension system should be reached 
in  2027.  To  this  end,  social  partners  have  been 
entrusted  to  propose  a  path  back  to  balance  in 
spring 2020. Under the new pension system, social 
partners,  subject  to  parliamentary  control,  would 
be in charge of evaluating the value of the points to 
calculate  pension  benefits  and,  more  generally,  of 
guaranteeing  the  financial  balance  of  the  system. 
The new indexation framework, possibly linked to 
wage  developments,  could  be  more  favourable  to 
pensioners than the current one linked to inflation.  

on 

impact 

overall 

The healthcare reform is not projected to entail 
any  material 
fiscal 
sustainability.  The  2022  my  health  plan  (Ma 
Santé  2022)  to  improve  access  to  healthcare  will 
require  €3  bn  of  investment  on  restructuring  of 
care,  digital  health, 
training  and  hospital 
investment, accompanied by an increase in current 
expenditure  growth  standard  ONDAM  (Objectif 
National  de  Dépenses  d'Assurance  Maladie)  from 
the  originally planned 2.3% to 2.5% in 2019. The 
impact  on  the  fiscal  sustainability  of  the  French 
health  system  is  likely  to  be  small,  around  one 
point  of  GDP  total  higher  expenditure  by  2070. 
However, given the scale of investment, the impact 
on  current  healthcare  expenditure  might  be  larger 
than planned. 

Pensions 

Healthcare 

the 

wage 

the  new  system  aims 

The  pension  reform,  originally  announced  for 
2019,  has  been  put  off  and  is  expected  to  be 
adopted in 2020. This reform intends to introduce 
a  universal  points-based  system,  replacing  the 
current 42 co-existing pension regimes. According 
to 
to  announcements, 
calculate  the  pension  rights  over  the  whole  career 
for  all  categories  of  workers.  It  also  aims  to 
introduce  a  single  definition  for 
labour 
to  calculate  pension 
to  be  used 
revenues 
contributions.  This  would  include  bonuses  for  the 
public  sector  and  the  special  regimes,  which 
should  be  gradually  phased  out.  A  minimum 
pension  would  be  guaranteed  at  85%  of  the 
minimum 
minimum 
interprofessionnel de croissance, SMIC) for those 
with  full  careers,  currently  at  around  €1,000. 
Solidarity  points  are  planned  to  compensate  for 
certain situations such as  sickness, unemployment 
or  maternity,  among  others.  While  the  minimum 
legal retirement age is set to remain at 62, the new 
system  could  include  incentives  to  work  longer. 
New entrants into the labour market in 2022 would 
contribute directly to the new system and the  first 
generation  concerned  by  the  reform  should  be 
those born in 1975. For those already in the current 
system,  only  the  years  contributed  after  2025 
would  be  calculated  under  the  new  system.  The 
draft  law  was  sent  to  parliament  on  the  24  of 
January.  Its  adoption  is  planned  for  2020  for 
implementation as of 1 January 2022. 

(Salaire 

Social  partners  would  be  responsible 
for 
guaranteeing  the  financial  equilibrium  of  the 

improving 

There  is  room  for  efficiency  gains  in  the 
healthcare sector. Traditional inefficiencies in the 
French  health  system,  such  as  concentration  on 
hospital  care  and  a  low  share  of  generics  in 
pharmaceutical  sales, have  been 
in 
recent  years,  but  still  lags  behind  most  Member 
States.  Total  spending  was  estimated  at  11.3%  of 
GDP  in  2017,  the  highest  in  the  EU  along  with 
Germany.  Still,  in  terms  of  per  capita  spending, 
adjusted  for  differences  in  purchasing  power, 
France  stands  6th  highest  in  the  EU.    Even  if  the 
annual objective for spending growth in healthcare 
(Objectif  National  de  Dépenses  d’Assurance 
Maladie,  ONDAM)  has  been  met  since  2010,  the 
ONDAM  target  was  increased  three  times  since 
2017 and made less demanding  for 2018-2020. In 
particular,  the  target  was  set  at  2.1%,  2.3%  and 
2.5%  in  2017,  2018  and  2019,  respectively.  The 
ONDAM is set at 2.45% for 2020, compared to an 
initial  target  of  2.3% (32).  The  share  of  healthcare 
prevention  expenditure  has 
traditionally  been 
among  the  lowest  in  the  EU  (1.86%  in  France  in 
2017 compared with 3.1% in the EU).  

(32)  In  November  2019,  the  government  unveiled  a  plan  to 
improve  the  financial  conditions  of  public  hospitals.  This 
plan  would  entail  a  €1.5  bn  expenditure  increase  to  be 
spread over three years. This implies an upward revision of 
the  healthcare  expenditure  standard  (ONDAM)  from  the 
originally  planned  2.3%  to  2.45%  in  2020.  The  plan 
envisages  a  €150  mn  investment  in  new  material,  light 
renovation of buildings and salary measures. Finally, one-
third  of  the  accumulated  hospital  debt,  amounting  to  €30 
bn, would be taken over by the State in three years, starting 
in 2020. 

29 

                                                           
4.1. Public finances and taxation* 

latest  programming  bill  is  at  0.4  pp  of  GDP.  The 
opinion  of  the  HCFP  on  the  draft  settlement  bill 
for 2019 will confirm whether the threshold of 0.5 
pp was reached and if the correction mechanism is 
triggered  for  the  first  time.  The  headline  and 
structural balance outturns have been at the bottom 
end of the medium-term targets, leaving little room 
for manoeuvre to accommodate fiscal risks. 

Graph 4.1.4:  French fiscal rules and MTBF indices vs EU 

average 

Source: European Commission 

Public action 2022 

Measures  are  being  taken  to  improve  the 
quality of services and the modernisation of the 
administration.  Over  the  first  two  years  of 
implementing  the  Public  action  2022  programme, 
launched  in  October  2017,  the  government  has 
followed up on the objective to overhaul the public 
administration in the medium to longer term. Some 
of the measures proposed by an ad hoc committee 
of experts (Comité Action Publique 2022) (33) have 
been  fully  or  partially  addressed.  Each  ministry 
regularly  updated and continued to  implement the 
plans.  The 
2018 
government has also engaged in a series of reforms 
transparency  and 
to 
increase 
accessibility 
services.  Areas  of 
intervention  include  reforming  the  civil  service  to 
improve 
management, 
streamlining  internal  expenditure  controls  and 
procedures,  simplifying  rules,  rationalising  and 

the  efficiency, 
to  public 

transformation 

resources 

internal 

human 

(33)  The  report  handed  in  by  the  committee  to  the  Prime 
Minister  in  spring  2018  was  published  in  October  of  the 
same 
https://www.modernisation.gouv.fr/action-
publique-2022/comprendre/rapport-cap22.   

year: 

France is experimenting new payment  methods 
for  more  efficient  and  effective  primary  and 
hospital  healthcare.  The  new  methods  entail 
greater  financial  incentives  for  quality  and  care 
coordination  between  the  providers,  giving  less 
weight 
and 
discouraging  an  overprovision  of  care.  An 
extension  of  the  new  methods  is  foreseen  from 
2020 onwards. 

activity-based 

payments 

to 

Fiscal framework 

developed 

The  French  fiscal  framework  has  improved 
since  the  early  1990s.  This  development  was 
gradual as reflected by the dynamics of two fiscal 
governance-related 
and 
indices 
maintained  by  the  European  Commission,  the 
fiscal  rules  and 
the  medium-term  budgetary 
framework  indices  (see  Graph  4.1.4).  In  line  with 
EU  legislative  initiatives,  the  France’s  fiscal  rules 
index  considerably  improved  during  2011-2014. 
Medium-term  fiscal  policy-making  has  become 
significantly  stronger  since  2006.  However,  some 
areas  such  as  the  link  between  the  annual  budget 
the 
and 
involvement  of  the  national  independent  fiscal 
institution  in  preparing  medium-term  budgetary 
plans  and  the  level  of  detail  in  the  medium-term 
plans lag behind. In its September 2019 report on 
the  implementation  of  the  2001  Organic  Law  on 
Finance  Laws,  the  French  National  Assembly 
made  at  least  five  recommendations  related  to 
multiannual  budgetary  planning  to  address  issues 
in  the  budgetary  calendar  and  the  annual  and 
public finances programming bills. 

the  multiannual  budgetary 

targets, 

Despite  the  improvement  of  the  overall  fiscal 
framework, its implementation does not seem to 
have  been  effective.  In  particular,  its  medium-
term  budgetary  dimension  does  not  seem  to  have 
been  an  anchor  for  annual  budgets.Moreover,  the 
reputational  cost  for  not  meeting  medium-term 
plans is low. French medium-term budgetary plans 
have  been  volatile:  targets  set  in  the  public 
finances  programming  bills  and  in  the  successive 
stability  programmes  lost  their  initial  ambition, 
both  in  nominal  and  structural  terms.  The  annual 
finance  bills  have  systematically  loosened  the 
structural balance targets for the following year. In 
particular,  in  its  two  latest  opinions  the  High 
Council  for  Public  Finance  (Haut  Conseil  des 
finances  publiques,  HCFP)  underlined  that  the 
distance to the targets for 2018 and 2019 set in the 

30 

00.10.20.30.40.50.60.70.80.9102468101214FR Fiscal rules index (lhs)EU Fiscal rules index (lhs)FR - MTBF index (rhs)EU - MTBF index (rhs)  
                                                           
4.1. Public finances and taxation* 

Graph 4.1.5:  Structural Balance targets versus outturns 

SP = Stability Programme, PFPL = Pluriannual Finance Programming Law  
Source: European Commission 

relocating  services  at  the  central  and  local  level 
and  accelerating  the  deployment  of  IT  solutions 
across  the  board.  The  reform  strategy  was  further 
promoted,  in  June  and  November  2019  in  the 
conclusions  of  the  inter-ministerial  committee  of 
public  transformation  (Comité  interministériel  de 
la  transformation  publique,  CITP)  (34),  which 
reflect  the  results  of  the  broad  national  debate 
concluded in spring. 

the 

and  modernising 

Although efficiency gains can be expected from 
its  implementation,  the  contribution  of  Public 
action  2022  programme  to  the  objective  of 
reducing  public  spending  remains  unclear. 
Together  with  improving  the  quality  of  public 
public 
services 
administration,  support  to  cutting  public  spending 
by more than 3 percentage points of GDP over the 
presidential  term  is  one  of  the  three  overarching 
objectives  of  the  programme.  However,  how  this 
last objective is to be met is not at all clear and its 
fulfilment 
the 
programme does not quantify upfront the expected 
savings  and  macroeconomic  impacts.  Yet,  as  of 
it  formally  and  fully  replaces  annual 
2018, 
spending  reviews.  Despite  strong  commitment  at 
the  highest  political  level  and  a  regular,  well-
structured  monitoring  of  progress  in  the  reforms, 

incidental.  Namely, 

appears 

(34)  https://www.modernisation.gouv.fr/action-publique-
2022/comites-interministeriels-de-la-transformation-
publique 

comprehensive  scrutiny  of  the  implications  of  the 
programme on the size  and composition of public 
expenditure  is  lacking.  Moreover,  in  cases  where 
information  on  potential  savings  is  available  for 
some of the measures envisaged, these savings are 
limited  and  their  trajectory  over  time  is  not 
specified  in  sufficient  detail.  At  the  same  time, 
some of the measures or reforms undertaken might 
actually  imply  an  increase  in  spending,  at  least  in 
the initial phase. Overall, it is still  not possible  to 
single  out  the  specific  contribution  of  the  Public 
fiscal 
action  2022  programme 
consolidation strategy. 

to  France’s 

Green budgeting 

the 

France  stands  out  among  other  EU  Member 
States  for  the  steps  taken  to  develop  green 
budgeting  and  assessing 
consistency 
between  budgetary  tools  and  environmental 
objectives.  In  December  2017,  France  launched 
the  Paris  Collaborative  on  Green  Budgeting, 
together with the OECD and Mexico, which aimed 
at steering discussions and the search for solutions 
to  align  national  fiscal  frameworks  with  climate 
and  environmental  goals.  In  May  2019,  France 
established  the  High  Council  for  Climate  (Haut 
Conseil  pour  le  Climat),  an  independent  body 
the  French  Prime  Minister  and 
reporting 
providing  advice  to  the  government  on  climate 
issues.  A  further step  was taken in 2019,  with the 

to 

31 

-7-6-5-4-3-2-101200720082009201020112012201320142015201620172018201920202021202220232007SP2008SP2009SP2011SP2012SP2013SP2014SP2015SP2016SP2017SP2018SP2019SPOutturnsPFPL 2018-2022PFPL 2014-2019PFPL 2012-2017                                                           
  
4.1. Public finances and taxation* 

Following  the  publication  of  the  report, 
the 
government  launched  a  broad  public  consultation 
to  address  unresolved  methodological  issues  and 
create  the  broadest  consensus  possible  regarding 
the  approach  to  follow  to  prepare  a  green  budget 
next year. Developments in this area will continue 
including  France’s 
to  be  closely  monitored, 
sustainability 
compliance  with 
objectives (see Section 4.5). 

its  broader 

General tax structure 

The  overall  tax-to-GDP  ratio  remains  the 
highest  in  the  EU  (46.5%  in  2018  vs.  39.2%  in 
EU  on  average).  More  than  half  of  total  tax 
revenues  come  from  labour  taxation  (23.9%  of 
GDP  in  2018  vs.  19.6%  in  EU  on  average)  and 
revenues from capital taxes (37) are slightly higher 
in  a  cross-country  comparison  (10.8%  of  GDP  in 
2018  vs.  8.5%  in  EU  on  average (38)).  Revenues 
from  environmental  taxes  are  close  to  the  EU 
average,  leaving  some  scope  to  be  used  more 
extensively.  France  also  stands  out  because  of  its 
high level of taxes on production. 

Complexity of the tax system 

its 

system 

France  continues  to  take  steps  to  address  the 
(European 
tax 
complexity  of 
Commission,  2019d). The  withholding  tax  on 
personal  income  was  implemented  in  2019.  First 
results  of  the  ESSOC  law  (Loi  pour  un  Etat  au 
service  d’une  société  de  confiance)  show  that 
companies are slowly taking advantage of the new 
support available to facilitate their tax compliance 
and  secure  the  tax  treatment  of  their  operations. 
Since the adoption of the law, 27 tax partnerships 
concluded  with 
have 
multinationals and medium-sized companies worth 
a total turnover of €280 bn with positive feedback 
from  those  companies.  Nearly  1600  SMEs  have 
been  approached  and  54  started  using  the  support 
offer.  French  authorities  plan  to  increase  their 
efforts to reach out to a more substantial number of 
SMEs. Support was also made available to resolve 
a few conflicts between  groups resident in  France 
and foreign tax administrations.  

successfully 

been 

publication  of  a  new  ‘yellow  book’,  which  is  an 
annex  to  the  draft  budgetary  law  for  2020.  The 
annex replaces three previous annexes to the draft 
budget  and  aims  to  align  the  definitions  and 
methodologies  adopted  so  far  for  presenting 
separately  expenditure  on  climate,  energy  and  the 
environment.  As  such,  it  is  an  important  first 
attempt  to  provide  information  on  the  green 
content  of  the  budget  in  a  comprehensive  and 
consistent  way.  The  annex  maps  expenditures 
beyond 
for 
environmental purposes, providing a broader scope 
to  the  exercise  and  a  more  realistic  overview  of 
budgetary 
environmental 
commitments  and  goals.  Overall,  environmental 
expenditure  in  the  2020  draft  budget  amounts  to 
more than €16 bn (0.7% of GDP). 

explicitly  budgeted 

compliance  with 

the  ones 

The  government  announced  its  intention  to 
prepare a ‘green budget’ as of the presentation 
of  the  draft  budget  law  for  2021.  In  September 
2019, the General council for the environment and 
sustainable  development  (Conseil  général  de 
l'environnement  et  du  développement  durable, 
CGEDD)  and  the  General  inspectorate  of  finance 
(Inspection Générale des Finances, IGF) published 
a  report  commissioned  by  the  government  that 
aimed  at  developing  a  new  methodology  to 
identify  green  ticket  items  within  the  budget 
(CGEDD, 2019). This methodology, different from 
the  one  used  in  the  annex  to  the  draft  budget  for 
2020,  is  a  further  step  forward  and,  despite  some 
inherent  limitations  requiring  further  research,  it 
could represent the reference for a well-established 
green  budgeting  practice.  It  introduces  a  specific 
way 
to  classify  and  assess  across  several 
environmental dimensions the impact of budgetary 
actions within different policy programmes. Based 
on this methodology and data from last year’s draft 
budget  law,  the  IGF-CGEDD  report  identifies 
overall  environmental  revenues  for  about  €35  bn 
(1.5%  of  GDP)  in  2017 (35)  and  €55  bn  (2.3%  of 
GDP) 
environmental 
non-neutral 
expenditures (36)  in  the  draft  budget  for  2019. 

of 

(35)  This  amount  only  refers  to  the  State  and  its  operators.  It 
excludes revenues associated to social security and, mainly, 
local  authorities.  At  the  same  time, it  includes  about €n  2 
bn  of  non-tax  revenues.  This  explains  the  difference  with 
the amount of revenues reported in Graph 4.1.7. 

(36)  This includes expenditures in four policy areas (agriculture; 
ecology  and  sustainable  development;  research;  and 
territorial 
tax 
earmarked 
expenditure above a pre-defined threshold. With respect to 
all the six dimensions, these expenditures accounted for as 

cohesion), 

ccounts 

and 

only favourable, only unfavourable or with joint favourable 
and unfavourable mixed impacts. 
(37)  Other than recurrent property taxes 
(38)  This figure reflects a situation prior to the reform of capital 

taxation introduced in 2018.  

32 

                                                           
                                                                                   
4.1. Public finances and taxation* 

current  design,  the  French  Parliament  estimated 
that  only  20,000  very  large  and  international 
companies  are  eligible  to  the  tax  compared  to 
296,000 in 2014.  

given 

sensitive 

However, removing such taxes has proven to be 
particularly 
budgetary 
constraints  and  diverging  objectives.  Among 
other  functions,  the  C3S  ensures  a  minimum 
contribution from multinational enterprises, which 
tend  to  face  a  low  effective  tax  rate.  Ongoing 
negotiations  at  OECD/G20  aim 
to  find  an 
agreement  on  a  minimum  effective  taxation  for 
corporate  income  by  end  of  2020.  If  a  global 
solution  is  found,  it  may  help  discussions  on  a 
possible phase out of the C3S.  French authorities 
have planned to decrease taxes on production with 
the  “Productive  Pact”  (Pacte  Productif)  (see 
Section 4.4.4). Cuts could be offset by a  decrease 
of harmful environmental tax expenditures. 

Taxes on capital 

increase 

While  it is too early to assess the impact of the 
reform  of  capital  taxation (42)  on  investment, 
first  results  point  to  an 
in  the 
attractiveness  of  France.  Researchers  (France 
Stratégie 2019a, IPP2019a) consider it is too early 
to conclude whether the reform is bearing fruit on 
investment,  as  not  enough  data  will  be  available 
until 2021. At the same time, the study underlined 
that in the year the reform was announced (2017), 
the  number of  wealthy  households leaving France 
fell sharply to 376, the lowest since 2004 (43). The 
Monitoring  Committee  on  capital  tax  reforms 
concluded  that  in  2018  the  real  estate  wealth  tax 
(Impôt  sur  la  fortune  immobilière,  IFI)  collected 
29.5%  of  what  the  wealth  tax  (Impôt  sur  la 
fortune, ISF) would have collected in 2018, a cost 
of  €3.1  billion  to  the  budget.  The  ISF  taxpayers 
have gained €6,500 on average per year.  

These  reforms  seem  to  have  improved  foreign 
investors’  perception  of  France.  Foreign 
investments  in  SMEs  have  increased:  capital 
investment  funds  invested  €18.7  billion  in  2018, 
against  €16.5  billion  in  2017,  in  SMEs,  with  a 

(42)  Transformation  of  the  wealth  tax  (ISF)  into  a  real  estate 
wealth tax (IFI) and implementation of a flat tax on some 
capital  revenues  (dividends,  interests  and  capital  gains)  at 
30% since 2018 

(43)  By comparison, the number of wealthy households leaving 
France  between  2012-2016  reached  each  year  on  average 
775 (France Stratégie 2019a) 

The  2020  Budget  Law  suppresses  18  low  yield 
taxes  and  phases  out  several  tax  expenditures 
benefiting  to  businesses.  In  particular,  reduced 
rates  on  energy  products (39)  (Taxe  intérieure  de 
consommation  sur 
les  produits  énergétique, 
TICPE) as well as employers’ social contributions 
in specific sectors (construction, cleaning services 
and  aviation)  are  planned  to  be  eliminated  in 
2020 (40). 
recurrent 
recommendation  of  the  Court  of  Auditors,  the 
Government  announced  an  evaluation  programme 
of 70 tax expenditures for 2020-2023.  

response 

In 

to 

a 

Corporate taxation 

The corporate income tax rate is decreasing for 
all firms in 2020. The government stands by its 
objective to reach a 25% tax rate by 2022. The 
statutory  corporate  income  tax  rate  has  been 
lowered from 31% to 28% for firms with turnover 
below  €250  mn  and  from  33.3%  to  31%  for  the 
remaining firms. A 28% rate for the first €500,000 
profits also applies. The debt equity bias remained 
the highest in the EU at 3.8 pp in 2018 (41). 

impact 

their  negative 

Other taxes on production continue to weigh on 
businesses 
(European  Commission,  2019d). 
Taxes  on  production  stood  at  3.2%  of  GDP  in 
2017, above Italy (1.6%), Spain (1%) or Germany 
(0.4%)  (OECD,  2019a).  The  French  Economic 
Council  (Conseil  d’Analyse  Economique,  CAE) 
warned  on 
(Conseil 
d’Analyse  Economique,  2019a),  since  such  taxes 
distort  companies’  decisions  (production  method, 
investment  choice,  pricing  etc.)  which  may  be 
detrimental  to  productivity  and  competitiveness. 
According  to  CAE,  removing  the  tax  on  turnover 
(Contribution sociale de la solidarité des sociétés, 
C3S) should be a priority. This tax, established in 
1970,  contributes  to  the  financing  of  the  social 
security system. A tax on turnover has a "cascade" 
effect  since  each  successive  turnover  includes  the 
taxes of all previous turnovers. Since 2014, this tax 
has undergone several reforms that have increased 
its  eligibility  threshold  (turnover)  from  €760,000 
in  2014  to  €19  million  in  2016  resulting  in  a 
revenue reduction of around 30% since 2013. In its 

(39)  For non-road diesel 
(40)  Such cut are worth around €600 mn in 2020 
(41)  The  debt  bias  in  corporate  taxation  is  measured  as  the 
difference  in  the  cost  of  capital  for  new  equity  and  debt 
investment  at  corporate  level.  Reductions  in  the  corporate 
tax rate, as introduced in France, will decrease the bias. 

33 

                                                           
                                                           
4.1. Public finances and taxation* 

share  of  foreign  investors  of  48%  in  2018, 
compared to 31% in 2017. 

The  flat  tax  on  dividend  income  has  created  a 
gap  between  capital  and  labour  taxation  and 
decreased  dividends  taxation.  Dividend  income 
is  6.4  p.p.  less  taxed  than  labour  income  for 
earners  above  €162,000  per  year  in  2018  (IPP, 
2019b).  Such  gap  is  expected  to  widen  with  the 
decrease of the corporate income tax rate and reach 
10.1  p.p.  in  2022.  Establishing  anti-abuse  rules 
may  help  to  limit  distorsionary  effects,  such  as 
requalifying  labour  income  into  capital  income. 
Empirical  studies  in  France  (IPP,  2019b),  the 
United  States 
(Yagan,  2015)  and  Sweden 
(Alstadsæter,  2017)  showed  that  lower  taxes  on 
dividends  had  little  effect  on  investments,  but 
increased  dividend  distribution.  Accordingly,  in 
2018,  dividends  paid  to  French  tax  residents 
progressed by 60% to reach 2012 levels, last  year 
before the suppression of the flat tax.  

2020, it will also reduce personal income taxes for 
households  in  the  first  two  tax  bands  by  0.2%  of 
GDP.  These  measures  should  boost  households' 
purchasing power. 

Taxes on environment 

taking 

There  is  scope  to  use  more  environmental 
taxation  while 
into  account  social 
fairness  and  acceptability  concerns.  In  2018, 
environmental  taxes  were  close  to  the  EU28 
average  as  a  percentage  of  GDP  and  lower  as  a 
percentage  of  total  taxation.  France  abandoned 
increasing  the  carbon  component  of  the  tax  on 
motor  fuels  (TICPE)  as  of  1  January  2019, 
following  the  ‘Gilets  jaunes’  movement  (see 
Section 4.5). 

Graph 4.1.6:  Environmental taxes as percentage of  total 

revenues from taxes and social contributions 
in France and the EU 

The  housing  tax  on  the  main  home  will  be 
abolished  for  all  households  and  the  financing 
of  local  authorities  is  reformed.  In  2020,  the 
housing  tax  will  be  entirely  cut  for  80%  of 
households. The 20% richest households will cease 
to  pay  it  in  2023,  with  a  gradual  decrease  as  of 
the 
the 
2021.  From  2021, 
immovable  property  tax  part  of  the  territorial 
authorities (départments) will be transferred to the 
local  authorities  (communes)  and  a  part  of  VAT 
revenues  will  be  allocated  to the  ‘départments’  to 
compensate for the transfer. 

revenues 

from 

Source: Eurostat 

Taxes on labour 

Graph 4.1.7:  Environmental tax revenues as percentage of 

GDP in France and the EU 

Important tax reforms seek decreasing the high 
tax wedge on labour for average-wage earners. 
Sizeable  employer  social  contributions  make  up 
the  lion’s  share  of  the  tax  wedge  on  labour  for 
average income earners (the tax wedge amounts to 
47.6%  in  2018  vs.  42.8%  in  EU  on  average).  To 
consolidate  the  decrease  of  the  tax  burden  on 
labour, 
tax  credit  for  employment  and 
competitiveness (CICE) has been replaced in 2019 
by  a  permanent  reduction  in  employers’  social 
security  contributions.  Moreover,  in  2019  the 
government  also  introduced  an  exemption  of 
employees’  social  security  contributions  and  of 
income tax (44) on overtime hours. As of 1 January 

the 

(44)  Income tax exemption: up to €5,000 per month.  

Source: Eurostat 

34 

                                                           
  
 
 
 
  
 
 
 
4.1. Public finances and taxation* 

Box 4.1.3: Assessing the redistributive impact of some measures favourable to households’ 
disposable income 

Several  measures  aiming  at  improving  households’  disposable  income  have  been  announced  or 
implemented  since  mid-2017.  This  box  aims  at  assessing  the  redistributive  impact  of  some  measures 
announced in December 2018 and in April 2019 following the social unrests at the end of 2018. To this end, 
the European Commission’s Joint Research Centre simulated four measures, using the microsimulation model 
EUROMOD (1)  based  on  EU-SILC  data  (2):  (1)  an  increase  in  the  in-work  benefit  activity  premium  which 
targets  vulnerable  working  households;  (2)  a  cancellation  of  the  increase  of  the  social  tax  CSG  by  1.7 
percentage points for pensions below €2,000 per month and subject to the normal rate of CSG ; (3) the re-
indexation of pensions below €2,000 per month in 2020; (4) a targeted decrease in income tax  for  middle-
income  brackets.  The  first  two  measures  were  announced  in  December  2018  and  implemented  at  the 
beginning of 2019. The remaining two were announced in April 2019, included in the 2020 DBP, and are set 
to  enter  into  force  in  2020.  Other  measures,  such  as  the  tax  exemption  (both  income  tax  and  social 
contributions)  of  overtime  work  income  for  employees  or  a  tax-free  bonus  also  aimed  at  increasing 
households’ disposable income are not assessed here.  

the 

the 
those 

Based 
on 
EUROMOD 
simulations, 
four  reforms 
increase  households’ 
equivalised 
income  by  0.9%  on 
disposable 
average (3).  The  first  reform  mostly 
benefit 
lower  middle-income 
households,  while  the  last  one  mostly 
the  upper  middle-income 
benefit 
households,  where 
the  shares  of 
taxpayers  are  higher  (Graph  1).  The 
second reform has a neutral impact on 
the  most  vulnerable  households,  as 
they were not subject to the increase of 
CSG  in  the  first  place.  Finally,  the 
third  reform  benefits  all  households 
with  a  pension  below  €2,000  per 
equivalised 
month.  Overall, 
disposable  income  of  the  2nd  and  3rd 
deciles  is  estimated  to  increase  by 
1.6% and 1.4%, compared to 0.6% and 
0.2% for the upper deciles.  

the 

In  terms  of  income  redistribution,  these  measures  are  assessed  to  reduce  poverty  and  have  a  slight 
progressive  impact.  The  overall  package  is  assessed  to  reduce  the  at-risk-of-poverty  rate  (below  60%  of 
equivalised mean disposable income) by around 1 percentage point. This decrease is almost entirely due to 
the increase in the activity premium. The progressive impact of the first three reforms is only partly offset by 
the regressive impact of the reduction in income tax.  

(1)  EUROMOD simulates benefit entitlement and tax liabilities according to the rules applicable in each Member State. 
(2)  Statistiques sur les Ressources et les Conditions de Vie (2016). 
(3)  Equivalised  disposable  income  thresholds  in  EUROMOD  are  somewhat higher than  those  reported by  INSEE.  They 
are  based  on  two  different  surveys:  European  Union  statistics  on  income  and  living  conditions  (EU-SILC)  for 
EUROMOD and Enquête revenus fiscaux et sociaux (ERFS) for INSEE. 

35 

0,00,20,40,60,81,01,21,41,61,8in % of equivalised disposable incomeDeciles of equivalised disposable incomeGraph 1: Average impact on equivalised disposable income by decileReform 1Reform 2Reform 3Reform 4Source: European Commission, Joint ResearchCentre based on EUROMOD 
 
4.2.  FINANCIAL SECTOR* 

Banking 

The  French  banking  sector  presents  stable 
solvency, funding and credit quality ratios. The 
French  banking  sector  presents  stable  solvency, 
funding and credit quality ratios. Return-on-equity 
remained at a similar level to previous exercises, at 
6.5%  at  the  end  of  2018  (see  Table  4.2.1).  This 
was  a  little  higher  than  the  euro  area  average 
(5.7%)  but  lower  than  the  typical  cost  of  capital. 
As  of  June  2019,  the  capital  adequacy  ratio  was 
slightly rising at 18.3% (v. 18.1% in the euro area), 
the non-performing loan ratio reached a new low at 
2.6%  (v.  3.4%  in  the  euro  area),  and  the  loan-to-
deposit ratio slightly increased to reach 106.7% (v. 
97.2%  in  the  euro  area).  Like  in  some  other 
Member  States,  Basel  III  reforms  are  expected, 
once  fully  implemented,  to  lead  to  a  significant 
increase 
(European 
Banking Authority, 2019).   

requirements 

in  capital 

the  large  retail  subsidiaries  held  in  Italy.  Fierce 
competition  leads  to  ever  lower  average  interest 
rates on housing loans (1.27% for long-term fixed-
rate  housing  loans  in  September  2019).  If  such  a 
limited profitability from new credit flows were to 
persist, banks’ capacity to retain earnings could be 
affected. Some tax distortions also persist, such as 
the exoneration of the Livret A. State ownership in 
the financial sector (namely in La Banque Postale, 
CNP  Assurances,  CDC, Dexia, etc.) remains non-
negligible (45)  and  could  generate 
spill-over 
between the sovereign and the financial sector. 

Graph 4.2.1:  Annual growth rate of loans 

The share of hard-to-value Level 2 and Level 3 
assets  does  not  seem  to  raise  serious  concern. 
Assets held for trading are classified in three levels 
depending on the progressive complexity to  value 
them. Accounting rules (IFRS 13) oblige banks to 
report  gross  positions,  which  might  be  partly 
hedged  against  each  other,  and  are  therefore  of 
very  limited  explanatory  power  compared  to  net 
positions. Gross level 2 and level 3 assets amount 
respectively  to  17.2%  and  0.9%  of  total  assets  of 
those French banks with such level 2 and 3 assets 
in  their  portfolio.  In  Germany,  these  figures  read 
their 
18.7%  and  1.6%, 
complexity, those assets are rather concentrated in 
the bigger banks. The European Banking Authority 
stress tested the 48 biggest European banks’ Level 
2 and 3 assets’ net positions in 2018. For 31 tested 
banks the impact on Common Tier 1 capital levels 
would be less than 20bp, 10 banks would see their 
CET1  ratio  fall  by  20-40bp,  and  only  7  banks 
would  face  a  capital  impact  ranging  from  73  to 
40bp. 

respectively.  Given 

French banks face several challenges. Like their 
euro area peers, an abrupt increase in interest rates 
or,  on  the  contrary,  a  persistent  low  interest  rate 
environment, represents one of the most significant 
challenges. French banks are also confronted with 
more  country-specific  risks,  like  the  growing 
private  debt  of  both  non-financial  corporations 
(particularly  large  ones)  and  households  and  the 
significant exposure to the Italian private sector via 

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

Household  debt  associated  with  deteriorating 
lending  standards  is  increasing.  The  year-on-
year  growth  rate  of  loans  to  households  corrected 
in 
for  sales  and  securitisation  reached  6% 
September 2019 (see Graph 4.2.1), above nominal 
GDP  growth.  Credit  standards  have  loosened 
across the board,  with  increasing  maturities,  loan-
to-value  and  debt  service-to-income  ratios  (Haut 
Conseil de Stabilité Financière, 2019a and 2019b). 
The European Systemic Risk Board (ESRB) issued 
a  warning  to  France  on  23  September  2019, 
inviting  the  national  authorities  to  consider  the 
need  for  additional  pre-emptive  actions  such  as 
explicit guidelines for credit standards (see Section 
1 for additional details of households’ debt). 

(45)  According  to  figures  provided  by  DG  Trésor,  the  total 
assets  of  state-owned  banks  represent  about  12%  of  the 
total assets of the banking sector.  

36 

-2-10123456789201120122013201420152016201720182019Total privateNon-financial corporationsHouseholds% 
  
                                                           
4.2. Financial sector* 

Vulnerabilities  in  the  residential  real  estate 
sector  are  mitigated  by  a  number  of  factors. 
French borrowers are little exposed to interest rate 
risk due to the high proportion of fixed-rate loans. 
Real estate prices show little sign of overvaluation 
once  financing  conditions  are  taken  into  account. 
Even if prices  were to  fall, the use  of a  guarantee 
scheme for most housing loans makes the value of 
the  collateral  less  crucial.  The  potential  wealth 
effect  of  a  price  correction  is  estimated  to  be 
weaker  in  France  than  elsewhere  because  there  is 
no  possibility  to  withdraw  cash  or  equity  from 
house  revaluations  (see  Section  1  for  additional 
details on the French housing market). 

loans 

Lending  to  non-financial  corporations  has 
accelerated  and  continued  to  grow  at  a  much 
faster  rate  than  the  GDP.  The  year-on-year 
growth  of 
to  euro  area  non-financial 
corporations  corrected  for  sales  and  securitisation 
reached 8.3% in August 2019 (v 3.3% in the euro 
area),  a  level  not  seen  since  February  2009  (see 
Graph  4.2.1).  It  is  also  one  of  the  highest  growth 
rates in the EU (see Section 1 for additional details 
on the debt of non-financial corporations). 

French  authorities  have  implemented  several 
macroprudential  measures  to  address  some  of 
these  vulnerabilities.  On  13  January  2020  the 
French High Council for Financial Stability (Haut 
Conseil  de  stabilité  financière,  HCSF)  decided  to 
maintain  unchanged  the  counter-cyclical  capital 
buffer (CCyB) rate, at 0.5%. The decision to raise 
the CCyB rate from 0.25% to 0.5% was approved 
in the HCSF meeting of April 2019 and will enter 
into  force  as  of  2  April  2020.  It  is  expected  to 
enhance the banking  sector’s  resilience,  helping it 
to  absorb  unexpected  losses  while  continuing  to 
provide credit to the real economy.  

French authorities tightened the exposure  limit 

large  and  highly 

of  systemically  important  credit  institutions  to 
large  and  highly 
indebted  non-financial 
corporations.    The  tightening  (from  25%  to  5%) 
indebted  non-financial 
to 
corporations  established  in  France,  has  been  in 
force  since  July  2018  (introduced  under  Article 
458  of  the  Capital  Requirements  Regulation)  and 
is  due  to  expire  by  the  end  of  June  2020.  This 
measure aimed first at preserving the resilience of 
the credit institutions vis-à-vis the potential default 
of 
non-financial 
corporations. In addition, it aimed at improving the 
market  discipline  by  sending  a  clear  preventive 
signal 
to 
anticipate  and  avoid  excessive  imbalances  in  the 
future  especially  from  the  perspective  of  an 
equally 
rates,  while 
interest 
increase 
incentivising to limit their indebtedness.  

the  private  non-financial  sector 

indebted 

private 

highly 

in 

to 

term  vulnerabilities  on 

Macroprudential  policy  was  implemented  in 
response  to  the  growing  vulnerabilities  in  the 
residential real estate market. In response to the 
growing  medium 
the 
residential real estate market, the HCSF decided on 
12  December  2019  to  activate  a  non-binding 
borrower-based  measure  consisting  in  a  debt-
service  to  income  ratio  limit  of  33%  combined 
with a cap of 25 years on the initial maturity of the 
loan,  with  a  margin  of  tolerance  of  15%.  In  case 
the  (non-binding)  recommendation  would  not  be 
sufficiently  effective,  the  HCSF  stands  ready  to 
activate  other  measures.  The  first  review  of  the 
effectiveness  of  the  borrower-based  measure  is 
likely  to  take  place  in  June  2020,  based  on  the 
latest available data. 

Insurance 

Changes  to  the  regulatory  environment  might 
impact the life insurance sector. The PACTE law 
(“Loi relative à la croissance et la transformation 

Table 4.2.1: 

Financial soundness indicators - all banks in France 

(1) Annualized data. 
Source: ECB - CBD2 - Consolidated Banking data; own calculations 

37 

2014q42015q42016q22016q32016q42017q12017q22017q32017q42018q12018q22018q32018q42019q12019q2Non-performing loans4.24.03.93.93.63.53.43.23.13.12.92.82.72.72.6o/w foreign entities1.92.52.52.52.01.81.61.61.61.61.31.31.51.41.3o/w NFC & HH sectors5.15.04.94.94.84.84.64.54.34.24.03.93.83.73.6o/w NFC sector6.25.85.95.85.85.75.55.25.15.14.74.64.44.34.2o/w HH sector4.44.24.24.14.14.04.03.83.63.53.53.43.23.23.1Coverage ratio51.351.150.050.251.451.050.349.550.450.451.451.150.349.950.3Return on equity(1)4.46.87.47.36.56.47.07.06.45.66.86.96.54.86.2Return on assets(1)0.20.40.40.40.40.40.40.40.40.40.40.40.40.30.4Total capital ratio15.216.416.716.917.617.817.717.517.817.717.717.718.018.118.3CET 1 ratio11.812.612.812.913.713.814.013.914.214.114.014.114.514.414.7Tier 1 ratio13.113.814.114.115.015.115.115.015.315.215.115.215.615.615.8Loan to deposit ratio105.1104.7104.6105.5106.2102.9102.1102.8105.1105.2106.0106.7109.1107.9106.7 
 
  
 
4.2. Financial sector* 

at 

aims 

remedying 

des entreprises”) introduced several important new 
provisions.  One 
the 
shortcomings that hindered the development of the 
euro-growth  (“euro-croissance”)  contract  to  make 
it more attractive (European Commission, 2019d). 
In particular, the guarantee is now only ensured at 
maturity,  which should allow insurers to invest in 
“riskier” and more profitable assets. As a result of 
this  reform,  the  Ministry  of  Finance  expects  the 
outstanding amount of these contracts to reach €20 
bn by the end of 2021. Another important measure 
introduced by the PACTE Law is the reform of the 
“épargne  retraite”,  which  becomes  the  pension 
product  of  reference.  It  now  offers  significant  tax 
incentives,  product  portability  and  flexibility  of 
exit  options  at  maturity,  and  its  success  might 
insurance 
negatively 
products.  Still,  life  insurance  continues  to  be 
attractive  for shorter  maturities (typically 8  years) 
or  to  transmit  capital  in  case  of  death  (due  to 
specific related tax advantages). 

long-term 

impact 

life 

38 

 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES* 

Labour market developments 

Labour market conditions continue to improve, 
despite  entrenched  segmentation  and  untapped 
employment  for  older  and  low  skilled  workers. 
Net  job  creation,  driven  by  the  private  sector, 
continued to shift progressively  from temporary to 
permanent  contracts  and  slowed  down  only 
recently (see Graph 4.3.1). However, segmentation 
remains  high  and  the  number  of  interim  contracts 
has  stabilised  recently  at  a  high  level  after  three 
years  of  continuous  growth  (Ministère  du  travail, 
2019a). Both the activity and the employment rate 
have been increasing at a steady but moderate pace 
since  2016  and  reached  77.7%  and  71.4% 
respectively  in  Q3  2019),  slightly  below  the  EU 
average of 78.8% and 74.1%. In spite of the recent 
slowdown  in  economic  growth  in  2019,  data 
suggest  that,  for  some  categories,  there  is  still 
potential  for  employment  growth.  In  2018,  the 
employment  rate  of  senior  workers  (55-64),  at 
52.1%,  was  well  below  the  EU  average  of  58.7% 
(the  gap  is  particularly  high  for  older  men  -  11.4 
p.p.). The employment rate of low-skilled workers 
at  52.2%  is  also  well  below  the  EU  average  of 
56.1%. 

Graph 4.3.1:  Employment by type (thousand), year-on-year 

changes 

was  at  6.3%).  The  situation  of  young  people  is 
slowly  improving:  the  youth  unemployment  rate 
decreased  to  18.9%  in  Q4  2019,  still  significantly 
higher  than  the  14.2%  EU  level,  while  the 
employment  rate  of  recent  graduates  (20-34) 
increased  to  77.7%  in  Q3  2019.  Overall,  despite 
positive  developments,  some  groups  remain  at  a 
strong  disadvantage  on  the  labour  market,  in 
particular  people  with  low  educational  attainment 
and  people  with 
a  migrant  background. 
Differences  in  unemployment  rates  between  these 
groups and the rest of the population are higher in 
in  peer  countries  (IMF,  2019). 
France 
Moreover,  in  spite  of  a  declining  early  school-
leaving  rate,  the  share  of  young  people  not  in 
education,  employment  or  training  (NEET)  has 
remained  broadly  stable  over  the  long  term  (see 
Graph  4.3.2). Reducing the share of NEET would 
lead to progress on Sustainable Development Goal 
4 on Quality education. 

than 

Graph 4.3.2:  Long term evolution of labour market 

indicators 

Source: Eurostat 

The segmentation of the labour market remains 
high,  but  recent  developments  are  positive. 
While the share of temporary workers is above the 
EU  average,  transition  rates  from  temporary  to 
permanent  contracts  remain  among  the  lowest  in 
the EU (12.1% in 2018 – three-year average), even 
if  slowly  increasing  in  recent  years  (see  Graph 
4.3.3).  Temporary  employees 
(20-64)  as  a 
percentage  of  the  total  employees  have  increased 
from  13.2%  in  2009  to  15.5%  in  2018,  driven  by 
an  increasing  number  of  individuals  working  on 

Source: Eurostat, LFS (lfsq egaps, lfsq etgaed) Employment 
(thousand), total, ages 20-64, non-seasonally adjusted data,  

Unemployment  remains  well  above  the  EU 
categories, 
for 
average, 
although  decreasing. 
the 
2019, 
unemployment rate stood at 8.4% (the EU average 

some 
In  Q4 

especially 

39 

-600-400-20002004006008001000thsFRPermanent employeesTemporary employeesSelf employmentOverall70717273747576777879800510152025200420052006200720082009201020112012201320142015201620172018%%Activity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)NEET rate 15-24 (lhs) 
  
  
4.3. Labour market, education and social policies* 

very short-term contracts. Recent data suggest that 
this  trend  may  be  reversing,  as  the  share  of  part-
time  and 
fixed-term  contracts  has  declined 
somewhat  in  2018  (Insee,  2019a).  However,  in 
parallel,  the  share  of  self-employed  firms  without 
employees  also  increased  from  6%  in  2009  to 
8.5% in 2018. 

Graph 4.3.3:  Share of temporary employees and transition 
rates from temporary to permanent contracts 
(age group 15-64) 

in the labour market outcomes for the various skill 
groups are among the highest in the EU. The slight 
increase in skill mismatches over the last decade is 
mostly  due  to  lower  activity  rates  of  low-skilled 
workers. This points to a substitution effect for job 
vacancies by more qualified workers in the low-to-
labour  market.  The 
middle  segment  of 
the 
(routine) 
structural  decline 
employment 
is  pushing  many  middle-skilled 
workers to compete with low-qualified workers for 
low-skilled 
phenomenon  was 
particularly  marked  at  the  peak  of  the  financial 
crisis.  This  confirms  the  need  to  support  the 
activation  and  access  to  employment  of  the  less 
qualified as well as the upskilling of middle-skilled 
workers.  

in  middle-skilled 

jobs.  This 

Graph 4.3.4:  Evolution of the task content of jobs (skills) in 

France, 2000-2018 

Source: Eurostat 

larger  extent,  middle-skilled 

The  skills  required  in  the  labour  market  are 
increasing  as  in  other  advanced  economies. 
While  there  is  a  progressive  increase  in  the  share 
of  high-skilled  occupations  in  total  employment 
(from 40.6% in 2009 to 46.6% in 2018), low-and, 
to  a 
(routine) 
employment  is  declining.  At  the  same  time,  the 
qualification level of the working-age population is 
improving,  therefore  reducing  the  gap  between 
qualification level of employees and their expected 
skill  level.  Several  national  and  international 
forecasts  confirm  a  strengthening  in  the  trend 
towards  higher  qualification  (46).  Still,  the  pace  at 
which 
is  upskilling  appears 
insufficient  to  address  the  steady  increase  of 
demand  for  high-skilled  workers,  leading  to  risks 
of overall under-qualification (see Graph 4.3.4). 

the  workforce 

Changes  in  the  structure  of  labour  demand 
along  with  a  tightening  labour  market  are 
contributing to skill mismatches (47). Differences 

(46)  According  to  the  2018  CEDEFOP  Skills  forecast,  54%  of 
new job openings in France in 2016-2030 would require a 
high level of qualification, compared to 43% at EU level. 
(47)  The macroeconomic skills mismatches indicator is defined 
as the relative dispersion of employment rates across three 
population  groups  with  different  educational  attainment: 
the  low,  middle  and  high  skilled  (European  Commission, 
2019e) 

(1)At the Y axis are the values of task indices rescaled so 
that the initial value of them all was 0 
Source:  European Commission 

The  minimum  wage  continued 
to  evolve 
according to its indexation formula, with no ad 
hoc  hikes  since  2013.  In  January  2020,  the 
minimum wage increased by 1.2%, according to its 
indexation formula and in line with inflation (with 
the exception of tobacco). A 2019 expert report on 
monitoring  minimum  wage 
developments 
reiterated its proposal to revise the minimum wage 
automatic  indexation  formula,  beyond  the  need  to 
avoid ad-hoc hikes (Groupe d'experts sur le SMIC, 
2019).  Over  recent  years,  the  cost  of  labour  at 
proximity  of 
the  minimum  wage  has  been 
significantly  contained  by  reductions  of  social 

40 

1012141618208121620242820082009201020112012201320142015201620172018Transition rate from temporary to permanent contracts (3-year average) - EU (left axis)Transition rate from temporary to permanent contracts (3-year average) - France (left axis)Share of temporary contracts over employees - EU (right axis)Share of temporary contracts over employees - France (right axis)-0,06-0,04-0,0200,020,040,062000200120022003200420052006200720082009201020112012201320142015201620172018 Low-skillMiddle-Skill High-skill  
                                                           
  
4.3. Labour market, education and social policies* 

reform  is  also  aiming  to  address  this  gap  (See 
Section 4.1).  

inequalities  are 
Persisting  difficulties  and 
affecting  people  with  a  migrant  background. 
The employment rate of French born with migrant 
background  remained  broadly  stable  in  2018 
(61.5%),  well  below  that  of  people  with  a  native 
background  (77.4%).  People  with  a  migrant 
background are overrepresented in urban deprived 
neighbourhoods (Quartiers prioritaires de la ville, 
QPV), where they represent more than 50% of the 
working-age  population.  Disparities  persist  even 
within  the  QPV:  38.1%  of  young  people  with  a 
migrant  background  are  not 
in  education, 
employment  or  training  (versus  30%  for  non-
immigrant  young  people).  Recent  studies  show 
persistence of discrimination on the labour  market 
for 
in  France  with  a  migrant 
background depending  on  their  country  of  origin 
(Insee,  2019b).  For  migrants  with  less  than  five 
years  of  residence,  the  employment  rate  was  only 
35.6% in 2014, but it increased to 38.1% in 2018. 
Gender  disparities  are  also  considerable:  only 
25.2%  of  recently  arrived  women  are  at  work, 
against 51.3% of men. 

those  born 

Despite  improvements,  the  situation  of  non-EU 
born  people  in  France  also  remains  difficult. 
Non-EU  born  people  have  a  higher  propensity  to 
be self-employed and higher exposure to long-term 
unemployment,  partly  because  of  persisting 
challenges  to  their  participation  in  the  labour 
market. The gap in employment relative to natives 
remains  well  above  the  EU  average  (15.6  pp, 
against 9.4 pp in the EU), in particular for women 
(22.7  pp  against  13.3  pp  EU  average).  In  2018,  1 
non  EU-born  woman  out  of  10  declared  having 
never  worked  due  to  childcare  related  issues, 
against less than 1 woman out of 70 in the overall 
population.  78.8%  of  non-EU  born  women 
declared not  to be using formal childcare services 
compared  with  64%  for  the  overall  population. 
Reducing this gap would have an important impact 
on  several  outcomes,  as  the  working  status  of 
mothers has a positive effect on child poverty and 
on  intergenerational  mobility  for  those  born  in 
France  by  foreign  parents  (OECD,  2018a).  A 
revised integration contract is in place since March 
2019  for  people  not  born  in  the  EU  arriving  in 
France,  which  puts  more  emphasis  on  labour 
market  integration  and  has  doubled  the  hours  of 
language training. 

contributions  for  employers.  Such  reductions  are 
now  permanent,  with 
further  reductions  for 
workers  earning  up  to  1.6  times  the  minimum 
wage  applied since 2019. The experts’ report also 
simulated  the  effects  of  alternative  discretionary 
increases  of  the  minimum  wage  instead  of  the 
increase of the activity premium (prime d’activité) 
in  2019.  The  simulation 
which 
concludes that the increase of the activity premium 
had better effects for in-work poverty as well as on 
incentives  for  people  not  in  employment  to  start 
work. In recent months, the increased visibility of 
streamlined 
the  activity  premium  and 
application  process  contributed  to  an  increase  in 
the number of beneficiaries. 

took  place 

its 

The  implementation  of  recent  labour  market 
reforms  has  had  an  impact  on  social  dialogue. 
New  rules  mean  that  for  companies  employing 
more than 11 people, social dialogue is affected by 
the  establishment  of  a  company  single  instance 
(Comité  social  et  économique,  CSE)  as  of  1 
January  2020.  Both  employers  and  trade  unions 
signalled that implementing these new rules might 
be delayed, due to the lack of resources. Moreover, 
the  Défenseur  des  Droits  published  a  report 
(jointly  with 
Labour 
Organisation)  on  self-reported  discriminations  by 
trade unions’ representatives in the workplace. The 
report  detailed  some  of 
to 
decentralise  social  dialogue  at  the  firm  level 
(Défenseur  des  droits,  2019).  Also  at  the  national 
level,  some  elements  of  the  recent  reforms  have 
led  social  partners  to  have  a  reduced  role,  for 
instance  in  the  management  of  the  vocational 
training systems (Opérateurs de Compétences and 
France competences). 

the  challenges 

International 

the 

Institute 

(European 

France  is  one  of  the  top  performers  in  gender 
equality 
for  Gender 
Equality,  2019).  That  said,  gaps  persist  both  in 
terms  of  pay  and  employment  rates  (see  Box 
4.3.1).  Women  constitute  the  vast  majority  (72%) 
of involuntary part-time workers and those from a 
migrant  background  are  at  a  much  higher 
disadvantage.  First  results  of  the  ‘Equality  gender 
index’  show  that  17%  of  companies  (above  250 
employees)  must  take  measures  to  address  the 
gender  gaps,  including  unequal  pay  (Ministère  du 
Travail, 2019b). Importantly,  pay  wage  gaps  have 
lifetime  impacts,  as  evidenced  by  the  current  gap 
in  pension 
levels  between  men  and  women 
standing  at  almost  40%.  The  announced  pension 

41 

4.3. Labour market, education and social policies* 

simultaneous 

reforms 
public 
of 
The 
employment  services 
(PES),  unemployment 
insurance and active labour market policies are 
being  implemented.  A  new  tripartite  collective 
convention was signed in December 2019 between 
the State, the agency managing the unemployment 
insurance  (Union  nationale  interprofessionnelle 
pour  l’emploi  dans  l’industrie  et  le  commerce, 
UNEDIC)  and  the  main  PES  (Pôle  Emploi).  This 
convention provides additional staff and resources 
for upgrading the performance of ‘Pôle emploi’. It 
also aims to improve the assessment and guidance 
methodology  for  job  seekers  and  implements  a 
new  type  of  guidance  services  tailored  to  those 
who alternate  periods of  work and unemployment 
or work part-time while relying on unemployment 
insurance to complement their income. The aim of 
this  convention  is  also  to  improve  the  services 
delivered  by  the  PES  to  jobseekers,  in  order  to 
address  the  growing  skills  shortages  at  company 
level. Finally, investment in artifical intelligence is 
provided  by  the  State  in  order  to  equip  the  PES 
with better matching services based on jobseekers’ 
skills  and  company’s  needs.  This  improvement  of 
matching  services  is  necessary  to  accompany 
concomitant  reforms  of  passive  and  active  labour 
market support and will need to be monitored. 

is  also 
The  unemployment  benefit  system 
undergoing  a  progressive  overhaul  as  of 
November  2019.  The  system  has  been  reformed 
by  imposing    stricter  eligibility  requirements, 
revising  rules  to  calculate  and  cumulate  benefits, 
and  reducing  benefits  for  high-salary  workers 
(gross  monthly  salary  above  €4,500) (European 
Commission,  2019d).  According  to  UNEDIC’s 
estimates  (Unedic,  2019),  half  of  the  2.65  million 
people  receiving  unemployment  benefits  could 
lose  out  due  to  the  new  rules.  In  its  impact 
assessment, UNEDIC did not examine the effect of 
the  reform  on  the  behaviour  of  the  unemployed 
that 
(including  self-employed  and  employees 
resigned). This will require close monitoring in the 
future.  

The reform of the unemployment benefit system 
supporting  better  quality 
also  aims  at 
employment.  The  objective 
to  discourage 
employers from hiring workers on very short-term 
contracts.  The  reform  introduces  a  €10  tax  on 
traditional 
(CDD 
d'usage,  CDDU)  and  phasing-in  the  experience 
rating  for  employers’  contributions  (bonus  malus) 

fixed  contracts 

short-term 

is 

the  employer.  Unemployment 

in 7 sectors (48) out of 38, as of 2021 (DG Trésor, 
2019a).  Consequently,  the  rate  of  unemployment 
insurance  contributions  due  by  companies  with  at 
least 11 employees in these sectors will be adjusted 
upwards  or  downwards  according  to  the  rate  of 
termination  of  employment  contracts  attributable 
to 
insurance 
contribution  rates  will  vary  (currently  4.05%) 
between 3% (for good performers) and 5.05% (for 
bad  performers).  A  new  experimental  renewable 
short-term  contract  (CDD  multi-remplacement), 
based  on 
to  choose  one’s 
professional  career’  law,  may  allow  companies 
affected  by  the  experience  rating  mechanism  to 
reduce their unemployment insurance contribution 
rate.  Concerns  have  been  raised  by  employers 
regarding  the  complexity  of  this  reform  that  will 
affect all companies (from the 7 sectors) with more 
than 11 employees. In light of experience of taxing 
very  short-term  contracts,  contained 
the 
previous 2014 UNEDIC convention, a high degree 
of  complexity  may  fail  to  influence  companies’ 
recruitment practices.  

‘Freedom 

the 

in 

As  labour  market  conditions  improve,  active 
labour  market  policies  are  being  refocused  on 
people  most  in  need.  The  volume  of  subsidised 
jobs  is  rapidly  falling,  in  parallel  to  strengthening 
training and monitoring to improve  employability. 
The  available  tools  for  social  and  labour  market 
integration  of  most  disadvantaged  people  through 
economic 
l’Activité 
économique)  are  being  scaled  up,  with  the  aim  of 
activating  minimum  income  for  the  beneficiaries. 
Based  on  the  Borello’s  report,  a  new  Fund  for 
Work Inclusion (Fonds d’inclusion dans l’emploi) 
was  created  in  2018  to  efficienctly  manage  the 
financing of subsidised jobs (Borello, 2018).  

(Insertion  par 

activity 

Several  measures  are  under  way  to  support 
employment,  notably  in  the  most  deprived 
areas.  These  measures  include  pilot  recruitment 
subsidies  targeted  toward  most  deprived  urban 
areas  (Emplois  francs  scheme)  to  be  rolled  out 
progressively  in  2020.  Other  measures  include 
innovative local initiatives aimed at tackling long-

(48)  Manufacture  of  food,  beverages  and  tobacco  products; 
other  specialised,  scientific  and 
technical  activities; 
accommodation  and  catering;  water-sanitation  production 
and  distribution,  waste  management  and  de-pollution; 
transport  and  storage;  manufacture  of  rubber  and  plastic 
products  and  other  non-metallic  products;  woodworking, 
paper and printing industries.  

42 

                                                           
4.3. Labour market, education and social policies* 

term  unemployment  (Territoires  Zéro  Chomeurs 
de  Longue  Durée).  Preliminary  assessments  point 
to the need to fine-tune the pilot.  

not  have  negative  impacts  on  the  wages  and 
employment  perspectives  of  French-born  workers 
in the professions concerned (Signorelli, 2019).  

A  reform  of  the  governance  of  the  social 
protection  system  linked  to  the  unemployment 
benefit and active labour market policy reforms 
has  been  announced.  A  new  service  (Service 
public de l’insertion) will be set up to improve the 
coordination  between  Pôle  Emploi  and  social 
services to ensure joint guidance for job seekers. A 
plan  to  merge  various  benefits  (activity  premium, 
minimum  income,  housing  subsidies)  into  one 
universal  activity 
(Revenu  universel 
income 
d’activité) is also underway. The scope of the new 
measure is still under discussion in the context of a 
public  consultation  that  will  end  beginning  of 
2020.  This  reform  should  strengthen  the  job-first 
approach  and  tackle  the  low  uptake  of  some  of 
social  benefits (estimated  at  approximately  35  % 
for the minimum income). 

4.3.2 Education and skills 

Employers’ surveys show that a lack of skills is 
the  main  barrier  to  hiring.  Despite  continued 
high levels of unemployment, the job vacancy rate 
has seen a steady increase in all sectors since 2016, 
to reach 1.3% in the second quarter of 2019 (Insee, 
is 
2019c).  Lack  of  suitable  skilled  workers 
consistently  reported  as 
to 
the  main  barrier 
recruitment  by  29%  of  companies  in  the  service 
sector, 36% in the industry sector and up to 55% in 
the  construction  sector  (Insee,  2019d).  The  most 
sought  after  recruitment  profiles,  such  as  care-
related jobs, IT specialists and engineers, coincide 
with 
in 
the  sectors  having  most  difficulties 
recruiting  (Pôle  Emploi,  2019).  This  is  reflected 
also for example in the number of ICT graduates, 
which  account  only  for  3%  of  total  graduates. 
Having said that, the share of science, technology, 
engineering,  and  mathematics  (STEM)  tertiary 
graduates slightly declined from 27.7% in 2010 to 
25.7%  in  2017  compared  to  an  EU  average  of 
25.8%  (49).  In 
the  government 
this  context, 
announced  a  revision  of  the  list  of  occupations 
under  strain  for  2020  (not  updated  since  2011)  to 
better  target  the  recruitment  of  non-EU  nationals. 
An evaluation of the previous list shows that it did 

(49)  Eurostat,  Graduates  by  education 

level,  programme 
orientation, sex and field of education, Statistical reference: 
‘educ_uoe_grad02’. 

The  number  of  apprentices  continues 
to 
increase, supported by ongoing reforms. Higher 
education  accounts  for  75%  of  the  increase  and 
represents  now  over  40%  of  all  apprenticeships, 
compared to 14% in 2000. Following the repeal of 
the  prior  approval  to  open  an  apprenticeship 
centre,  more  than  500  requests  for  opening  new 
learning  centres  (on  top  of  already  existing  965) 
were submitted, including companies opening their 
own  internal  apprenticeship  hubs.  The  impact  of 
these  new  apprenticeship  centres  and 
their 
sustainability is yet to be assessed.  

(Couppié, 

Gasquet, 
to 

School-based  and  work-based  apprenticeship 
schemes  are  seeking  to  become  better  aligned 
with  labour  market  needs.  In  particular,  the 
effectiveness of apprenticeships in ensuring labour 
market  integration  and  quality  jobs  has  improved 
between 2017 and 2018 (Ministère de l’éducation, 
2019a).  Previous  contact  with  a  company  is  the 
main  factor  for  recruitment  (23%  of  apprentices 
start working in the company which trained them) 
although  it  is  highly  dependent  on  the  business 
cycle 
As 
2018). 
increase,  potential 
apprenticeships  are  set 
challenges include tackling signs of discrimination 
that  have  been  observed  (Cereq,  2017)  and 
ensuring  employability.  Developing  preparatory 
classes  for  apprenticeship  to  reduce  the  dropout 
rate and increasing financial incentives is a step in 
the  right  direction.  On  school-based  vocational 
education, 
reformed 
first  cycle  of 
professional secondary school started in September 
2019,  based  on  a  more  gradual  specialisation  and 
increased  guidance.  Other  measures  support 
pathways  of  secondary  vocational  education  and 
training  (VET)  graduates  into  vocational  higher 
education.  Moreover,  the  initiative  ‘Campuses  for 
Jobs  and  Qualifications’  is  now  being  relaunched 
for 2020, improving on the previous generation of 
labelled structures. 

the 

the 

The 2018-2022 Skills Investment Plan is gaining 
pace. Some €1.5 bn have been allocated in 2018 to 
enable  826,000  people  to  start  a  training  course. 
The plan continued into 2019 (€2.9 bn) and is set 
to  rise  to  €3.1  bn  in  2021.  So  far,  450,000 
additional  trainings  courses  have  been  provided. 
On top of innovative programmes  launched under 

43 

                                                           
4.3. Labour market, education and social policies* 

those 

backgrounds 
from 
outperformed 
disadvantaged  backgrounds  in  reading  by  107 
score points, equivalent to more than 2.5 grades (a 
difference significantly higher than the EU average 
difference  of  95  points).  Differences  between 
students from urban and rural areas were large too 
(83  points,  equivalent  to  2  grades).  The  average 
reading  performance  between 
difference 
students  with  or  without  a  migrant  background  in 
France  was  52  points  in  favour  of  the  latter  and 
shrank  to  13  points  after  accounting  for  students’ 
and  schools’  socio-economic  profile  (nearly  50% 
of  the  students  with  a  migrant  background  are 
disadvantaged).  

in 

A comprehensive approach is needed to reduce 
inequalities. 
educational  and  socioeconomic 
Recent  measures  link  educational  measures  to 
measures  on  housing,  urban  policies  and  poverty 
alleviation.  Halving  class  sizes  in  the  first  two 
grades  was  extended  to  all  disadvantaged  schools 
in  September  2019,  benefiting  300 000  children 
(20%  of  the  total).  A  first  evaluation  found 
positive  results  in  terms  of  class  atmosphere  and 
performance,  while  pointing  to  the  need  to  adjust 
implementation  may 
teaching  practices.  Full 
require 
infrastructure. 
investment 
further 
However,  70%  of  disadvantaged  pupils  are  not 
enrolled in targeted schools and will therefore not 
benefit  from  the  measure  (Cour  des  Comptes, 
the 
2018a).  The  ‘law 
educational  system’  (Pour  une  Ecole  de 
la 
the  age  of  compulsory 
Confiance) 
those 
education 
targeting 
territories  where  pre-primary  education 
lacks 
infrastructure  and  staff.  It  also  extends  the  age  of 
compulsory  education  or  training  from  16  to  18. 
The education budget will continue to rise in 2020, 
in particular for (pre-) primary education.  

three,  mainly 

to  promote 

lowers 

trust 

in 

to 

in 

the  plan  (e.g.  training  courses  on  digital  and 
sectors  experiencing  shortages),  regional  Skills 
Investment Plans (€7 bn) have been allocated in all 
regions to better tailor the training offer to regional 
labour  market  needs.  Good  coordination  between 
the  State  and  the  regions  is  critical  for  its 
successful rollout. 

The  revamped 
learning  account 
individual 
started  in  November  2019.  Increased  rights  for 
people without qualifications or with disabilities, if 
successfully  implemented,  could  rebalance  access 
to  training,  which  has  so  far  mostly  benefited 
higher-skilled  people  (OECD,  2019b).  For  people 
working part-time, from 50% of the legal duration 
and up to 100% of the working time, the account is 
funded  up  to  €500  per  year  of  work.  So  far, 
participation  of  the  unemployed  in  vocational 
training  is  comparatively  low  (16.4%  in  2018). 
Free professional guidance (through the Conseil en 
evolution  professionnelle)  will  be  rolled  out  at 
regional  level  through  a  network  of  existing 
providers,  but  the  actual  adequacy  and  uptake 
remains to be seen. The impact of the professional 
guidance  on  the  use  of  the  personal  training 
account,  particularly  for  more  vulnerable  users 
needs to be assessed. Trade unions have pointed to 
potential  negative risks  implied by the conversion 
of the learning credits from hours to euros, due to 
divergences in the cost of training between sectors. 
The ‘Freedom to choose one’s professional career’ 
law  changed  the  rules  on  company  training  plans 
in  steering  and 
by  creating  a  major 
forecasting. In the case of professional transition, a 
new  role  will  fall  under  the  newly  established 
sectoral 
de 
operators 
Compétences,  OPCO).  This 
is  particularly 
important,  as  smaller  companies  have  limited 
resources and capabilities to set up a medium-term 
skills and recruitment strategy. 

(Opérateurs 

skills 

role 

The  2018  OECD  Programme  for  International 
Student  Assessment  (PISA)  shows  that  the 
French  educational  system  combines  overall 
good  outcomes  with  persisting  socioeconomic 
and  territorial  inequalities.  The  performance  of 
15-year olds in the 2018 PISA has remained stable 
and  the  proportions  of  low-achievers  in  all  three 
areas  tested  (reading,  mathematics  and  science) 
were just below EU averages. France remains one 
of  the  EU  Member  States  where  the  link  between 
socio-economic status and performance in PISA is 
advantaged 
the 

strongest. 

Students 

from 

The  teaching  profession  is  facing  challenges 
(European Commission, 2019f). According to the 
OECD  Teaching  and  Learning 
International 
Survey  2018,  65.8%  of  French  teachers  reports 
that  content,  pedagogy  and  classroom  practice  in 
some  or  all  subjects  taught  were  included  in  their 
initial  education,  against  73%  at  EU-23  level, 
which  might 
the 
lead 
comprehensiveness  of 
initial  education 
(OECD,  2019c).  French  teachers  also  report  an 
above-average  need  for  professional  development 
in teaching  students  with  special needs (33.7% vs 
21.0%)  and  individualised  learning  (23.7%  vs 

to 
their 

question 

44 

4.3. Labour market, education and social policies* 

average. In 2018, the income share of the top 20% 
of  households  is  4.23 times  higher  (50)  than  the 
share  of  the  bottom  20%,  significantly  below  the 
EU  average  of  5.17.  The  income  share  of  the 
poorest 40% of the population amounted to 22.5% 
of total income in 2018, above  the  EU average  of 
21%.  Social 
risk  of 
poverty (51)  by  44.4%  in  2018,  more  than  10 
percentage points above the EU average.  

transfers 

reduced 

the 

a 

to 

pointed 

indicators 

Some 
slight 
deterioration of the social situation. The share of 
people  at  risk  of  poverty  or  social  exclusion  has 
slightly  increased  over  2017-2018  from  17%  to 
17.4%  between  2017  and  2018,  contrary  to  the 
declining  EU  trend  (from  22.4%  to  21.9%).  The 
share of people in a situation of material and social 
deprivation (52) indicator reached 12.5%, almost on 
par with the EU average (12.8%). 

In  particular,  single  parent  households  often 
ran  by  women,  face  higher  risk  of  poverty  or 
social  exclusion.  The  share  of  households  with 
dependent  children  at  risk  of  poverty  remained 
stable at 32.1% in 2018. However, the situation for 
low-work  intensity  households  with  dependent 
children  worsened in 2018 (at-risk-of-poverty rate 
of 56.1%, up from 51.8% in 2017). This evolution 
translates on the number of children (0-18 years) at 
risk  of  poverty  or  social  exclusion,  which 
increased from 22.1% to 22.9%. This risk is higher 
in low-skilled and low-work  intensity  households, 
which  is  a  concern  as  the  proportion  of  children 
living  in  such  low-skilled  households  with  very 
low  work intensity increased  from 24.7% in 2017 
to 29.1% in 2018.   

A  recent  study  shows  that  fiscal  and  social 
measures included in the Budget 2018 and 2019 
will  mostly  benefit  the  low-middle  class.    The 
cumulated  effect  of  the  2018  and  2019  fiscal 
reforms  will  increase  by  0.8%  the  disposable 
income of households between the 9th and the 24th 
centile,  and  up  to  2.2%  at  the  level  of  the  39th 
centile. The first decile of income, which includes 

(50)  S80/S20 indicator 
(51)  The at-risk of poverty cut-off point is defined here as 60% 
of median equivalised income. Pensions are excluded from 
social transfers. 

(52)  The  material  and  social  deprivation  indicator  has  been 
the  2009  material  deprivation 
introduced  to  replace 
indicator.  It  measures  the  inability  of  a  person  and  its 
households to afford 13 items (7 relates to the household as 
a whole. 6 to the individual alone).  

in 

to 

increase  since 

improving.  Schools  are 

13.2%)  (OECD,  2019c).  Statutory  salaries  of 
primary  school  teachers  remain  below  the  OECD 
average  (OECD,  2019d).  However,  after  several 
years of stagnation or decline, the  statutory salary 
of elementary school teachers (PE in ISCED 1) in 
2016/2017  has  returned  to  its  2004/2005  level.  It 
has  continued 
then  (by  3 
percentage  points  in  2017/2018).  The  number  of 
positions filled in the first public decree in 2018 is 
slightly lower than in 2017, although the additional 
competitive  examination  organised 
some 
academies  will  limit  the  decrease.  However,  the 
proportion of filled positions at the second level is 
clearly 
this 
problem by hiring contractual teachers, possibly at 
the  expense  of  quality.  Low  salaries  and  limited 
autonomy  affect  school  leadership  in  primary 
education.  Social  partners  call  for  making  the 
organisation of teachers’ work more collective and 
heads’. 
alleviating 
school 
teachers 
Comparatively  small  proportions  of 
reported 
continuing 
professional development (CPD). Reasons include 
lack  of  incentives  and  relevant  offers.  French 
authorities  are  planning  measures  to  better  adapt 
the offer of training courses to staffs’ needs and to 
increase  participation 
in  CPD  (Ministère  de 
l’Education nationale, 2019b). 

undertaken 

tackling 

having 

tasks 

the 

of 

Teachers in disadvantaged schools tend to have 
less  qualifications  than  teachers  in  advantaged 
schools (OECD, 2018b). The qualifications gap of 
science teachers in disadvantaged schools is wide, 
with only 26% of science teachers in schools in the 
lowest 
fully 
socio-economic  quartile  being 
certified,  against  94%  in  the  top  quartile.  Lower 
secondary  school  directors  frequently  report  that 
quality  of  teaching  is  hindered  by  (i)  shortages  of 
qualified teachers; (ii) shortages of teachers able to 
deal 
socioeconomic 
disadvantaged  background;  and  (iii)  insufficient 
time with students (OECD, 2019c). Recent reforms 
increased 
in 
disadvantaged  schools  and  targeted  recruitment  to 
enable schools to better address local needs and to 
assign  the  most  experienced  teachers  to  areas  of 
greatest need. 

teachers  working 

salaries 

pupils 

from 

with 

for 

4.3.3 Social policies 

French 

The 
performs 
comparatively  well  and  the  level  of  income 
inequalities  is  significantly  lower  than  the  EU 

system 

social 

45 

                                                           
4.3. Labour market, education and social policies* 

housing  overcrowding  rate  grew  from  7.5%  to 
8.2% for the overall population and from 24.4% to 
25.9% for households at risk of poverty. 

Unmet  demand  for  social  housing  remains  an 
issue. In 2018, 2.1 million households were on the 
social  housing  waiting  list  for  renting  social 
dwellings,  of  which  400,000  were  already  social 
housing 
lower 
investment and a reduced number of new  units of 
social housing  from 105,000 in 2017 to 98,000 in 
2018 (Union Sociale pour l’habitat, 2019a).  

tenants.  Budget  cuts 

led 

to 

limited 

remains  particularly 

The  objective  of 
the  2017  equality  and 
citizenship  law  (Egalité  et  Citoyenneté),  to  have 
25% of social housing attributed to individuals 
in the first income quartile is yet to be achieved. 
In 2017, around 50% of social housing applicants 
were  below  the  poverty  treshold,  with  an  over-
representation of single-parents households among 
applicants  (Union  Sociale  pour  l’habitat,  2019b). 
Access  to  social  housing  for  most  vulnerable 
groups 
(Caritas 
Europa, 2019). This is a concern, as social housing 
plays  an  important  role  in  shielding  tenants  from 
poverty.  Among  applicants,  at  least  5%  are  in  a 
precarious  housing  and  2%  are  homeless 
(Fondation  Abbé Pierre, 2019a). Their situation is 
particularly  worrying  in  the  context  of  an  overall 
increase of the number of evictions, mostly due to 
unpaid  rent  (Fondation  Abbé  Pierre,  2019b).  The 
lack  of  infrastructures  may  imply  additional  costs 
in the long run, as the emergency public support to 
homeless  people  costs  significantly  more  than 
social  housing  (Pleace,  2015,  Fondation  Abbé 
Pierre, 2019a).  

its  housing  first  plan  (le 

logement 
Under 
d’abord)  (2018-2022),  the  government  supports 
access  to  housing  for  most  vulnerable  groups. 
This plan involves a shift from emergency housing 
towards  increased  investment  in  favour  of  social 
housing  infrastructures  targeting  lowest  income 
households (Prêt locatif Aide d’intégration, PLAI). 
However,  the  PLAI  goal  of  40  000  a  year  set  by 
the government remains modest, particularly if the 
rent  level  is  not  sufficiently  capped  to  remain 
affordable  for  the  lowest  income  households. 
(European Commission, 2019g) 

The French population enjoys good health. Life 
expectancy  at  birth  was  82.7  years  in  2017  (the 
third  highest in  the EU countries). Mortality from 

a high share of unemployed, will not benefit from 
the  measures,  such  as  the  increase  of  the  activity 
premium  or  the  tax  exemption  of  overtime  hours. 
Moreover, this segment will be negatively affected 
by  the  under-indexation  of  housing  and  family 
benefits (IPP,  2019c).  However, 
this  segment 
benefits  from  an  increase  of  €50  because  of  the 
chèque  énergie.  On  average,  the  loss  induced  by 
the  under-reevaluation  of  both  types  of  benefits 
and the increase of the chèque énergie balance out. 

The  socioeconomic  situation  of  non-EU  born  is 
worsening.  Their  risk  of  poverty  or  social 
exclusion increased from 33.4% in 2017 to 37.4% 
in 2018,  while it  was only 15.4% for people born 
in  France.  Similarly,  exposure  to  severe  material 
deprivation  remains  significantly  higher  for  non-
EU  born,  13.21%  (versus  3.6%  for  natives).  The 
situation  of  non-EU  born  women  is  even  more 
worrying  as 
their  risk  of  poverty  or  social 
exclusion  increased  from  34.8%  (2017)  to  38.4% 
(2018).  Following  the  same  trend,  the  risk  of  in-
work  poverty  for  non-EU  born  (18-64)  increased 
from 16.9% to 19.6%. In 2018, the risk of in-work 
poverty for people born in France was only 6%. 

in 

their 

The  national  strategy  to  prevent  and  fight 
poverty  is  being  implemented.  Since  January 
2019,  €20  mn  have  been  allocated  to  guide  and 
support  homeless 
social 
families 
reintegration  and  €125  mn  to  emergency  housing 
facilities,  guidance  for  families  and  assistance  to 
homeless  children.  Some  30,000  additional  places 
in  formal  childcare  will  be  created  by  2022,  in 
addition  to  300  new  childcare  services  to  support 
the  labour  market  integration  of  parents  in  most 
deprived  areas. 
  The  Pact  seeking  to  insert 
through  economic  activity  (Pacte 
individuals 
d’ambition 
l’activité 
pour 
économique)  was  presented  in  September  2019. 
The Pact aims to increase the number of places for 
in  work-based  inclusion  structures  by  100,000. 
These  initiatives  contribute  to  the  achievement  of 
the Sustainable Development Goal 1 – No poverty. 

l’insertion 

par 

on 

declined 

average, 

Over  the  last  three  years,  the  housing  cost 
overburden 
but 
overcrowding  increased.  The  share  of  rent  in 
poor  households’  disposable  income  has  slightly 
increased  in  2018  (from  30.2%  to  31.2%).  The 
housing  cost  overburden  for  households  at  risk  of 
poverty remained high but stable, at 20.3%, while 
it  was  only  4.3%  for  the  overall  population.  The 

46 

4.3. Labour market, education and social policies* 

treatable causes (53) is among the lowest in the EU 
indicating  that  the  health  system  is  effective  in 
saving  the  lives  of  people  with  acute  conditions. 
However,  certain  risk  factors  are  highly  prevalent 
among  adults  such  as  high  alcohol  consumption 
(on  average,  a  French  adult  drank  11.7  litres  of 
pure  alcohol  in  2017,  as  compared  to 9.9  litres  in 
the  EU).  Achieving  progress  in  this  area  would 
contribute  to  Sustainable  Development  Goal  3  – 
Good health and well-being.  

There  is  a  lack  of  practising  doctors  in  some 
areas.  Following  a  methodology  defined  in  2017, 
about  18%  of  the  population  live  in  an  ‘uder-
equipped area’, i.e. areas where access to a general 

(53)  Mortality from treatable causes is death that can be avoided 
through  healthcare  interventions,  including  treatment  and 
screening,  e.g. 
from  cancer,  pneumonia,  stroke  or 
ischaemic heart disease.  

practitioner  is  limited  (and  where  the  arrival  of 
new doctors is therefore subsidised), among which 
8%  live  in  the  least  favourable  areas.  Based  on 
data from December 2015, isolated rural territories 
were primarily affected and 46% of people in those 
areas  lived  more  than  30  minutes  away  from  an 
emergency  service.  The  2020  Health  finance  law 
simplifies  financial  incentives  schemes  to  boost 
practice opening in underserved areas. Broadening 
the  duties  of  community  pharmacists  and  nurses 
could  help 
lack  of  medical 
professionals.  The  Health  Strategy  ‘Ma  Santé 
2022’  supported  the  creation  of  450  professional 
territorial  health  communities 
(Communautés 
professionnelles  territoriales  de  santé,  CPTS). 
Local  hospitals  have  been  reorganised  to  provide 
care  in  cooperation  with  local  multidisciplinary 
centres  and  private  doctors.  The  objective  is  to 
increase  their  number  to  1,000  across  France  by 
2022. 

tackle 

the 

to 

47 

                                                           
4.3. Labour market, education and social policies* 

Box 4.3.4: Monitoring performance under the European Pillar of Social Rights 

The European Pillar of Social Rights is a compass  for a renewed  process of upward convergence towards 
better  working  and  living  conditions  in  the  EU.  It  sets  out  20  essential  principles  and  rights  in  equal 
opportunities  and  access  to  the  labour  market;  fair 
working  conditions;  and  social  protection  and 
inclusion.  

Overall,  France  performs  relatively  well  on  the 
employment and social indicators highlighted by 
the  Social  Scoreboard  supporting  the  European 
Pillar of Social Rights. Poverty and inequality are 
below  the  EU  average  and  the  social  protection 
system is overall effective. Access to healthcare and 
childcare  services  is  also  good.  However,  despite 
the  solid  economic  expansion, 
labour  market 
conditions  are  improving  only  at  a  slow  pace.  The 
unemployment rate is now broadly stable and above 
the EU average. Labour market integration remains 
more  difficult 
low-skilled 
workers  and  people  from  a  migrant  background. 
Onns job quality, the incidence of in-work poverty 
is  low,  but  labour  market  segmentation  remains  a  
challenge. 

for  young  people, 

Integration of people with a migrant background 
remains a challenge. The employment rate of non-
EU  born people,  at  57.5%,  is  15.5  pps.  lower  than 
that of natives. The gap is particularly high between 
native  and  non-EU  born  women  (22.7  pps.). 
Challenges affect both first and second generations. 
People  with 
are 
overrepresented in deprived  urban neighbourhoods, 
where  they  constitute  more  than  50%  of  the 
working-age  population.  Even  within  these  areas, 
a  migrant  background 
young  people  with 
experience  higher  unemployment  and  inactivity 
rates 
to 
discrimination  on  the  labour  market  for  second-
generations people, depending on their country of origin. The integration of second generations may also be 
hampered by persisting educational inequalities. In France, the impact of the socio-economic background on 
educational outcomes is indeed much above the EU average. As pupils with a migrant background have a 
higher  probability  to  come  from  a  lower  socio-economic  background,  educational  inequalities  may  also 
hamper the integration of second generations people. 

than  natives.  Recent  studies  point 

a  migrant 

background 

France is one of the best performers in the EU in terms of gender equality. France ranks third in the EU 
on the Gender Equality Index, with an increase by 9.4 points since 2005 (+ 2 points since 2015). Reflecting 
its fast pace of progress towards gender equality, France’s ranking improved by four places between 2005 
and  2017.  To  further  address  the  challenge  of  work-related  inequalities  between  men  and  women,  in 
September  2018  France  introduced  an  obligation  for  companies  to  publish  a  multi-dimensional  equality 
scoreboard and to take remedial actions in deficient areas. Strictness of obligations varies depending on the 
size  of  the  company.  A  first  assessment  shows  that  17%  of  companies  above  250  employees  shall  take 
measures  to  address  company-specific  gender  gaps,  including  unequal  pay.  As  of  1  March  2020,  this 
obligation will be extended to companies between 50 and 249 employees with SME-specific arrangements.  

48 

Social Scoreboard for FRANCE SOCIAL SCOREBOARD SDGs Equal opportunities and access to the labour market  Early leavers from  education and training  (% of population aged 18-24)      Youth NEET  (% of population aged 15-24) Gender employment gap Income quintile ratio (S80/S20) At risk of poverty or social exclusion (in %) Dynamic labour markets and fair working conditions   Employment rate  (% of population aged 20-64)  Unemployment rate  (% active population aged 15-74) Long-term unemployment rate  (% active population aged 15-74) GDHI per capita growth  Net earnings of a full-time single worker earning AW Social protection and inclusion  Impact of social transfers (other than pensions) on poverty reduction    Children aged less than 3 years in formal childcare Self-reported unmet need for medical care  Individuals' level of digital skills Critical situation To watch Weak but improving Good but to monitor On average Better than average Best performers Members States are classified on the Social Scoreboard according to a statistical methodology agreed with the EMCO and SPC Committees. It looks jointly at levels and changes of the indicators in comparison with the respective EU averages and classifies Member States in seven categories. For methodological details, please consult the proposal for a Joint Employment Report 2020, COM(2019) 653 final; NEET: neither in employment nor in education and training; GDHI: gross disposable household income. Update of January 2020.   
4.4. COMPETITIVENESS REFORMS AND INVESTMENT* 

4.4.1.  PRODUCTIVITY TRENDS* 

The  level  of  labour  productivity  is  high  in 
France,  but  its  growth  has  slowed  down  as  in 
other  major  economies.  Similarly 
to  other 
countries, this slowdown could be partly explained 
by  an  increasing  share  of  the  services  sector  in 
which productivity  gains are  less dynamic than in 
the industry sector (Bauer et al, 2020). In 2017, the 
aggregate  labour  productivity  growth  was  1.9% 
but  3.1%  if  services  are  excluded.  That  said,  as 
sectoral  shifts  in  employment  from  industry  to 
services have decelerated since the 2000s, the main 
factor behind the recent productivity slowdown has 
been  the  fall  in  productivity  gains  within  sectors 
(Conseil  National  de  Productivité,  2019)  (see 
Graph 4.4.1).  

Graph 4.4.1:  Labour productivity growth per sector 

Source: European Commission 

as  well  as  weak  business  dynamics,  which  may 
lead  to  an  inefficient  allocation  of  resources  and 
lower productivity growth.  

to 

identified  weaknesses 
adoption 

Apart from the factors common to all advanced 
economies,  the  French  National  Productivity 
in  skills  and 
Board 
explain  weak 
technology 
productivity  growth.  The  National  Productivity 
Board  report  concluded  that  the  major  factors 
explaining  the  weak  productivity  growth  of  the 
French firms were the low skills of the  workforce 
compared to the OECD average, skills mismatches 
(see  Section  4.3)  and  the  low  performance  due  to 
low  uptake  of  information  and  communication 
technologies  (Guillou  et  al,  2018).  More  broadly, 
weak  innovation  performance  is  also  cited  as  a 
hindering  factor,  including  insufficient  business 
innovation,  a  low  degree  of  automation  and 
digitalisation, and the lack of coordination between 
public  and  private  research  and  development  (see 
section Research, development, and innovation).  

have 

barriers  may 

in  services  and 
Weak  business  dynamism 
slowed 
regulatory 
productivity  growth.  Entry  rates  declined  in 
services  between  2008  and  2017.  The  level  of 
entry rate is far below the EU average and one of 
the  lowest  in  the  EU  for  firms  with  at  least  10 
employees.  Weak  business  dynamism  may  be 
linked 
to  high  regulatory  barriers.  On  non- 
manufacturing  regulation,  Cette  et  al.  2018  found 
that  if  France  were  to  reduce  the  level  of 
regulatory  barriers  to  the  level  of  the  least 
regulated  OECD 
factor 
productivity  could  increase  by  5%  in  the  long 
term. 

countries, 

total 

The  labour  productivity  gap  between  the  most 
productive  and  the 
least  productive  firms 
widened  over  the  last  decade,  suggesting  weak 
diffusion  of  best  practices  and  technology.  
Differences  in  revenue-based  productivity  were 
magnified  in  the  advanced  economies  both  in 
manufacturing  and 
in 
France,  the  increase  in  productivity  dispersion  in 
services was larger than in peer countries (OECD, 
Multiprod  project).  According  to  the  National 
Productivity  Board 
de 
Productivité, 2019), this is particularly the case in 
less  knowledge  intensive  services.  This  finding 
might  signal  weak  diffusion  of  best  practices  and 
technology from leading firms to other companies, 

in  services.  However, 

(Conseil  National 

France  exhibits  a  sizeable  share  of  ‘zombie 
firms’ (54) that  may  help to explain persistently 
low  productivity  growth  (see  Graph  4.4.2).  The 
share  of  ‘zombie  firms’  has  increased  since  the 
crisis  and  it  is  not  declining.  In  addition,  the 
productivity  gap  between  healthy  and  ‘zombie 
firms’ decreases as the zombie share  increases.  In 
France,  ‘zombie  firms’  have  a  strong  negative 
impact  on  the  productivity  level,  while  slightly 

(54)  Firms  of  at  least  10  years  old  and  reporting  interest 
coverage  ratio  below  1  in  three  consecutive  years  (the 
interest  coverage  is  the  ratio  of  profits  before  interest 
payments,  taxes  and  depreciation  relative  to  interest 
payments). 

49 

-4%-2%0%2%4%6%8%1980199020002010Growth rateAgricultureConstructionIndustryServices 
  
                                                           
 
4.4. Competitiveness reforms and Investment* 

positive  impact  on  employment  by  creating  low 
productivity  jobs  (Bauer  et  al,  2020).  However, 
according  to  a  recent  study  (France  Stratégie, 
2019b),  the  potential  misallocation  of  resources 
due  to  ‘zombie  firms’  may  be  mitigated  in  some 
cases by their status (affiliates of large groups) and 
the effectiveness of French solvency law.  

Graph 4.4.2:  Average share of 'zombie firms' between 2010 

and 2015 

investments  are  made  by 
to 

countries.  Public  investment  reached  €79.7  bn  in 
2018 (the highest level in the EU) corresponding to 
3.4%  of  GDP,  above  the  EU  average  of  2.7%. 
local 
Most  public 
administration,  similarly 
the  EU  average. 
Corporations  and  households  investment  levels  in 
term  of  GDP  are  also  above  the  other  main 
countries  of  the  euro  area,  with  the  exception  of 
German  households  (6.0%  GDP  for  France,  6.5% 
for Germany) (see Graph 4.4.3).  
Graph 4.4.3:  Investment levels by sector (% of GDP) 

Source: European Commission, Bauer et al., 2020 

4.4.2.  INVESTMENT* 

Productivity  and  non-price  competitiveness 
challenges as well as energy transition could be 
addressed  by  targeted  investments.  Sluggish 
productivity  growth  and  relative  deterioration  of 
non-cost  competitiveness  of  French  exports  (see 
Section  1)  appear  to  be  in  contrast  with  the  high 
level  of  investment  in  France.  Additional,  more 
efficient or repurposed investments in research and 
development,  innovation,  digitalisation  and  skills 
could  be  relevant  to  address  competitiveness  and 
productivity  challenges  in  the  long  term.  Indeed, 
expected benefits include design of new innovative 
products,  access  to  new  markets,  better  quality  of 
enhanced 
exported 
participation in global value chains, and improved 
management. 
requires 
investments  to  mitigate  climatic  evolutions  and 
stimulate sustainable and inclusive growth. 

transition 

services, 

Energy 

goods 

and 

Source: Eurostat 2018 

Private  investment  continues  to  be  dynamic 
with a positive outlook. French firms’ investment 
rate  increased  gradually  over  time  to  reach  above 
24% during 2018. The share of firms investing was 
84%  according  to  the  2019  European  Investment 
Bank  investment  survey  (EIB,  2019),  down  from 
88%  in  2018. The  investment  outlook  for  2019  is 
positive,  with  more  firms  expecting  to  increase 
rather than decrease investment in France, which is 
more optimistic than the EU average. This finding 
is  applicable  for  all  sectors  and  firm  sizes  (it  was 
not the case for the construction sector in 2018). 

High  investment  by  French  firms  in  intangible 
assets  appears  to  contribute  to  productivity 
growth.  France  invests  more  in  intangible  assets 
compared  to  other  EU  countries,  notably  in 
software  and  databases  and  organisational  capital, 
which 
total 
investment (55)  in  2017,  respectively.  Moreover, 

represent  12% 

and  7%  of 

France  is  characterised  by  a  high  and  stable 
level  of  investment  compared  to  other  EU 

(55)  Based  on 

the  2019  release  of  EU  KLEMS.  Total 
investment  includes  investment  in  intangible  assets  both 

50 

036912SIBGCZDEROFIFRSEITESShare of firms (%)ManufacturingService sectors0510152025FranceGermanyItalySpainGovernmentCorporationsHouseholds  
 
  
 
                                                           
4.4. Competitiveness reforms and Investment* 

training)  have  a  strong 

total investment in intangibles grows faster than in 
other  comparable  Member  States  and  accelerated 
further  after 
the  crisis.  Non-national  account 
intangibles  (i.e.  design,  brand,  organisational 
capital, 
impact  on 
productivity growth in the services sector (Bauer et 
al.,  2020).  France  could  leverage  productivity 
gains in this domain, particularly via branding, an 
asset where it is lagging behind compared to other 
leaders in intangible assets investment (see Graph 
4.4.4).  

Graph 4.4.4:  Contribution of intangible capital growth to 

productivity growth (2015), by asset 

the 

last  years  (see  Graph  4.4.5).  In  2016,  this  share 
represented  23%  in  France,  compared  to  14%  in 
Germany,  10%,  8%  and  4%  in 
the  United 
Kingdom, Italy and Spain, respectively. In terms of 
total  turnover,  French  multinationals  are  still 
lagging  behind  Germany,  although  their  foreign 
turnover  has  been  growing  faster  than  in  other 
last  decade, 
large  EU  economies  over 
especially  in  the  aftermath  of  the  crisis.  In  net 
terms,  the  French  multinationals  produce  high 
investment  revenues  accounting  for  1.8%  of  GDP 
in 2018, against 1.9% in Germany, and only 0.8% 
and  0.5%  in  Spain  and  Italy,  respectively.  While 
inward foreign direct investments are important in 
assessing  a  country’s  attractiveness,  this  report 
analyses  the  outward  foreign  direct  investment 
given  that  French  investment  revenues  partly 
compensate for the trade deficit in goods, bringing 
the current account close to balance. 

Graph 4.4.5:  Turnover and employment of multinationals 

abroad, by country of origin (to rest of the 
world) 

Source: European Commission 

Outward foreign direct investment in France is 
also  relatively  higher  than  in  other  large  EU 
economies.  The  stock  of  French  foreign  direct 
investment  abroad  accounted  for  53%  of  GDP  in 
2017, compared to 41% in Germany and Spain and 
27%  in  Italy.  Moreover,  between  2013  and  2017, 
this  stock  increased  significantly  faster  than  in 
neighbouring 
terms  of 
employment,  French  multinational  companies 
employed  more  workers  as  a  share  of  total 
domestic  employment 
in  neighbouring 
countries, and the  gap  has become  wider over the 

countries 

(56). 

than 

In 

from  the  national  accounts  and  outside  the  boundaries  of 
national accounts. 

(56)  FDI increased by 16.3 pps of GDP between 2013 and 2017 
in  France.  This  compares  to  4.9,  5.7  and  11.2  in  Spain, 
Germany and Italy, respectively. 

(1) Data for 2007 is expressed in ISIC rev. 3 classification and 
2015 in ISIC rev. 4. 
Source: OECD-AMNE Outward activity of multinationals 

foreign  direct 

On  sectoral  composition,  a  large  part  of  the 
French 
investment  abroad 
concerns services. In 2016, French multinationals 
made  about  46%  of  their  turnover  in  services  and 
40%  in  manufacturing,  which  is  comparable  to 
Germany  and  Italy  (OECD-AMNE).  The  services 
sectors  involved  are  mostly  wholesale  and  retail 
trade,  finance  and  insurance,  and  information  and 
communication technology services.  

51 

-0.2%-0.1%0.0%0.1%0.2%0.3%0.4%0.5%0.6%ITDEESFRNLUKTrainingOrganisational CapitalBrandDesignMineral exp & artR&DSoftwareAll intangibles050010001500200025000100020003000400050006000700020072015200720152009*2015200720152009*2015FRDEESITUKBillion eurosThousands of personsEmployment (left axis)Turnover (right axis) 
  
                                                                                   
  
4.4. Competitiveness reforms and Investment* 

Box 4.4.5: Investment challenges and reforms 

Section 1. Macroeconomic perspective 

Total investment in France is high, stable and above the euro area average in 2018 (22.9% of GDP compared 
to  20.8%)  (see  Section  4.4.2).  Public  investment  reached  3.4%  of  GDP  and  corporations  and  households 
investment levels are high with 14.0% and 6.0% of GDP respectively. The investment rate of firms increases 
gradually over time to reach above 24% during 2018. Compared to other EU countries France invests more in 
intangible assets notably in software, database  and organisational capital. Investment growth is expected to 
ease down from high levels but remains robust overall following favourable financing conditions. 

Section 2. Assessment of barriers to investment and ongoing reforms 

Barriers to investment are overall moderate in France  

Firms  continue  to  face  a  relatively  heavy  and  complex  regulatory  framework,  and  legislative  instability 
weighs  on  business  perception.  Nevertheless,  several  reforms  are  being  implemented  (e.g.  PACTE  or 
ESSOC  laws)  to  ease  the  administrative  burden  and  foster  firms’  growth.  The  labour  market  and 
unemployment benefit reforms may as well address obstacles to invest (EIB, 2019). Public support for R&D 
is  characterised  by  complexity  and  low  levels  of  efficiency,  which  may  hamper  the  growth  prospects  of 
small  and  young  firms  and  the  development  of  new  research  activities.  Conditions  for  professionals  to 
access some regulated activities and a number of regulations and tariffs are not conducive to investment. 

Selected barriers to investment and priority actions underway 

1. Lack of suitable skilled workforce remains a barrier for investment for 62% of firms in France. This share 
has decreased compared to last year and remains lower than the EU average (72%). The lack of staff with 
the right skills is highly prevalent in the construction sector and affect more SMEs than large enterprises.  
Recent reforms of the vocational education and training system (See Section 4.3) go in the right direction 
and should contribute to a better alignment with labour market needs.  

2. The labour regulations are often cited (albeit in diminution) by investors as an obstacle (EIB, 2019). The 
French Government has already made significant efforts to reforming both the labour market regulations 
and the unemployment benefit system. The former aimed at reducing uncertainty concerning the dismissal 
procedures and associated costs (See Section 4.3). It also aimed at reinforcing the social dialogue between 
employers  and  employees.  The  reform  of  unemployment  benefits  may  have  short-term  impact  on  the 
quality of employment and guidance of the unemployed. Combined with the apprenticeship and vocational 
training reforms, this package of measures will take time to fully materialise and be assessed. 

52 

Regulatory/ administrative burdenCSRTaxationCSRPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&ICSRInsolvency frameworkBusiness services / Regulated professionsCSRCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital Economy / TelecomCSREducation, skills, lifelong learning CSREnergyCSRTransportLegend: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 
4.4. Competitiveness reforms and Investment* 

Box 4.4.6: The Investment Plan for Europe and InvestEU 

The  EU  supports  investment  in  France  also  via  the  European  Fund  for  Strategic  Investments  (EFSI).  By 
December  2019  total  financing  under  the  EFSI  amounted  to  €15  bn,  intended  to  trigger  €77.8  bn  in 
additional investment, making France the biggest recipient country in terms of volume of the Fund (11th in 
percentage  of  GDP).  France  has  managed  to  strongly  mobilise  the  EFSI  for  its  priorities:  innovation, 
ecological transition and digitalisation. 

Some 138 infrastructure and innovation projects were financed by the European Investment Bank (EIB) with 
the support of the EFSI, representing a total funding of around €12.1 bn and is expected to generate €56 bn 
of total investments. As part of the SME financing part of the plan, the European Investment Fund (EIF) has 
developed several tools in France: equipment loans, innovation loans, capital investments in SMEs. The EIF 
has also signed 63 agreements with commercial banks for a total amount of €2.9 bn, which should generate 
approximately €20.5 bn of investments. In total, 239,955 SMEs and mid-size companies that should benefit 
from better access to financing. 

Examples of projects supported by EFSI 

Energy efficiency of buildings: Bordeaux Métropole Énergies 
A  €37.5  mn  loan  supports  Bordeaux  Métropole  Énergies  to  improve  the  insulation  and  modernise  the 
ventilation and heating systems of Bordeaux Métropole's residential and commercial buildings. This is part 
of Bordeaux's ambition to become a positive energy metropolis by 2050. The works financed by the EFSI 
help reduce the energy bill and increase building’s property value. 

Sustainable investment in SMEs: Eiffel Essentiel 
By  guaranteeing  the  European  Investment  Bank’s  €80  mn  investment  in  the  Eiffel  Essentiel  fund,  the 
European Fund for Strategic Investments is helping companies in the clean energy, health, and sustainable 
agriculture  sector  to  access  to  funding  essential  for  their  development.  Eiffel  Essentiel  wishes  to  support 
some 20 SMEs operating in these sectors that need a stable shareholder to deploy their full potential. 

Artificial Intelligence: Prophesee 
A loan of €20 mn supports the growth of Prophesee, a pioneering French company in artificial intelligence, 
specialising  in  the  design  of  neuromorphic  vision  sensors  and  artificial  intelligence  algorithms.  With  this 
loan, the company  will  continue its research  and development on innovative technologies for autonomous 
cars, health and the Internet of things. 

InvestEU - the next EU investment programme for 2021-2027 

The InvestEU programme will build on the successful model of the Investment Plan for Europe and bring 
together,  under  one  roof  the  main  European  investment  tools.  The  policy-driven  model  will  finance  four 
main  areas,  all  relevant  for  France:  (i)  sustainable  infrastructure  (sustainable  energy  and  digital 
connectivity), (ii) research, innovation, and digitisation (research to market and digitisation of industry are 
highly relevant for France), (iii) small businesses, and (iv) social investment and skills. 

Beyond the EIB group, national promotional banks will have direct access to the InvestEU guarantee. At this 
stage, the Caisse des Dépôts and BPI France applied for a  ‘pillar assessment’ (audit to ensure compliance 
with the rules and procedures for managing EU funds) to become implementing (and potentially advisory) 
partners in France. InvestEU will also feature a Member State compartment where Member States may add 
to  the  EU  guarantee’s  provisioning  by  voluntarily  channelling  some  of  their  cohesion  policy  funds.  They 
will benefit from the EU guarantee and its high credit rating, giving national and regional investments more 
firepower.  

53 

 
 
 
4.4. Competitiveness reforms and Investment* 

managed by the Deposit Bank (Caisse des Dépôts) 
and the Investment Public Bank (Banque Publique 
d’Investissement,  BPI France)  (€9  bn).  After  two 
years  of  implementation,  actions  targeting  the 
green  transition  (bonus  to  buy  clean  cars  and 
incentive  for  the  energy  renovation  of  buildings) 
have  exceeded  initial  expectations  and  required 
additional funding (see Section 4.5). The plan also 
fuels actions that could boost productivity such as 
the 
(Plan 
d’Investissement  dans  les  compétences)  and  the 
France  Ultrafast  Broadband  plan  (France  Très 
Haut Débit) (see Digital economy section). Digital 
infrastructure 
investment  would 
contribute  in  achieving  Sustainable  Development 
Goal 9 - Industry, Innovation and Infrastructure. 

and  R&D 

Investment 

Skills 

Plan 

in 

Research, development, and innovation 

it 

French  research  and  development 
(R&D) 
investment  as  share  of  GDP  is  still  below  the 
3%  target  for  2020.  Total  R&D 
intensity 
remained stable in 2018 at 2.20% GDP, above the 
EU average of 2.12%. However it decreased  from 
at  2.25%.  Public 
2015  where 
stood 
R&D spending (57)  for  2017  and  for  2018  (0.73% 
of  GDP)  were  almost  the  same  as  in  2007. 
Business sector R&D spending for 2017 and 2018 
(1.44%  GDP)  were  the  same  as  in  2012.  As 
mentioned in  last  year’s country report (European 
Commission,  2019d),  France  is  not  on  track  to 
meet its R&D intensity target of 3% for 2020. 

Despite the multitude of initiatives to incentivise 
innovation (58),  France  is  still  stagnating  on  a 
global  scale  compared  to  the  most  innovative 
countries.  France 
the  16th  most 
remains 
innovative  country  in  the  world  according  to  the 
World  Intellectual  Property  Organisation’s  Global 
Innovation  Index  and  ranks  11th  in  the  2019 
European Innovation Scoreboard and is positioned 
the  group  of 
innovator  behind 
as  a  strong 
innovation 
(European  Commission, 
2019h).  However,  France  scores  particularly  well 

leaders 

(57)  R&D Expenditure in the Government Sector (GOVERD) + 
Higher  education  expenditure  on  R&D  (HERD)  (as  %  of 
GDP) 

(58)  Among  others,  the  Crédit  Impôt  Recherche,  Programme 
d’investissement  d’avenir,  Sociétés  d’Accélération  de 
Transfert 
de  Recherche 
Technologiques,  Pôles  de  compétitivité,  Agence  nationale 
pour  la  Recherche,  deep  tech  plan,  modifications  of  the 
Allègre 
law,  Fonds  pour 
l’Innovation et l’Industrie, and Innovation Council. 

Technologique, 

the  PACTE 

Instituts 

through 

law 

In  2016,  compared  to  other  EU  countries, 
France  employed  relatively  more  staff  abroad 
compared  to  its  domestic  employment  both  in 
manufacturing  (58%  in  France  against  35%  in 
Germany)  and  services  (21%  in  France  against 
10% in Germany). 

foreign 

composition, 

the  main 
On  geographical 
direct 
destinations 
for  French 
It 
investment  are  high-income  countries. 
includes  Germany,  Spain, 
Italy,  and  North 
America.  While  European  and  OECD  countries 
remain the main destination of French and German 
foreign  direct  investment,  central  and  eastern 
Europe  accounts  for  relatively  less  for  French 
foreign direct investment.  

The  differences  between  France  and  Germany 
in employment and geographical composition of 
foreign direct investment could reflect different 
strategies. A possible explanation is that, contrary 
to  Germany,  which  seems  to  have  delocalised 
intermediate  stages  of  production,  French  firms 
have  chosen  a  multi-site  delocalisation  strategy, 
implying  relatively  less  fragmented  value  chains 
(Buigues  and  Lacoste,  2016).  This  strategy  yields 
and  partly 
significant 
revenues 
substitutes  domestic  production 
(DG  Trésor, 
2019b).  In  particular,  56%  of  French  automobile 
sector turnover is  made abroad. Both  market- and 
factor-seeking relocation strategies have a negative 
impact on the trade deficit (INSEE, 2019e). Other 
factors  may  have  played  a  role:  distance  to 
developing  markets,  cultural 
factors,  relative 
labour endowments, and to a lesser extent national 
differences  in  taxation  (Blonigen  and  Pinger, 
2014). 

investment 

at 

the 

sets 

aims 

down 

addressing 

The  Great  plan  for  investment  (Grand  plan 
d’investissement) 
public 
investments  strategy  for  2018-2022,  focussing 
on  energy  transition,  skills,  innovation,  and 
digitalisation.  The  plan,  with  an  allocation  of 
€57 bn, 
contemporary 
challenges  divided  into  four  main  areas:  (i)  the 
ecological  transition  (€20  bn,  of  which  €9 bn  for 
energy 
(ii) skills 
renovation  of  buildings), 
(€15 bn),  (iii) competitiveness  through  innovation 
(€1 bn),  and  (iv) the  digitalisation  of  public 
the 
services 
historical  Investment  for  the  Future  Programme 
(Programme  d’Investissement  d’Avenir)  (€10bn), 
budget  credits  (€39  bn),  and financial  instruments 

(€9 bn).  Financing  sources  are 

54 

 
                                                           
4.4. Competitiveness reforms and Investment* 

been  increasing  since  2016  and  is  well  above  EU 
average of 15.7 (61)). The number of international 
co-publications  has  steadily  increased  since  2007 
(58.4%  of  total  number  of  publications  in  2018) 
but French scientific publications only rank in 11th 
position  (9.9%  of  scientific  publications  of  the 
country  within  the  top  10%  most  cited  scientific 
publications  worldwide,  below  the  EU  average  of 
10.3% in 2016 (62)). Six years after its creation, the 
Strategic  Research  Council  (Conseil  Stratégique 
de  la  Recherche)  has  yet  to  identify  research 
priorities  as  required  by  its  mandate.  While  the 
National  Institute  of  Research  in  Digital  Sciences 
fully  coordinates  all  actions  in 
the  artificial 
intelligence  sector, 
the  coordination  of  other 
research  actions  and  the  strategic  planning  are 
widely  dispersed.  Following  a  government 
decision,  a  draft  law  on  a  multiannual  research 
programme is planned for 2020 to give visibility to 
laboratories,  boost  research  projects  in  strategic 
areas  and  foster  research  partnerships  (Vidal, 
2019).   

the 

in  France 

The  evaluation  of  tax  incentives  for  research, 
development  and  innovation  delivered  mixed 
results.  The  most  important  R&D  tax  credit 
scheme 
‘Crédit  d’Impôt 
is 
Recherche’.  It  is  one  of  the  most  generous  tax 
credit  scheme  among  OECD  countries  (€5.6  bn, 
0.24%  of  GDP  in  2018).  This  R&D  tax  credit 
alone accounts for about 60% of the total financial 
public  support  to  business  R&D  in  France.  The 
contrast  between  the  large  amount  of  public 
support  and  its  overall  low  impact  has  been 
questioned  by  several  observers  (Salies  2017, 
European  Commission,  2019d).  The  evaluations 
recently published by the National Commission for 
the Evaluation of Innovation Policies (Commission 
Nationale 
Politiques 
d'Innovation)  also  showed  additionality  effects 
around  1  to  boost  private  R&D  spending  but  no 
clear conclusion could be drawn on the impact on 
innovation  (France  Stratégie,  2019c).  Additional 
impact studies, focused on macroeconomic issues, 
are ongoing. Referring to a recommendation of the 
Court  of  Auditors,  the  government  announced  in 
the  2020  budgetary  plan  a  reduction  of  the  R&D 
tax credit contribution to the operating costs linked 
to research from 50% to 43% of staff cost, leading 
to a potential saving of €230 mn per year. 

d’Evaluation 

des 

(61)  Figure for 2018 not available 
(62)  Figures for 2017 and 2018 not available 

on  foreign  doctorate  students,  lifelong  learning, 
venture capital investment and innovators (59).  

The Innovation and Industry Fund (Fonds pour 
l’Innovation  et  l’Industrie)  was  not  operational 
in  2018  due  to  a  complex  funding  mechanism 
(Cour des Comptes, 2019). The Court of Auditors 
recommended  that  the  Government  replace  the 
fund (amounting to €10 bn) with a support package 
for innovation integrated under the State’s budget. 
Overall,  France  would  benefit  from  a  more 
efficient  and  concerted 
strategy 
the  upcoming 
(Chouat  et  al.,  2019)  and 
multiannual research programme law could help in 
this respect. 

innovation 

links  between  public  research  and 
Closer 
businesses  could  be  improved  by  promoting 
entrepreneurship  in  researchers’  careers.  The 
status  of  researchers  in  France  suffers  from  not 
being an attractive career (Berta et al., 2019). Low 
wages  compared 
to  other  OECD  countries, 
precarious  contracts  and  complex  administrative 
procedures  are  impeding  factors (60).  The  poor 
results  of  Technology  Transfer  Acceleration 
Offices  (Sociétés  d’Accéleration  de  Transfert  de 
Technologies) led the Court of Auditors to request 
the closure of the underperforming ones (Cour des 
Comptes,  2018b).  The  Action  Plan  for  Business 
Growth  and  Transformation  (Loi  relative  à  la 
croissance  et  la  transformation  des  entreprises, 
PACTE 
improve 
included  measures 
researchers’  mobility  between  the  public  and 
private sectors, to simplify access by private firms 
to  public  research  results  and  to  reinforce  the  use 
of the industrial property protection. It is however 
too early to assess their impact. 

law) 

to 

Despite  the  highest  number  of  graduates  in 
science and engineering in Europe and the good 
quality  of  its  researchers,  France  struggles  to 
increase  the  efficiency  of  its  public  research 
system. France tops the ranking in the EU for new 
graduates  in  science  and  engineering  (in  2017, 
22.2‰  of  the  population  aged  25-34,  which  has 

(59)  The  indicator  ‘innovators’  include:  SMEs  product/process 
innovations,  SMEs  marketing/organisational  innovations  
and  SMEs  innovating  in-house  (European  Commission, 
2019h) 

(60)  A  researcher  with  7  years  of  experience  earns  €2,200  per 
month in France. In the UK, the average salary of a senior 
lecturer  and  researcher  (function  accessible  7  years  after 
obtaining a Ph.D.) is €4,200, while in  Japan, post doctoral 
fellows earn on average €3,000 (Chouat, F. et al, 2019) 

55 

                                                           
                                                           
Digital economy 

Digital  connectivity  is  significantly  improving 
though  remaining  low  in  rural  areas.  French 
households  are  almost  fully  covered  by  fixed 
broadband  (almost  100%  coverage,  above  the  EU 
average  of  97%).  The  situation  concerning  higher 
performance networks is also improving with 36% 
of  French  households  making  use  of 
fast 
broadband,  however  below  the  EU  average  of 
41%.  The  coverage  of  ultrafast  broadband 
technologies  in  rural  areas  stands  at  10%  of 
households,  which  is  five  times  lower  than  in 
urban  areas.  A  very  significant  share  of  overall 
next  generation  access  lines  are  ultrafast,  and 
progress  year-on-year  is  substantial  (growth  rate 
>15%),  while  ultrafast  subscriptions  have  almost 
doubled  in  two  years.  Yet,  the  access  to  ultrafast 
broadband in rural areas is low and well below the 
EU average.  As for 5G, France has made progress 
both  on  the  creation  of  trial  platforms  and  on  the 
regulatory side. Further steps, such as the spectrum 
award procedure, are planned for 2020. 

is 

implementing 

the  Ultrafast 
France 
Broadband  plan  (France  Très  Haut  Débit)  to 
cover  the  national  territory  with  very-high 
speed broadband. It aims to speed up the roll-out 
of  fibre  network  and  connect  all  households  with 
30Mbps (and above) by 2022. The plan started in 
2013  and  an  estimated  €20 bn  in  total  will  be 
invested  (of  which  €3.3 bn  of  public  investments 
to  compensate  for  the  lack  of  private  initiative  in 
some  parts  of  the  country).  According  to  the 
National  Agency  in  charge  of  digital  (Agence 
Nationale  de 
la  Cohésion  des  Territoires) 
supervising  the  execution,  the  plan  is  on  track  in 
spite of some difficulties to find qualified workers. 

improving, 

Some challenges remain companies’ integrating 
digital  technologies.  Despite 
the 
percentage  of  companies  having  high  levels  of 
digital  intensity  in  France  (24%)  remains  below 
the EU average (26%). E-commerce uptake levels 
by  French  enterprises  are  still  below  the  EU 
average  (16%  vs  18%)  and  vary  significantly 
according to company size: only 15% of SMEs sell 
online compared to nearly 45% of large companies 
(European  Commission, 2020c).  The 
initiative 
‘France Num’ is being implemented to tackle this 
challenge. 

4.4. Competitiveness reforms and Investment* 

The  lack  of  information  and  communication 
technologies  (ICT)  specialists  may  constitute 
one  of  the  barriers  for  integrating  digital 
technologies  in  companies,  which  may  hamper 
productivity  growth.  The  share  of  companies 
employing  ICT  specialists  is  lower  in  France 
(17.4%) compared to the EU average (20.3%). ICT 
specialists are among the most in demand and the 
sector predicts major difficulties in recruiting these 
specialists (See Section 4.3).   

Implementation  of  the  artificial  intelligence 
strategy  is  ongoing.  At  the  end  of  2018,  the 
Interdisciplinary Institutes of Artificial Intelligence 
(3IA)  initiative  was  launched  to  train  and  attract 
artificial  intelligence  talents  and  to  develop  a 
network  of  centres  of  academic  excellence  in 
artificial  intelligence  and  dedicated  funding  for 
hiring  professors  and  support  Ph.Ds.    France  has 
also  recently  acquired  a  new  super-computer, 
which  has  the  ambition  to  become  one  of  the 
fastest in the world. France is part of the European 
High  Performance  Computing  Joint  Undertaking. 
France  cybersecurity  strategy  dates  back  to  2015, 
but  continues  working  in  promoting  the  central 
role of the EU for cybersecurity. 

launched  the 

In early 2019, the Investment Public Bank (BPI 
landmark  ‘deeptech 
France) 
generation  plan’  (Plan  Génération  Deeptech). 
With €1.3 bn in funding over 5 years (2019-2023) 
the  plan  will  support  disruptive innovation.  In 
addition,  €800 mn  (from  the  Investment  for  the 
Future Programme and the Innovation and industry 
Fund)  will  support  the  creation  of  start-ups  and 
€550 mn  over 
the 
Technology  Transfer  Acceleration  Offices 
(Sociétés  d’Accélération  du  Transfert  des 
Technologies)  and  the  creation  of  incubators  and 
accelerators  in  the  territories.  BPI France  will 
contribute to funding the ecosystem and launching 
(Banque  Publique  d'Investissement, 
projects 
2019). 

five  years  will  support 

Digital  public  services  are  being  rolled-out. 
Alongside the development of the digital platform 
FranceConnect, artificial intelligence solutions are 
being  explored  to  improve  public  employment 
services, increase tax control efficiency and create 
an  online  labour  law  repository.  In  addition,  the 
digitisation  of  health  services  has  become  a 
cornerstone 
the  government’s  strategy  for 
transforming the health system and making it more 

in 

56 

4.4. Competitiveness reforms and Investment* 

National  Productivity  Board  also  highlighted  the 
high level of product market regulations as one of 
the  factors  behind  the  slowdown  in  productivity 
through  the  impact  of  a  lower  competition  on 
innovation 
(see  Section  4.4.1).  Redesigning 
requirements  on  the  access  to  and  exercise  of 
professions  to  stimulate  innovation,  competition 
and  mobility  would  have  a  positive  economic 
impact.  

Graph 4.4.6:  Business churn rates (%) of active companies 

in selected business services sectors for 
France and the EU 

Source: Eurostat 2017 

In  March  2019,  measures  were  announced  to 
increase  competition  and  moderate  prices  in 
specific  sectors.  Some  measures  were  related  to 
automotive  spare  parts  sales  and  driving  schools 
(both adopted in November 2019 through the ‘Loi 
d’Orientation des Mobilités’). The measures of the 
French  rail  reform  (Loi  pour  un  nouveau  pacte 
ferroviaire)  adopted  in  2018,  aiming  at  opening 
competition  in  the  regional  passenger  transport, 
entered into force at the end of 2019. 

to 

levels.  According 

The  French  retail  sector  also  shows  high 
restrictiveness 
the 
Commission’s  Retail  Restrictiveness  Indicator 
(European  Commission,  2018d),  France  is  the 
most 
regarding 
operational  restrictions.  Also,  the  2018  OECD 
Product  Market  Regulation  sector  indicator  for 
retail ranked France among the most restrictive EU 
members of the OECD.  

restrictive  Member  State 

efficient  while  preserving  its  accessibility  for 
all. About  12%  of  the  population  used  e-health 
services  such  as  online  consultations  in  2017, 
compared to an EU average of 18%.  

4.4.3.  COMPETITION AND SINGLE MARKET 

INTEGRATION* 

taken 

to  ease 

initiatives 

France  has 
the 
regulatory  framework  for  services.  The  law  for 
growth, activity and equality of economic chances 
(Loi  pour  la  croissance,  l'activité  et  l'égalité  des 
chances  économiques)  adopted 
in  2015  and 
implemented  in  2016  has  eased  some  restrictions 
for  legal  professions  and  architects.  The  law  has 
given  new  powers  to  the  competition  authority, 
allowing  significant  progress  in  the  regulation  of 
the professions. 

However,  the  level  of  regulatory  restrictions 
remains  high  in  services.  The  OECD’s  2018 
economy-wide product market regulation indicator 
(OECD,  2019e)  places  France  as  the  6th  most 
restrictive  country out of 34 advanced economies. 
France  stands  above  the  OECD  average  for 
accountants,  lawyers  and  architects.  These  results 
are  broadly  in  line  with  the  Commission’s  2016 
restrictiveness  indicator  (European  Commission, 
2016).  Regulatory  restrictions  of  professions,  in 
particular 
forms, 
multidisciplinary  activities,  voting  requirements, 
shareholding requirements, reserved activities, and 
advertising  restrictions  (e.g.  pharmacists,  medical 
biologists)  may  limit  access  of  professionals  and 
firms  to  capital,  reduce  economies  of  scale  and 
scope, and restrict competition.  

limitations 

legal 

of 

These  restrictions  have  a  negative  impact  on 
business  dynamism,  competitiveness  and  the 
supply of professional services at the expense of 
the final user. For accounting, legal, architectural, 
real  estate  and  travel  agencies  activities,  business 
churn rates are lower in France than in the EU (see 
low 
Graph  4.4.6). 
It  suggests  a 
regulated 
dynamism  and  competition  within 
professional  services.  By  contrast,  a  higher  churn 
rate  can  be  observed  in  the  engineering  sector, 
which  is  not  considered  a  regulated  profession  in 
simplification  of  business 
France.  Further 
regulations 
regulated 
and  opening  up  of 
professions  could  boost  productivity  growth  and 
increase  GDP  per  capita  (OECD,  2019a).  The 

relatively 

57 

0.02.04.06.08.010.012.014.016.018.020.0AccountingEngineeringLegalArchitecturalReal estateTravel agenciesBusiness churn (%)FREU  
4.4. Competitiveness reforms and Investment* 

4.4.4.  BUSINESS AND REGULATORY 

ENVIRONMENT* 

is 

improving, 
The  business  environment 
including for SMEs. Several composite indicators 
of  business  environment  show  that  France  is 
improving.  The  2019  Global  Competitiveness 
Index,  ranks  France  15th  out  of  141  countries  (+2 
from  2018)  (World  Economic  Forum,  2019). 
France’s score remained stable in the 2019 World 
Bank’s Ease of Doing Business index (still ranked 
32nd).  However,  Ernst&Young’s  attractiveness 
survey  showed  promising  results  in  2019,  with 
France  remaining  the  number  one  destination  for 
foreign  investment  in  Europe  for  manufacturing 
(EY,  2020).  For  SMEs,  the  quality  of  business 
environment is at the EU average. France’s Small 
Business Act profile is mostly aligned with the EU 
average  on  all  aspects  except  the  single  market 
and,  to  a  lesser  extent,  internationalisation,  where 
its  performance  is  lower  than  the  EU  average 
(European Commission, 2019i). Many of the Small 
Business Act dimensions have been on an upward 
trend, highlighting the country’s progress.  

Business  creation  is  dynamic,  but  businesses 
have difficulties  scaling  up.  Nearly 700,000 new 
businesses were set up in 2018 (+17% compared to 
2017). While very small enterprises are numerous, 
the share of large SMEs (50-250 workers) or mid-
sized  companies  (250-5000  workers)  is  lower  in 
France than in Germany or the UK (63).  

The  French  tech  start-up  ecosystem  attracts 
record  investments.  In  2018,  French  tech  start-
ups  raised  significant  funding  totalling  €3.6 bn, 
then  in  the  first  semester  of  2019  only,  funding 
reached €2.4 bn, possibly leading to a record year 
with  nearly  €5  bn  projected  (CB  insights,  2019). 
According  to  the  French  authorities,  institutional 
investors  committed  to  invest  €2  bn  in  venture 
capital  to  boost  scaling-up  of  fast  growing  firms 
and €3 bn in financial market assets to support the 
entire  French 
sector.  Among 
technological 
numerous  initiatives,  French  Tech  (64)  plays  a 
major role in building an ecosystem for start-ups to 
scale-up. 

(63)  Figures provided by the Direction générale des entreprises, 

Ministry of Economy, France. 

(64)  France's  start-up  ecosystem  supported by  the  French  Tech 

Mission, a government-led taskforce  

laws.  The  ELAN 

The  retail  regulatory  environment  has  become 
more  restrictive  following  the  adoption  of 
recent 
law  (Evolution  du 
logement,  de  l'aménagement  et  du  numérique) 
introduced  restrictions  on  opening  large  retail 
shops in France. On the other hand, the ELAN law 
has  facilitated  the  establishment  of  commercial 
establishments  below  2,500m2  by  granting 
exemptions from the authorisation obligation.  The 
EGalim  law  on  the  food  sector  limited  retailers’ 
freedom  to  offer  food  promotions  and  raised  to 
threshold.  The  French 
10% 
reservations 
Competition  Authority  expressed 
regarding 
law 
(Autorité  de  la  Concurrence,  2018).  In  addition, 
the  PACTE 
the  business 
environment,  restricted  the  period  of  sales.  The 
cumulative effect of these measures might hamper 
market access and retail activities, which could be 
detrimental  to  retailers  and  affect  other  economic 
operators.  The  complexity  of  many  of  these 
measures might also create legal uncertainty. 

the  suitability  of 

the  sale-at-loss 

the  EGalim 

reforming 

law, 

France’s  overall  enforcement  of  EU  single 
is  declining.  The  number  of 
market  rules 
infringement  cases  has  been  increasing  together 
with  its  overall  compliance  deficit.  However, 
improvements have been  made  in reducing delays 
in  turning  EU  directives  into  national  law.  The 
decline 
legal 
uncertainty  for  economic  operators,  reduce  their 
incentives 
the 
competitiveness of the Member States’ economies.  

in  enforcement  may 

undermine 

increase 

invest 

and 

to 

Despite  several  decades  of  liberalisation,  the 
market  concentration  in  the  electricity  sector 
remains  high  both  on  the  production  and  the 
supply  sides.  The  wholesale  market  liquidity  is 
quite low, as  most of the incumbent production is 
sold either through a regulated mechanism (access 
to nuclear-produced electricity) or directly from its 
supply  subsidiary.  France  could  benefit  from 
reforming the electricity  sector, while  limiting  the 
risk  of  price  rises  for 
the  most  vulnerable 
consumers.  Reforms  in  the  sector  would  lead  to 
progress  on  Sustainable  Development  Goal  7  – 
Affordable  and  clean  energy.  In  addition,  further 
support 
interconnectors  under 
development with Spain, will contribute to greater 
integration of the internal EU energy market, while 
introducing  more  competition  and  facilitating  the 
deployment of renewable energy 

for  electricity 

58 

                                                           
4.4. Competitiveness reforms and Investment* 

Box 4.4.7: Impact of business environment reforms 

Business environment reforms in France have important domestic and cross-border effects. 
The  objective  of  the  PACTE law  (‘Plan  d’Action  pour  la Croissance  et  la  Transformation  des 
Entreprises’) adopted in May 2019 is to remove  obstacles  to firms’  growth, creating economic 
effects through different channels, including higher productivity, lower labour and capital costs, 
and better allocation of production factors. This box illustrates the potential domestic and cross-
border effects from the implementation of three specific measures of the PACTE law. 

fewer 

(employers’  contributions) 

There  are  several  measures  analysed  in  this  box.  These  include  (i)  the  reform  of  firm  size 
threshold, (ii) the elimination of the forfait 
for 
social 
companies  with 
250 
employees,  and  (iii)  the  insolvency  law 
reform.  In  line  with  previous  quantitative 
estimates  (1),  measure  (i)  reduces  the 
labour  costs  for  employers,  measure  (ii) 
increases  the  net  disposable  income  of 
workers,  and  measures  (ii)  and  (iii) 
increase  the  long-term  productivity.  In 
total,  the  PACTE  law  as  implemented  in 
the  scenario  entails  a  labour  cost  and 
labour tax reduction by 1.3% of GDP, plus 
a gradually materialising productivity gain 
by 0.8%. 

than 

Simulations  with  the  QUEST  model  (2)  indicate  that  these  three  measures  generate  a 
positive response of GDP and lead to positive economic effects to the rest of the euro area. 
French  real  GDP  in  levels  raises  by  around  0.4%  after  5  years  and  by  0.7%  after  10  years 
compared to the no-reform baseline. GDP effects are strongly frontloaded, given that the labour 
cost and labour tax reductions are assumed to fully materialise already on impact. This translates 
into  an  increase  of  real  GDP  in  the  rest  of  the  euro  area  by  0.1,  i.e.  around  one  quarter  of  the 
impact in France, and weaken relative to the impact in France over the medium term. Assuming 
that the euro area continues to operate at the zero bound on interest rates at least in the shorter 
term  (2  years)  strengthens  positive  spill  over  to  the  rest  of  the  euro  area.  This  comes  from  the 
idea that higher demand in France in response to higher disposable income (labour tax reduction) 
is  not  met  by  monetary  tightening,  which  would  otherwise  dampen  domestic  demand  in  other 
euro area countries.  

(1)  The scenario is in line with the DG Tresor study (Trésor-Eco. n226 – Quel effet macroéconomique du PACTE?).  
(2)  Detailed 
available 

at 
http://ec.europa.eu/economy_finance/research/macroeconomic_models_en.htm.  In  this  simulation,  monetary  policy 
rates in the euro area are assumed to remain at the zero bound for the first two years. 

QUEST  model 

applications 

information 

and 

the 

are 

on 

its 

However,  high  growth  enterprises  are  still 
relatively  few,  except  in  Ile-de  France.  France 
shows  a  poor  demography  for  high  growth 
enterprises (65). France lags behind the EU average 

(65)  Firms  of  any  sector  with  at  least  10  employees  in  the 
beginning  of  their  growth  and  having  average  annualised 
growth  in  number  of  employees  greater  than  10%  per 
annum, over a three-year period 

for  the  number  share  (8.6%)  and  employment 
share  (4.2%)  and  these  firms  are  also  smaller  on 
average  (71 employees)  (Flachenecker  et  al., 
2020).  Entrepreneurial  skills  and  venture  capital 
seed investment seem to be the weaknesses of the 
French  ecosystem  of  high  growth  enterprises 
compared to the EU. Regional disparities are very 
pronounced:  Ile-de-France  concentrates  around 

59 

0.000.020.040.060.080.100.120.00.10.20.30.40.50.60.70.812345678910Source: European CommissionGraph 1: Yearly impact of the reform scenarios in France and the Euro AreaImpact on GDP FR (left axis)Impact on GDP rest of EA (right axis)%% 
 
 
 
 
 
                                                           
4.4. Competitiveness reforms and Investment* 

foreign  markets  stayed  low  at  125,283  in  2018 
(132,000  in  2000,  360,000  in  Germany  and 
240,000  in  Italy  in  2018).  The  recent  reform  of 
public support to business internationalisation aims 
at providing better regional support for businesses 
and  boosting  the  number  of  exporting  companies 
to  200,000  by  2022.  The  creation  in  2018  of  a 
single helpdesk (Team France Export, operational 
since  summer  2019)  has  led  to  a  new  offer  of 
single  contact  point  for  support  to  exports  at 
regional level (guichet unique de l’exportation). 

To  foster  the  growth  potential,  competitiveness 
and  sustainability  of 
its  productive  firms, 
France  announced  a  ‘pact  for  a  productive 
economy’  (Pacte  productif).  The  measures  will 
to  decarbonisation,  skills,  breakthrough 
relate 
technology, 
the 
reduction of taxes on production (see Section 4.1) 
and 
the 
development  of  new  industrial  sites.  In  addition, 
industrial  SMEs  are  benefitting  from  an  extra 
depreciation scheme for their investments made for 
digitalisation and robotisation in 2019 and 2020.  

competitiveness, 

administrative 

simplification 

including 

for 

30%  of  French  high  growth  enterprises  (see 
Section 4.4.5).  

firm’s 

support 

growth,  France 

is 
To 
implementing  the  ‘Action  Plan  for  Business 
Growth  and  Transformation’  (PACTE).  Under 
this  law,  a  number  of  obligations  have  been 
removed in order to facilitate businesses’ creation 
and growth. In particular, the number of regulatory 
size-related  thresholds,  that  may  have  impeded 
firms to grow in the past, has been reduced and a 
five-year transitional period has been introduced to 
give  firms  time  to  adjust  when  they  cross  the 
thresholds.  While  most  of  the  measures  entered 
the  measures  regarding 
into  force 
in  2019, 
regulatory  size-related 
thresholds  entered  into 
force on 1 January 2020. Among other provisions 
targeting  business  creation  and  growth,  it  will  be 
possible  to  set  up  companies  online  through  a 
single  platform  as  of  2021  and  a  digital  general 
registry  should  be  put  in  place  in  2022.  By 
December  2019,  73%  of  the  measures  were  in 
force.  Box  4.4.3  shows  the  positive  potential 
economic  domestic  and  cross-border  effects  from 
the  implementation  of  three  specific  measures  of 
this law. 

between 

businesses 

France  pursues 
to  reduce  the 
its  efforts 
administrative burden for businesses. In parallel 
to reducing the regulations, the government aims at 
transforming public action and better measuring its 
impact  (Circulars  of  18  February,  5  June  and 
3 October 2019). Nearly all the implementing acts 
of  the  ESSOC  law  (Etat  au  service  d’une  société 
de  confiance),  which  aims  at  improving  the 
relationship 
and 
administration,  are  in  force.  In  spite  of  those 
the  2019  administrative 
to 
efforts,  according 
complexity  barometer 
the  French 
issued  by 
Directorate  for  public  transformation,  the  level  of 
complexity  perceived  by  businesses  has  slightly 
increased  from  35%  in  2017  to  38%  in  2019. 
However,  the  three  procedures  which  were  found 
as  particularly  complex 
in  2017  are  now 
considered  as  less  complex,  namely,  bidding  for 
and  executing  a  public  procurement  contract, 
complying  with  environmental  regulations,  and 
applying  for  a  building  consent.  Despite  this, 
according to the survey’s respondents, the level of 
complexity for setting up a business has increased.  

French companies’ internationalisation remains 
weak. The total number of companies exporting to 

4.4.5.  REGIONAL DISPARITIES 

The  capital  region  of  Ile-de-France stands  out 
by 
its  economic  performance.  Ile-de-France 
stands  at  177%  of  the  EU  average  for  GDP  per 
head,  while  the  second  region  Rhône-Alpes  is  at 
104% (66).  The  same  pattern  is  found  for  labour 
productivity where Ile-de-France is at 155% of EU 
average  and  the  second  region  is  again  Rhône-
Alpes  with  111%.  On  average,  productivity  has 
increased  slightly  faster  in  the  most  productive 
regions,  thereby  fuelling  internal  divergence.  In 
term of competitiveness (see  Graph  4.4.7), Ile-de-
France is the region with the highest regional index 
(91).  About  30%  of  the  French  high  growth 
enterprises are found in this region, corresponding 
to a share of 11% of total regional firms, similar to 
EU average. This share is below the EU average in 
all  other  French  regions  (Flachenecker  et  al., 
2020).  Venture  capital  is  also  concentrated  in  the 

(66)  Some analyses of this section refer to the French regions as 
they  existed before the 2015 administrative reorganization 
of  regions  (Law  No.  2015-991  of  August  7,  2015  on  the 
new territorial organisation of the Republic). This is due to 
the  partial  availability  of  statistics  relating  to  all  French 
regions,  in  particular  the  outermost  regions  for  which  the 
statistics were not systematically updated since 2015. 

60 

                                                           
4.4. Competitiveness reforms and Investment* 

region Ile-de-France (around 70% of total venture 
capital invested). In  term of education, the capital 
region  is  also  leading  in  the  share  of  population 
with  tertiary  education  (50%),  against  27%  in 
Haute-Normandie,  for  instance.  The  economic 
attractiveness  of  the  capital  region  enhances  risks 
of an increasing divergence relatively to the rest of 
territory.  Measures  aiming  at 
the  national 
decreasing  inequalities  between  regions  may  lead 
to achieve SDG 10 - Reduced inequalities. 

than  3%  of  its  regional  GDP  in  R&D  (4.75%  in 
2016)  and  only  seven  metropolitan 
regions 
exceed 2%. 

Graph 4.4.7:  Regional competitiveness index 

Outside the capital region, disparities also occur 
Ile-de-France 
between  metropolitan  regions. 
excluded,  GDP  per  head  varies  between  104% 
(Rhône-Alpes) and 75% (Picardie and Lorraine) of 
the EU average. GDP per head growth also varies 
across  regions,  where  it  is  even  negative  in 
Champagne-Ardennes  (contraction  of  0.5%  per 
year  between  2010  and  2017).  Out  of  the  27 
French NUTS2 regions, only nine have their GDP 
per  head  growing  faster  than  the  EU  average.  It 
implies 
the  regions,  both 
third  of 
metropolitan and outermost are drifting away from 
the EU average. 

two 

that 

in 

the 

To  a  large  extent,  disparities  in  terms  of  GDP 
per  head  are  linked  to  the  regional  differences 
observed 
labour  market.  The 
unemployment  rate  varies  across  regions,  with 
Nord-Pas  de  Calais  and  Languedoc-Roussillon  at 
11.8%  and  11.4%,  respectively.  The  share  of  the 
long-term unemployed amongst the unemployed is 
in 
sizeable 
metropolitan  France  such  as  Nord-Pas  de  Calais 
(49.9%) and Lorraine (48.2%). This northeast part 
of  the  country  is  characterised  by  significant 
net 
fragilities 
level  of 
migration,  access 
education/qualification and income. 

as 
to  employment, 

industrial  heartlands 

deindustrialisation, 

former 

such 

in 

Disparities  between  regions  are  also  found  in 
terms of competitiveness and investment. Midi-
Pyrénées,  the  French  region  that  invests  the  most 
in  innovation,  Rhône-Alpes,  and  Alsace  show 
good  competitiveness  (see  Graph  4.4.7).  At  the 
other end of the spectrum, Champagne-Ardenne is 
in  the  group  of  the  40%  less  competitive  EU 
regions  while  Corse  is  in  the  bottom  30%. 
Surprisingly,  several  metropolitan  regions  stand 
below  the  EU  average  and  are  still  in  industrial 
transition or rural areas. Major differences between 
regions  can  also  be  noted  in  R&D  investment. 
Only  one  region  (Midi-Pyrénées)  invests  more 

Source: European Commission 

their 

Government  at  local  level  plays  an  important 
role  in  public  investment  and  growth-friendly 
spending (67).  However, 
importance  has 
slightly  decreased  in  recent  years.  In  2007,  local 
governments  carried  out  around  two  thirds  of 
public  investment  but  the  share  decreased  to 63% 
in  2018.  As  for  growth  friendly  public  spending, 
the  share  of  different  levels  of  local  government 
was  more  than  40%  of  the  total  in  2007,  while  it 
was 35% in 2017. 

The  French  regions  show  major  disparities  in 
greenhouse gas emissions and the production of 
renewable  energy  (68)  (see  Graph  4.4.8).  These 
can  be  partially  explained  by  the  presence  of  a 
large city in the region (Paris, Lyon, Marseille)  or 
significant  industrial  activities  (Northeast).  In  the 
new French region Auvergne-Rhône-Alpes, which 
produces the  largest quantity  of renewable energy 
(more  than  28,000  GWh),  the  production  of 
renewable energy represents  between 20 and 40% 
of the regional consumption while standing below 
5% for Ile-de-France. 

(67)  Growth  friendly  public  spending  are  calculated  based  on 
the  classification  of  the  functions  of  government.  Public 
spending  categories  considered  to  be  growth-friendly  are 
economic  affairs  (including  R&D  in  the  field),  education, 
health and environment protection. 
(68)  Without hydroelectric and tidal power 

61 

 
                                                           
4.4. Competitiveness reforms and Investment* 

regions  is  shorter  than  in  metropolitan  France, 
particularly  for  women  in  Mayotte  (76  years  in 
2018),  but  also  in  Guyane  (83.3  years)  and  in 
Martinique  (84.7  years)  while  overall  it  is  85.3 
years for French women. The infant mortality rate 
between 2015 and 2017 was 9.15‰ in Guyane and 
7.26 ‰  in  Martinique,  as  compared  to  3.7 ‰  in 
in  outermost 
metropolitan  France.  Healthcare 
regions,  which  at  times  is  understaffed,  is  mainly 
concentrated on hospitals, mirroring weak primary 
care structures. Together  with shortages in certain 
specialised  medical  professions,  it  generates  long 
waiting times, weakens access to care, and requires 
costly  evacuations  to  metropolitan  France  for  the 
most severe cases. Several reports, including from 
the parliament, point to the lack of data and a need 
for evaluation to better adapt health policies to the 
specific challenges of overseas territories.  

The  outermost  regions  present  some  potential 
for  economic  development  in  certain  sectors. 
This is particularly the case in the growing tourism 
industry, which represents on average 10% of their 
GDP but also in the blue and green economy. For 
instance, Guyane produces 40% of its consumption 
from  renewable  energy,  the  highest  share  in 
France. 

Graph 4.4.8:  Greenhouse gas emissions per NUTS2 regions 

Source: Service de l'Observation et des Statistiques (2013) 

The  outermost  regions  exhibit  particular 
vulnerabilities 
in  terms  of  education  and 
employment. Outermost regions stand on the low 
side  of  the  spectrum  of  GDP  per  head  and 
productivity among French regions. GDP per head 
in  Guyane  has  decreased  from  52%  of  the 
European  average  in  2010  to  49%  in  2017,  but  it 
increased  in  Mayotte  at  the  fast  pace  of  4.9%  per 
year  over  the  same  period,  reaching  only  34%  of 
the  European  average.  Unemployment  is  also 
higher than in mainland France, at more than 20% 
in  Guadeloupe  and  La  Réunion,  and  peaking  at 
35%  in  Mayotte.  Young  people  are  particularly 
affected (42% in La Réunion and 32% in Guyane) 
and  continue  to  face  difficult  conditions.  Early 
school leaving rate  is at 21.3% in 2018 (8.9% for 
the  French  average),  the  ‘not  in  employment, 
education  or  training’  (NEET)  rate  is  at  26% 
(11.1%  for  the  French  average),  and  the  share  of 
young  people 
low  or  no 
(30-34)  having 
qualifications  is  at  27.9%  (against  13.3%  for  the 
French average). The remoteness and insularity of 
these  regions  limit  mobility  as  a  way  to  improve 
labour 
Long-term 
unemployment (≥1 year) represented a large share 
of unemployment in 2018 (with peaks of 81.8% in 
Mayotte,  71.3%  in  Guadeloupe  and  61.2%  in  La 
Réunion). 

prospects. 

market 

Healthcare  is  also  a  challenge  in  the  outermost 
regions. Life expectancy in most of the outermost 

62 

 
 
4.5.  ENVIRONMENTAL SUSTAINABILITY 

greenhouse  gas  emissions  (see  Table  4.5.1). 
Decarbonising these sectors requires households to 
be  fully  involved.  In  this  regard,  France  was 
among the first in the EU to adopt a trajectory for 
the gradual increase in carbon tax. 

Graph 4.5.1:  Targets and emissions under the effort sharing 
legislation (% change from 2005) 

(i.e. 

commitments 

France is committed to fight climate change and 
address  sustainability  matters.  In  parallel  to 
the  2015  Paris 
global 
internal 
Agreement),  France  has  developed 
bring 
structures 
governance 
external 
to 
legislation.  The 
commitments 
into  domestic 
National  Low  Carbon  Strategy 
(Stratégie 
Nationale  Bas  Carbone,  SNBC),  France’s 
roadmap  for  reducing  its  emissions,  and  the 
Multiannual  Energy  Planning  (Programmation 
pluriannuelle  de  l’énergie,  PPE),  setting  action 
priorities  in  the  energy  field  for  the  decade  to 
come,  are  the  main  tools  for  steering  the  French 
energy  policy.  The  draft 
integrated  National 
Energy and Climate Plan (NECP)69 builds on both 
documents,  still  at 
the  stage  of  government 
proposals  to  be  adopted  by  the  Parliament  at  the 
time of  submission. The  guiding objectives of the 
draft  NECP  are  to  decarbonise  the  energy  system 
and to achieve carbon neutrality by 2050. 

However,  France’s  ambitious  commitments  to 
reach carbon neutrality by 2050 require  a leap 
forward.  Measures  that  need  to  be  taken  to 
achieve the ambitious objectives imply costs which 
do  not  equally  affect  all  groups  in  society.  If  not 
adequately  anticipated  and  addressed, 
such 
inequalities  may  fuel  social  discontent,  as  it  has 
been the case with the ‘Gilets jaunes’ protests. For 
this reason, the implementation of the low carbon 
strategy  has  to  be  designed  carefully  to  ensure 
economic  efficiency  and  take  into  account  social 
fairness. 

Table 4.5.1: 

Total greenhouse gas emissions per capita (*), 
tons of CO2 equivalent 

(*) Excludes land use, land-use change and forestry. 
Source: National inventory submissions 2019 to the United 
Nations Framework Convention on Climate Change 
Source:  

The  required  transformative  policies  involve 
lasting behavioural change of the population at 
large. In France, the combined transport, building 
and  agriculture  sectors  account  for  64%  of 

69   The  Commission  will  assess,  in  the  course  of  2020,  the 
final National Energy and Climate Plan. France has not yet 
submitted its final Plan.  

Source: European Commission 

France  is  taking  additional  steps  to  improve 
transparency  in  terms  of  the  environmental 
impact  of  its  policies.  In  particular,  the  2020 
budgetary  law  has  brought  additional  information 
and  transparency  regarding  the  incidence  of  taxes 
and subsidies on France’s environmental footprint 
(green budgeting), placing the country as a leader 
in  the  area,  in  line  with  other  top  EU  Member 
States and international initiatives. 

Sustainability targets: current situation 

France is on track to reach its 2020 greenhouse 
gas emissions target; however, a change of scale 
is  necessary  to  achieve  the  renewable  energy 
and energy efficiency targets. France is on track 
to reach its 2020 greenhouse gas emissions targets 
(-14%  compared  to  1990).  However,  without 
additional  measures  to  fill  the  gaps,  there  is  a 
major risk to miss the renewable energy (16.3% in 
2017  for  an  intermediary  target  of  18.6%)  and 

63 

TotalEnergy IndustriesManufacturing & constructionTransportResidential / TertiaryAgricultureOther sourcesIT7.051.730.841.641.370.510.96FR7.260.770.852.101.351.181.02ES7.291.740.931.900.860.851.01DE10.973.791.642.031.670.801.03Source: National investory submissions 2019 to the United Nations Framework Convention on Climate Change-14%-11%-14%-37%-13%-24%-42%-50%-40%-30%-20%-10%0%201820202030Emissions (preliminary data)TargetProjection with existing measuresProjection with additional measures 
 
  
 
                                                           
  
4.5. Environmental sustainability 

energy efficiency targets (70). The French national 
contribution for renewable energy proposed in the 
draft  NECP 
is  32%  of  gross  final  energy 
consumption  in  2030.  This  is  slightly  below  the 
share  of  33%  that  results  from  the  formula  in 
Annex II of the Governance Regulation, a situation 
which  would  also  require  an  indicative  trajectory 
in the final plan that reaches all reference points in 
accordance  with  the  national  contribution  in  the 
final plan. 

Without  additional  measures,  France  risks 
missing its 2030 emission targets, mainly due to 
transport,  building  and  agriculture  sectors. 
Greenhouse  gas  emissions  have  decreased  by  103 
Mte  CO2  between  1990  and  2018,  but  France  is 
still above the trajectory set by the SNBC to reach 
-40%  by  2030.  It  was  revised  in  February  2018 
confirming  that  emissions  have  not  sufficiently 
decreased between 2015 and 2018 to comply with 
the  1st  carbon  budget  (i.e.  the  upper  limit  of  the 
total greenhouse gases emissions in a given period) 
that was exceeded by 62 Mte CO2 according to the 
(Centre 
Atmospheric 
Pollution 
la 
Interprofessionnel  Technique  d’Etudes  de 
Pollution Atmosphérique). The annual decrease of 
emissions  by  1.1%  on  average  was  below  the 
trajectory  of  1.9%.  Additional  measures  (Graph 
4.5.1)  are  referring  to  the  2nd  and  3rd  periods 
(2019-2023  and  2024-2028).  The  projected 
underperformance  mainly  comes  from  sectors  not 
covered  by  the  EU  Emissions  Trading  System 
(ETS) such as transport, buildings, and agriculture 
(see  Graph  4.5.2).  In  France,  these  sectors  weigh 
more heavily on national emissions (64%) than the 
EU  average  (47%)  and  depend  mainly  on  private 
investors decisions, and households in particular.  

Centre 

France is committed to reach carbon neutrality 
(understood  as  ‘zero  net  emissions’)  by  2050. 
Efforts to be made over the next three decades will 
have to be multiplied by four: emissions will have 
to  approach  300  Mte  CO2  in  2030  (almost  a 
reduction  by  200  Mte  CO2  in  10  years)  and 
100 Mte  CO2  in  2050  (France  Stratégie,  2019d). 
France’s  strong  engagement  in  climate  change 
mitigation  will  help 
to  reach  Sustainable 
it 
Development Goal 13 - Climate action.  

(70)  In  2017,  France  consumed  239.5  Mtoe  of  primary  energy 
and 148.9 Mtoe of final energy, while the 2020 targets are 
set as respectively at 219.9 and 131.4 Mtoe. 

between 

The  Paris  Climate  Agreement  employment 
impact is positive yet modest for France, but the 
implications 
for  reskilling  and  upskilling 
policies  are  significant.  Studies  project  a  0.4% 
increase  in  employment  in  respect  of  the  baseline 
scenario,  with 
sectors 
variations 
(European Commission, 2019j). The  lack of skills 
for  core  green  jobs  is  already  recognised  as  a 
major  bottleneck  for  the  growth  of  the  green 
economy  (Cedefop,  2018),  with  upgrading  of 
qualifications  required  at  a  faster  rate  than  in  the 
economy overall. At the same time, the greening of 
the  overall  economy  creates  skills  needs  across 
sectors,  to  be  matched  by  adaptation  of  existing 
and future jobs. As such, the transition to a greener 
economy  provides  opportunities  and  needs  for 
upskilling and reskilling of the  current  workforce, 
strengthening  both 
top  and  middle  skill 
segments of the labour market. 

the 

Graph 4.5.2:  Greenhouse gas emissions by sector with 

projections 

Source: European Environment Agency 

Several  agro-ecology  public  and  private 
initiatives  are  planned  or  already  being 
implemented to comply with environmental and 
climate targets. To stop the current destocking of 
carbon  from  agricultural  soils  and  to  reverse  that 
trend, a national plan is being implemented in line 
with the international initiative ‘4 per 1000’. This 
initiative  was  launched  at  the  COP21  with  the 
aspiration  to  increase  global  soil  organic  matter 
stocks by 4‰ per year through the implementation 

64 

020406080100120140160Mt CO2 -eqEnergy supplyManufacturing industriesIndustrial processes and product useTransportOther energy useAgricultureWaste managementInternational aviation                                                           
  
4.5. Environmental sustainability 

government  would  compensate  the  utility  for  the 
early closure of Fessenheim (planned in 2020). On 
the  new  construction  of  nuclear  power  plants,  the 
government will conduct a work program with the 
industry  to  examine  the  questions  of  cost  of  new 
nuclear capacity, its advantages and disadvantages 
compared to other low-carbon means of production 
or the industrial capacity to build new reactors. 

Both  climate-friendly  and  climate-unfriendly 
investments  have  been 
increasing.  Climate-
friendly  investments  have  been  increasing  since 
2011, from €35.8 bn in 2011 to €45.7 bn in 2018 
thanks  to  a  strengthened  regulatory  framework,  a 
higher  carbon  price  signal,  and  low  interest  rates 
(I4CE,  2019a).  At  the  same  time,  investments 
unfavourable  to  the  climate  have  been  increasing 
mainly fuelled by the purchase of thermic vehicles 
(€63.2  bn 
fuels 
investments  reached  €67  bn  in  2018.  Public 
authorities  are  responsible  for  only  8%  of  fossil 
fuels investments, the main bulk being undertaken 
by the private sector (56% by households and 36% 
by businesses).  

in  2018). 

fossil 

total, 

In 

to 

channel 

framework 

reflection  on 

A  tailored  regulatory  framework  could  unlock 
private  investments.  Public  authorities  have  a 
major  role  to  play  in  setting  an  appropriate 
private 
regulatory 
investments  and  financial  flows  towards  low 
carbon  projects.  Further 
the 
appropriate  trajectory  for  the  shadow  price  of 
carbon  could  help  channel  public  and  private 
into 
investments  by 
their 
account 
recognition  of  an 
externalities 
increasing  value  of  carbon.  However, 
this 
reflection  should  take  into  account  the  potential 
impact of the carbon tax on firms’ competitiveness 
and  its  social  impact  on  households  (Conseil 
d’Analyse Economique, 2019b). 

through 

taking 

the 

quality 

France  faces  also  substantial  investment  needs 
to  tackle  the  other  environmental  Sustainable 
Development  Goals.  Water 
and 
affordability  are  good  in  France  (SDG 6)  but 
investment  needs  for  water  supply  and  sanitation 
are  estimated  at  €4.2  bn  by  2030,  particularly  to 
develop  wastewater  treatment.  Concerning  the 
circular economy (SDG 12), France performs well 
in the use of circular material. A law on anti-waste 
and  the  promotion  of  circular  economy  (Loi  anti-
gaspillage  pour  une  économie  circulaire) 
is 
expected  to  be  promulgated  early  2020.  With  a 

and 

social 

environmental, 

of  agricultural  and  forestry  practices  adapted  to 
local 
economic 
conditions.  Furthermore,  programmes  such  as 
‘Ambition Bio’, ‘Ecophyto’ and the certification of 
low carbon farms also contribute to the mitigation 
and adaptation to the effects of climate change by 
encouraging 
innovative  and 
environmentally  friendly  farming  practices  and 
systems.  However,  it  is  too  early  to  assess  the 
impact  of  these  initiatives.  They  could  contribute 
to achieving of Sustainable Development Goals 2 - 
Zero hunger and 15 - Life on land. 

to  use 

farmers 

Investment needs for sustainability 

Substantial  investment  is  needed  to  reach  the 
ambitious  climate  targets.  The  Institute  for 
Climate Economics (I4CE) estimates that by 2023, 
an additional €15 to 18 bn of investments per year 
in  housing  (energy  efficiency),  renewable  energy 
and clean transports are necessary to put France on 
a  downward  trajectory  towards  carbon  neutrality 
(I4CE, 2019a). Based on the national objectives set 
by  the  national  low  carbon  strategy  (SNBC)  and 
(PPE), 
the  multiannual  energy  planification 
investment needs in the same sectors are estimated 
at  about  €46  bn  per  year  during  the  2nd  carbon 
budget  period  (2019-2023)  and  €64  bn  per  year 
(2024-2028).  These 
during 
estimates  mean  doubling  the  current  investments. 
These  figures  do  not  include  needs  in  agriculture 
and  industry.  Investment  needs  may  be  revised 
upwards  when  taking  into  account  adaptation  to 
climate  change  and 
increased  occurrence  of 
extreme  events.  The  European  Environmental 
Agency estimates that the losses incurred in France 
from extreme events from 1980 to 2017 amount to 
€62 bn. 

the  3rd  period 

In  parallel,  France  is  preparing  to  reduce  its 
reliance  on  nuclear  energy,  which  will  require 
additional  investments.  The  Energy  and  Climate 
law  adopted  in  November  2019  sets  the  part  of 
nuclear  energy  in  the  electricity  production  to 
reach  50%  by  2035  (currently  above  70%). 
Existing  nuclear  power  plants  are  undergoing  a 
renovation  plan  (Grand  Carénage)  for  their  long-
term operation with an estimated cost of €48 bn for 
2014-2025. In January 2019, France announced the 
permanent shut down of 4 to 6 nuclear reactors by 
2028  and  14  reactors  by  2035.  As  agreed  in 
September  2019  with  the  historical  electricity 
provider ‘Electricité de France’ (EDF), the French 

65 

4.5. Environmental sustainability 

recycling  rate  of  43%  in  2017,  France  is  not 
considered  to  be  at  risk  of  missing  the  European 
target of recycling 50 % of all municipal waste by 

2020  (Commissariat  Général  au  Développement 
Durable,  2016).  Investments  needed  to  reach  EU 
recycling targets for municipal (65% by 2035) and 

66 

4.5. Environmental sustainability 

Box 4.5.8: Energy renovation of buildings 

Final energy consumption fell by around 3.8% between 2012 and 2018 (-1.7% in climate-corrected terms), 
compared with a target of a 12.6% decrease between 2012 and 2023 in the 2018-2023 Multiannual Energy 
Plan  adopted  by  France  in  2017.  Therefore,  achieving  the  French  energy  efficiency  targets  for  2020  (i.e. 
about a 7.5% decrease of final energy consumption in 2020 compared to 2012) requires to strengthen efforts.  
The  building  and  tertiary  sectors  represent  42%  of  final  energy  consumption.  The  building  sector  is  the 
second  largest  emitter  of  greenhouse  gas  emissions  after  transport  (respectively  23%  and 40% of  national 
emissions).  The  objectives  set  in  the  climate  plan  of  July  2017  (500,000  renovations  per  year,  including 
150,000 thermal sieves) were not met in 2018 (estimates vary between 300,000 and 400,000). It is therefore 
necessary  to  change  scale  in  terms  of  investments  to  achieve  the  required  ‘massification’  of  renovations. 
According to the French Institute for Climate Economics (I4CE), an additional €2 bn to €8 bn per year are 
required to renovate 500,000 buildings per year up to a ‘low consumption’ label.  

The residential sector is the main market segment where increased efforts are most needed. For the tertiary 
sector,  regulatory  measures  in  place  for  buildings  above  1000  m2  should  allow  achieving  the  ambitious 
energy  savings  targets  by  2030,  2040  and  2050  (respectively  -40%,  -50%  and  -60%  compared  to  2010). 
Underpinned by a fully internalised economic logic, the renovation of commercial buildings is currently the 
main driver for renovation in France. 

The  residential  sector  counts  30  million  primary  residences:  8  million  shared  properties,  5  million  social 
housings and 17 million individual houses. Some 7 to 8 million homes fall into the energy F and G classes 
(‘thermal  sieves’),  of  which  1.5  million  are  inhabited  by  households  in  situation  of  energy  poverty.  The 
government created an observatory in September 2019 to centralise data and enable reliable monitoring. 

Main pitfalls identified for deployment of investments include:  
- 
-  Households  who  would  most  benefit  from  substantial  renovations  are  usually  those  with  limited 

The economic interest is not fully adopted by individuals (especially for deep renovations).  

resources. 

-  Available support schemes are scattered among various actors and hard to mobilise at once.  
- 
- 

Solutions are heterogeneous, suppliers numerous, and reported abuses have affected the level of trust.  
For rental property, asymmetric incentives between the landlords (who finance the investment) and the 
tenant (who stands to gain from the investment). 

The government has focused its actions on the following:  
- 

- 

- 

Priority  to  low  and  middle-income  households,  through  the  substitution  of  a  tax  credit  by  a 
premium, conditional to the level of income. 
Enhanced coordination by the constitution of a network of best practice and advisory services (Ease, 
accompany,  inform  on  energy  renovation,  ‘Faciliter,  accompagner,  informer  pour  la  renovation 
énergétique’,  FAIRE),  addressed  to  both  customers  and  suppliers;  financing  is  granted  on  a  result-
based basis for acts listed in the frame of the advisory services.  
Budget  increase  and  pooling  of  budget  resources  into  a  single  vehicle  (Accompaying  service  for 
energy renovation, ‘Service d’accompagnement à la rénovation énergétique’, the SARE programme) 
endowed  with  €200  mn  over  three  years,  compared  to  €60  mn  in  the  previous  period.  It  is  coupled 
with a progressive shift from State budget (value-added tax reduction, tax credit) to off-balance sheet 
sources such as the energy savings certificates scheme.  

-  Restore  confidence  in  energetic  renovation  works,  by  strengthening  controls  and  sanctions  for 
companies that realise aggressive door-to-door selling for insulation and heat systems replacements. 

Other challenges identified include:  
-  Deployment  of  banking  solutions.  Until  their  simplification  in  2019,  current  zero-rate  loans  for 
energy efficiency limited to €30,000 per house unit were hardly sold in the market, in a context of low 
interest  rates.    The  instrument  is  not  compatible  with  broader  renovation  investments  needs  (like 
extension and aesthetic works), nor it can be blended with standard mortgages into a single product, 
guaranteed  by  a  material  underlying  asset  (the  property).  Nevertheless,  those  loans  are  often  joined 
with  a  loan  for  broader  renovation  investments  and  a  guarantee  fund  was  set  up  in  2019  for  lower 

67 

4.5. Environmental sustainability 

- 

income households. 
Support to alternative financing solutions. Energy service companies offer long-term financing for 
energy  efficiency  investments,  and  are  remunerated  by  energy  savings  from  the  beneficiaries.  Their 
business  model  is  particularly  adapted  to  clients  with  strong  balance-sheet  records  such  as  public 
authorities  and  corporates.  However,  current  accounting  rules  applicable  to  investments  in  public 
buildings’ renovation limits the access to and deployment of this market segment. 

-  Delayed  restrictions  for  the  rental  of  classes  F  and  G  homes,  from  2023  for  the  less  performing 
buildings (more than 500 or 600 kWh final energy/m²year), and energetic renovation obligation for all 
F and G buildings as of 2028. However, the implementation of increased constraints from 2021 by the 
Energy and Climate Law is to be noted. 

the 

(départements)  with 

emitter  of  CO2  in  absolute  terms.  The  NUTS3 
regions 
highest 
greenhouse  gas  emission  intensities  are  Bouches-
du-Rhône  in  region  Provence-Alpes-Côte  d’Azur 
(energy, chemical and steel industry) and Nord in 
Hauts-de-France  (steel  industry).  These  industrial 
sectors  are  an  important  source  of  employment  in 
the  two  regions  as  they  provide  for  more  than 
150,000  jobs.  Given  the  likely  socioeconomic 
impact  of  the  transition,  the  Just  Transition  Fund 
could  focus  its  intervention  on  these  regions.  In 
both  cases,  the  support  should  promote  economic 
diversification  and  reskilling  and  increase  the 
attractiveness of the regions for investments in line 
with 
specialisation 
strategies  (RIS3),  which  identify  the  sectors  and 
activities with most potential 

the  corresponding 

smart 

Graph 4.5.3:  Capital investment needs for 2021-2027 in the 
waste sector (€ mn). Top 6 EU. 

packaging  waste  (70%  by  2030)  are  estimated  at 
€3.3  bn  for  2021-2027,  the  highest  absolute  level 
in  the  EU (Eunomia,  2019)  (see  Graph  4.5.3).  On 
biodiversity  (SDG 15)  France  estimated  the  total 
costs  of  conservation  and  management  of  the 
Natura  2000  network  for  2014-2020  at  €1.4  bn 
(priority action framework). This figure is likely to 
be reassessed upwards for 2021-2027. 

to  co-financing  by 

The  agricultural  part  of  the  Great  plan  for 
investment  (€5 bn)  aims  to  transform  the 
agricultural  sector.  The  agriculture  sector  is 
important 
in  France  but  has  experienced  a 
deterioration  of  its  trade  balance  in  recent  years 
(albeit recovering in 2018). The  plan  supports the 
transformation  and  modernisation  of  farms  to 
inclusive  growth.  In 
ensure  sustainable  and 
the  European 
addition 
Agricultural  Fund 
for  Rural  Development 
(EAFRD),  a  new  scheme  of  loans  backed  by  free 
public guarantees was put in place with the support 
of  the  Juncker  Plan.  Regarding  innovation,  more 
than  €23 mn  of  national  funds  were  mobilised  to 
support  the  development  of  solutions  contributing 
to  reduced  use  of  phytosanitary  products.  In  line 
with  societal  expectations,  the  inter-professional 
organisations 
in 
environmental  and  societal  issues  such  as  animal 
welfare  and  reducing  the  use  of  phytosanitary 
products. In 2018, organic crops represented 7.0% 
of the utilised agricultural area (in line with the EU 
average) and are increasing year-on-year. 

increased 

interest 

show 

In 2021-2027, the new Just Transition Fund will 
be  set  up  to  help  ensure  that  the  transition 
towards EU climate neutrality is fair by helping 
the  most  affected  regions  to  address  the  social 
and  economic  consequences.  France  is  the  7th 
lowest  EU  country  in  terms  of  greenhouse  gas 
emission  per  capita.  However,  with  482  million 
tons of CO2 equivalent in 2017, France is the third 

Source: European Commission 

Sustainable policies: governance and transparency 

68 

0500100015002000250030003500FRUKITDEPLSPCollectionBiowaste treatmentSorting facilitiesRecycling reprocessorsSorting at incinerators and MBTsWaste registry digitisation  
  
4.5. Environmental sustainability 

launched  a  promising 

France  has 
‘green 
budgeting’  exercise  to  bring  coherence  with  its 
climate  commitments  (see  Section  4.1).  Public 
to  climate 
identified  as  favourable 
spending 
mitigation 
the  2019  budget  plan  reached 
in 
between  €20  bn  (I4CE,  2019b)  and  €33  to  36  bn 
(CGEDD 2019), whereas unfavourable spending is 
estimated  between  €17  and  25  bn,  depending  on 
the perimeter and expenditure category. In general, 
the ‘greening’ assessment of national budget needs 
to  be  translated  into  meaningful  measures  and 
further developed in the future, in order to analyse 
the  impact  of  the  entire  budget  (both  expenditure 
and 
and 
environmental 
once 
methodological tools will be stabilised.  

climate  mitigation 

revenues)  on 

long-term 

goals, 

The  evaluation  of  existing  policy  measures 
should  be  systematised  and  strengthened.  For 
instance,  in  the  building  sector,  the  main  policy 
instruments for energy efficiency (the tax credit in 
favour of energy transition, CITE, which has been 
turned  into  a  bonus  scheme  in  2020,  and  the 
energy  savings  certificates,  CEE)  lack  rigorous 
the  effective 
assessment  of 
reduction of energy demand.  

impact  on 

their 

Challenges for environmental taxation 

Efforts  to  increase  the  carbon  tax  have  been 
suspended  since  2019  following  the  social 
unrest. In 2014, France established a carbon tax as 
a part of its tax on fuels (TICPE). The carbon tax, 
initially  set  at  €7/tCO2  was  supposed  to  increase 
progressively to reach €100 by 2030. The increase 
has  been  stopped  following  the  social  unrest  and 
stands currently at its 2018 value (€44.6).  

to 

tax 

the 

des 

increase 

(Conseil 

facilitate 

to  meet 

acceptance 

Social fairness and accompanying measures are 
key 
of 
environmental taxation. A report from the Court 
Prélèvements 
of  Auditors 
Obligatoires,  2019) calls  to  reinstate  the  planned 
carbon 
France’s 
environmental  objectives.  Phasing  out  exemption 
or reduced rates on energy taxes granted to specific 
sectors  would  broaden  the  base,  therefore  helping 
to  improve  the  effectiveness  of  the  policy  and 
increasing its acceptance. Compensation measures, 
in particular for the population groups that are the 
most  exposed  to  costs  induced  by  these  policies, 
would  also  support  acceptance.  Energy-related 
(covering  heating,  electricity  and 
spending 

for 

income 

transport  needs)  represent  on  average  16%  of  the 
available 
the  bottom  quintile 
households,  while  this  share  goes  down  to  only 
4.5% for the 20% highest income households. The 
living  area  has  also  an  impact  on  energy  poverty, 
as  transport  expenses  tend  to  grow  with  urban 
sprawling. The report also underlines that the main 
purpose  of  the  carbon  tax  should  not  be  to  raise 
revenues,  but rather to change behaviours.  French 
authorities have also opened a debate with the civil 
society (71),  which  could  contribute 
the 
fairer  and  more  effective 
reflection  on  a 
these 
environmental 
challenges  would  contribute 
to  progress  on 
Sustainable  Development  Goal 10  -  Reduced 
inequalities. 

taxation.  Addressing 

to 

Removal  of  harmful  fuel  subsidies  must  be 
pursued.  Specific  tax  measures  such  as  tax 
reductions or exemptions largely contribute  to the 
attractiveness of fossil energies. As pointed by the 
I4CE report on the draft budget 2020, most of the 
unfavourable  spending  take  the  form  of  tax 
spending  (€16  bn  out  of  17)  (I4CE,  2019b).  Four 
tax  measures  alone  imply  that  25%  of  national 
greenhouse gases emissions are little or not taxed: 
(i)  exemptions  of  excise  duties  on  kerosene,  (ii) 
reduced  excise  rates  for  heavy-load  vehicles,  (iii) 
non-road  diesel  and  (iv)  road  diesel  compared  to 
gasoline. 

Recently,  France  has  implemented  a  gradual 
phase  out  of  reduced  rates  for  non-road  diesel 
to  be  finalised  by  2022  and  a  c€  2  increase  in 
fuel tax charged to road hauliers. The maximum 
‘malus’  applied  to  new  privately  used  vehicles 
from €12,500 to €20,000, to strengthen the market 
signal  towards  cleaner  vehicles.  France  is  among 
the Member States willing to open a debate at EU 
level  on  the  taxation  of  kerosene  for  planes  and 
marine fuel for boats.  

(71)  The broad national debate organised from December 2018 
to  April  2019  engaged  all  citizens 
in  widespread 
discussions  around  four  major  topics,  including  taxation 
and  public  expenditure  as  well  as  ecological  transition.  In 
October  2019,  this  debate  was  followed  by  a  ‘Convention 
citoyenne  pour  le  climat’  whose  mandate  is  to  define  a 
series  of  measures  to  achieve  the  2030  targets  of  at  least 
40%  of  greenhouse  gas  emissions  against  the  background 
of  social  fairness.  Its  works  will  be  presented  in  April 
2020. 

69 

                                                           
ANNEX A: OVERVIEW TABLE 

Commitments 

Summary assessment (72) 

2019 country specific recommendations (CRSs) 

France  has  made  limited  progress  in  addressing 
CSR 1 (this overall assessment of CSR1 does not 
include  a  compliance  assessment  of  compliance 
with the Stability and Growth Pact) : 

CSR  1:  Ensure  that  the  nominal  growth  rate  of 
net primary expenditure does not exceed 1,2 % in 
2020,  corresponding 
to  an  annual  structural 
adjustment of 0,6 % of GDP. Use windfalls gains 
to  accelerate 
the  general 
the  reduction  of 
government  debt  ratio.  Achieve  expenditure 
savings and efficiency gains across all sub-sectors 
of  the  government,  including  by  fully  specifying 
the 
and  monitoring 
concrete measures needed in the context of Public 
Action  2022.  Reform  the  pension  system  to 
progressively  unify  the  rules  of  the  different 
pension  regimes,  with  the  view  to  enhance  their 
fairness and sustainability. 

implementation  of 

the 

Ensure  that  the  nominal  growth  rate  of  net 
primary  expenditure  does  not  exceed  1,2  %  in 
2020,  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 2019 will be available.  

Use windfalls 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 2019 will be available.  

Achieve expenditure savings and efficiency gains 
the  government, 
across  all  sub-sectors  of 
including  by  fully  specifying  and  monitoring  the 
implementation  of  the  concrete  measures  needed 

from 

No  progress.  Although  efficiency  gains  can  be 
the 
expected 
contribution  of  ‘Public  Action  2022’  to  the 
objective  of  reducing  public  spending  by  more 
than  3  percentage  points  of  GDP  over  the 

implementation, 

its 

(72)  The following categories are used to assess progress in implementing the 2019 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.  

70 

 
 
 
 
 
 
 
                                                           
  
in the context of Public Action 2022.  

Reform the pension system to progressively unify 
the  rules  of  the  different  pension  regimes,  with 
fairness  and 
the  view 
sustainability. 

to  enhance 

their 

CSR  2:  Foster  labour  market  integration  for  all 
job  seekers,  ensure  equal  opportunities  with  a 
particular  focus  on  vulnerable  groups  including 
people  with  a  migrant  background  and  address 
skills shortages and mismatches. 

Foster  labour  market  integration  for  all  job 
seekers,  ensure  equal  opportunities  with  a 
particular  focus  on  vulnerable  groups  including 
people with a migrant background 

A. Overview Table 

presidential  term  is  not  at  all  specified.  The 
programme does not envisage either an upfront or 
a  concurrent  quantification  of 
the  expected 
savings and macroeconomic impacts. Although it 
formally  and  fully  replaces  annual  spending 
reviews  as  of  2018,  the  implications  of  this 
programme on the size and composition of public 
spending is lacking. Moreover, when information 
on  potential  savings  is  available,  the  savings  are 
limited  and  their  trajectory  over  time  is  not 
mentioned  in  any  detail.  That  said,  some  of  the 
measures  under  Public  Action  2022  might 
actually imply an increase in spending.  

Limited progress. The pension reform, originally 
announced  for  2019,  has  been  postponed.  The 
draft  law  was  sent  to  the  parliament  in  February 
and  its  adoption  is  now  planned  in  2020  for 
implementation as of 1 January 2022 This reform 
intends  to  introduce  a  universal  point-based 
system,  replacing  the  currently  co-existing  42 
pension  regimes.  According  to  announcements, 
the  new  system  aims  to  calculate  the  pension 
rights  over  the  whole  career  for  all  categories  of 
workers. The government has engaged in a broad 
consultation with social partners and stakeholders 
to  gather  the  broadest  consensus  possible.  The 
first generation concerned by the reform would be 
those  born  in  1975.  For  those  already  in  the 
current system, only the years contributed to after 
2025  would  be  calculated  under  the  new  system. 
Social  partners  would  be 
for 
guaranteeing the  financial balance of the pension 
system.  The  return  to  balance  of  the  pension 
system should be reached in 2027. 

responsible 

France  has  made  limited  progress  in  addressing 
CSR 2.  

Limited progress has been made to foster labour 
market integration and ensure equal opportunities. 
On  labour  market  integration,  a  number  of 
measures  have  been  announced  or  formally 
adopted.  Their  scope  remains  however  limited 
and their deployment or actual effects have yet to 
be  assessed.  The  Public  Employment  Service 
(Pôle Emploi) strategy was renewed and signed in 
January  2020.  It  provides  additional  guidance 
means  in  favour  of  job  seekers,  and  ensure  a 

71 

 
 
 
 
 
 
 
 
 
A. Overview Table 

better  match  with  employers’  recruitment  needs. 
Limited measures and additional means have been 
provided  to  ensure  equal  opportunities.  Their 
level  of  ambition  still  appear  limited  considering 
the  significant  challenges  faced  by  vulnerable 
groups in terms of both educational outcomes and 
integration  into  the  labour  market.  Halving  the 
to  all 
class  size 
disadvantaged schools implemented in September 
2019  will  not  benefit  an  estimated  70%  of 
disadvantaged pupils, as it has not been rolled out 
in 
specifically 
schools.  Measures 
targeting  migrants  have  been  rolled  out  since 
March  2019  through  the  reform  of  the  national 
integration  programme  for  newcomers,  but  its 
actual implementation remains to be seen. 

two  grades 

the  first 

targeted 

in 

2019. 

Free-of-charge 

Some  progress  has  been  made  in  addressing 
skills  shortages  and  mismatches  in  particular  by 
implementing  initial  vocational  education  and 
training  (VET)  system  reforms  and  improved 
access  to  lifelong  learning.  Access  to  lifelong 
learning  through  a  revised,  euro-based,  personal 
training account granting increased rights to low-
qualified  and  part-time  workers  is  being  enabled 
by  the  launching  web-based  application  since 
November 
targeted 
guidance,  through  the  ‘Conseil  en  evolution 
professionnelle’,  should  be  delivered  at  regional 
level.  The  quality  and  effect  of  the  guidance  on 
the  use  of 
training  account, 
particularly  for  more  vulnerable  people,  needs 
further  assessment.  Limited  progress  has  also 
been  made  addressing  skills  shortages.  The  main 
measures to address sectoral and macro-economic 
skills  shortages  are  just  at  a  preliminary  stage, 
without  any  meaningful  results  for  time  being. 
intelligence  and 
For 
forecasting  exercises  are  being  announced  but 
have yet to be carried out. 

instance,  several  skills 

the  personal 

France  has  made  some  progress  in  addressing 
CSR 3.  

and address skills shortages and mismatches. 

investment-related  economic 
CSR  3:  Focus 
research  and 
(while 
innovation 
policy  on 
improving 
the  efficiency  of  public  support 
schemes, including knowledge transfer schemes), 
and 
renewable 
interconnections  with  the  rest  of  the  Union,  and 
on  digital  infrastructure,  taking  into  account 
territorial disparities. 

efficiency 

energy, 

energy 

Focus  investment-related  economic  policy  on 
research  and  innovation  (while  improving  the 

Limited progress. Some evaluations of the R&D 
tax  incentive  (Crédit  d'Impôt  Recherche)  have 

72 

 
 
 
 
 
 
 
 
 
 
 
efficiency  of  public  support  schemes,  including 
knowledge transfer schemes), 

renewable 
efficiency 
interconnections with the rest of the Union,  

energy, 

energy 

and 

and  on  digital  infrastructure,  taking  into  account 
territorial disparities. 

CRR  4:  Continue  to  simplify  the  tax  system,  in 
particular by limiting the use of tax expenditures, 
further  removing  inefficient  taxes  and  reducing 
taxes 
regulatory 
production.  Reduce 
restrictions,  in  particular  in  the  services  sector, 
and  fully  implement  the  measures  to  foster  the 
growth of firms. 

on 

Continue to simplify the tax system, in particular 
by  limiting  the  use  of  tax  expenditures,  further 
removing  inefficient  taxes  and  reducing  taxes  on 
production. 

A. Overview Table 

Industry  Fund 

been carried out and point to a limited impact on 
innovation. Additional impact studies, focused on 
macroeconomic  aspects,  are  on-going.  The 
is  not  yet 
Innovation  and 
operational  as  pointed  by  the  Court  of  Auditors. 
More  incentives  for  researchers  working  in  the 
public  sector  to  collaborate  with  industry  have 
been  proposed  in  the  PACTE  Law.  Overall,  the 
R&D&I  system  in  France  remains  very  complex 
with numerous funding tools and structures. 

Some  progress.  France  has  been  at  the  forefront 
in adopting commitments to fight climate change. 
France  is  likely  to  achieve  its  2020  target  to 
reduce greenhouse gas emissions, but is projected 
to  miss  its  target  on  renewables.  However, 
investment  needs  were  properly 
additional 
quantified  and  planned  through  the  Pluriannual 
programming  energy 
law.  Regarding  energy 
interconnections,  new  electricity  interconnectors 
are  under  development  between  France  and 
Spain. 

Some  progress.  The  main  policy  tool  to  address 
regional  disparities  in  digital  infrastructure  is  the 
plan  French  ultrafast  broadband  Plan  (France 
Très  Haut  Débit).  It  aims  at  covering  the  whole 
territory  with  ultrafast  broadband  (fiber-to-the-
home  for  2022)  by  fostering  private  investment 
and  compensating  the  lack  of  projects  in  remote 
areas  with  public  investment  (for  a  total  of  €3.3 
bn in public spending). 

France  has  made  Some  progress  in  addressing 
CSR4.  

Some progress has been made in simplifying the 
tax  system, 
implementing 
in  particular  by 
successfully  the  ESSOC  law  and  withholding 
personal  income  tax.  The  2020  Budgetary  Plan 
builds  on  previous  efforts  to  eliminate  low  taxes 
and  phase  out  or  cut  several  tax  expenditures.  In 
addition,  French  authorities  have  also  announced 
an  evaluation  programme  of  70  tax  expenditures 
for  2020-2023.  However,  no  progress  has  been 
made  to  reduce  taxes  on  production  factors, 
despite having been repeatedly identified as being 

73 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reduce regulatory restrictions, in particular in the 
services sector,  

A. Overview Table 

a risk bearing on France's competitiveness. 

lifted 

reducing 

law  and 

Limited  progress.  On 
regulatory 
restrictions, progress has been limited: regulatory 
restrictions  were 
in  some  areas  but 
strengthened 
in  others.  Some  competition-
enhancing  measures  were adopted for the sale  of 
automotive  parts  and  driving  schools  under  the 
LOM 
for  complementary  health 
insurance. Competition-enhancing measures were 
announced  for  other  sectors  (real  estate  property 
management 
analysis 
laboratories,  on-line  sale  of  medicines,  fintechs). 
The  retail  sector  has  been  hit  by  additional 
restrictions  on  the  period  of  sales  (PACTE  law), 
on promotion of food products (EGalim law), and 
on establishment of large shops (ELAN law). 

(syndics),  medical 

and  fully  implement  the  measures  to  foster  the 
growth of firms. 

Substantial progress. The implementation of the 
PACTE law is well advanced. At the beginning of 
December  2019,  100  out  of  137  measures  were 
already  implemented.  The  key  measure  to  foster 
firms’  growth  (rationalisation  of  size-related 
regulatory  thresholds  and  transition  period)  took 
effect on 1 January 2020. 

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 
71.3% in 2018, up from 70.6% since 2017.  

R&D target: 3.0 % of GDP 

It has stabilised in the third quarter of 2019 with a 
71.7% employment rate in metropolitan France in 
the  third    quarter.  However,  the  75%  target 
remains  out  of  reach  at  this  stage,  in  spite  of 
continued job creations in the private sector. 

R&D intensity in 2018(73) was at 2, 20% up from 
2, 02% in 2007 and at 2.19% in 2017, a decrease 
from 2016, where it stood at 2.24 (EU average is 
2.11%) 

Public R&D intensity (74) has been stable the last 
two  years  and  stood,  at  0.73%  in  2018  and  at 
0.73%  in  2017,  however  with  a  decrease  from 
0.78% recorded for 2016 (EU average is 0.69%) 

Business  R&D  intensity  (75)  has  increased  since 
2007 where it stood at 1. 28% and since 2012, has 

(73)  GERD as % of GDP 
(74)  Public expenditure on R&D (GOVERD + HERD) as % of GDP 
(75)  Business enterprise expenditure on R&D (BERD) as % of GDP 

74 

 
 
 
 
 
 
 
 
 
                                                           
A. Overview Table 

remained rather stable,  from  2016 (1.43%), 2017 
(1.42%)  and  1.44%  in  2018  (EU  average  is 
1.41%) 

Based  on  the  latest  national  projections  and 
existing measures, non-ETS emissions will fall by 
13 % between 2005 and 2020.  

The  -14 %  target  is  therefore  expected  to  be  just 
missed, by a margin of one percentage point. 

energy 

in  gross 

In  2018,  according  to  Eurostat  data,  the  share  of 
renewable 
energy 
consumption  reached  16.6%,  which  is  below  the 
interim  target  of  18.6%  set  in  the  national 
renewable energy action plan (NREAP) presented 
in  2009  to  pave  the  way  towards  its  2020 
objective of 23%.  

final 

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% 

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

trajectory 

(in  2018, 

On renewable energy share in heating & cooling, 
the national renewable energy action plan projects 
a share of 33 % for in 2020. However, since 2010, 
actual deployment  has constantly been below the 
the  share  of 
planned 
in  heating  and  cooling  reached 
renewables 
21.8%).  Moreover, 
the 
anticipated  share  and  the  effective  share  has 
increased. According to the EUreference scenario 
2016,  France  is  projected  to  miss  its  anticipated 
2020  value,  despite  several  measures  to  promote 
renewables in the heating and cooling sector. 

the  spread  between 

in 

In  transport,  according  to  the  plan,  the  expected 
national  share  of  renewable  energy 
the 
transport  sector  is  10.5 %  by  2020.  Since  2010, 
France  has  been  on  track  to  meet  its  planned 
trajectory.  If  the  current  trend  is  maintained 
(9.1 % in 2017), France is projected to be almost 
in  line  in  with  its  2020  projections.  Due  to  a 
major  diesel  fuelled  car  market,  France  is  by  far 
the  top  European  biodiesel  consumer.  France 
owns a structured biodiesel industry with some of 
the main European producers. 

Since  2005,  France  has  decreased  its  primary 
energy  consumption  by  8 %  to  reach  239.5 
million tons of oil equivalent (Mtoe) in 2017 and 

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

(Mtoe) 

for 

75 

A. Overview Table 

consumption  

its  final  energy  consumption  has  also  decreased 
by  7%  to  reach  148.9  Mtoe  in  2017,  whereas 
GDP  increased  by  15.2%  over  the  same  period. 
These  figures  -  together  with  primary  energy 
intensity 
that  decreased  by  a  1.7 %  annual 
average  rate  since  2005  –  reflects  the  general 
decoupling between economic growth and energy 
consumption.  

the 

rapid  and 

However,  even  if  France  has  reduced  the  gap 
towards  its  indicative  national  2020  targets  for 
energy  efficiency, 
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. 
to 
Additional  efforts  should  be  envisaged 
accelerate  the  energy  renovation  of  residential 
buildings  and  development  of  demand-side 
response. 

Early school/training leaving target: 9.5 % 

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

The  French  early  school  leaving  rate  remained 
stable  at  8.9  %  in  2018  from  8.9  %  in  2017, 
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,  particularly  in  the  outermost  regions, 
where  the  labour  market  prospects  have  not 
significantly improved, in respect of metropolitan 
France. 

The  French  tertiary  education  attainment  rate  for 
the  population  aged  30-34  years  was  46.2%  in 
2018, further increasing from 44.3% in 2017. This 
is above the EU tertiary education target of 40%. 

Women  (51.2%)  are  consistently  outperforming 
men (41.0%) in the attainment rate. 

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  106,000  units,  marking  a  regression  in 
respect of previous years’ improvements. 

76 

 
ANNEX B: DEBT SUSTAINABILITY ASSESSMENT  

77 

General Government debt projections under baseline, alternative scenarios and sensitivity tests2018201920202021202220232024202520262027202820292030Gross debt ratio98.498.998.999.299.399.499.399.098.598.197.697.296.8Changes in the ratio (-1+2+3)0.00.60.00.30.10.0-0.1-0.3-0.4-0.5-0.4-0.4-0.4of which(1) Primary balance (1.1+1.2+1.3)-0.8-1.6-0.9-1.1-1.2-1.4-1.6-1.7-1.6-1.7-1.8-1.8-1.8(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)-1.0-1.2-1.3-1.4-1.5-1.6-1.6-1.7-1.6-1.7-1.8-1.8-1.8(1.1.1) Structural primary balance (bef. CoA)-1.0-1.2-1.3-1.4-1.4-1.4-1.4-1.4-1.4-1.4-1.4-1.4-1.4(1.1.2) Cost of ageing0.10.20.20.30.30.30.40.50.5(1.1.3) Others (taxes and property incomes)0.00.00.10.10.10.10.10.10.1(1.2) Cyclical component0.30.50.50.50.30.20.00.00.00.00.00.00.0(1.3) One-off and other temporary measures-0.2-0.9-0.1-0.10.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-0.7-1.1-1.1-1.2-1.1-1.4-1.7-2.0-2.1-2.1-2.2-2.2-2.2(2.1) Interest expenditure1.71.51.31.11.11.00.90.90.90.80.80.80.8(2.2) Growth effect-1.7-1.2-1.2-1.2-0.8-0.7-0.7-0.9-1.0-1.0-1.1-1.1-1.1(2.3) Inflation effect-0.8-1.3-1.2-1.1-1.4-1.7-1.9-1.9-1.9-1.9-1.9-1.9-1.9(3) Stock-flow adjustments-0.10.00.20.40.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Debt Sustainability Monitor (DSM) 2019. 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). FR - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangeratesinsomecountries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[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.Detailedinformationonthe design of these projections can be found in the FSR 2018 and the DSM 2019.[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. 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 2034. 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. 8085909510010511020172018201920202021202220232024202520262027202820292030Debt as % of GDP -FRBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario809010011020172018201920202021202220232024(% of GDP)Stochastic debt projections 2020-2024 -FRp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline8085909510010511020172018201920202021202220232024202520262027202820292030Debt as % of GDP -FRBaselineHistorical SPB scenarioSGP scenario8085909510010511020172018201920202021202220232024202520262027202820292030Debt 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 (2030)96.897.1101.8102.198.1Debt peak year20232023202520302024Percentile rank77.0%77.0%Probability debt higher50.8%Dif. between percentiles13.5Short termLOW(S0 = 0.4)DSAHIGHDebt sustainability analysis (detail)Medium termHIGHHIGH(S1 = 3.9)MEDIUMLong termLOW(S2 = 0.2)S1S2 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2019. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2019. 
(3) Quarterly values are annualized. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

78 

201420152016201720182019Total assets of the banking sector (% of GDP)(1)380,4370,7372,9368,3374,4405,2Share of assets of the five largest banks (% of total assets)47,647,246,045,447,8-Foreign ownership of banking system (% of total assets)(2)5,95,45,04,84,74,7Financial soundness indicators:(2)              - non-performing loans (% of total loans)4,24,03,63,12,72,6              - capital adequacy ratio (%)15,216,417,617,818,018,3              - return on equity (%)(3)4,46,86,56,46,56,2Bank loans to the private sector (year-on-year % change)(1)0,52,04,95,68,15,7Lending for house purchase (year-on-year % change)(1)-2,83,24,96,26,25,9Loan-to-deposit ratio(2)105,1104,7106,2105,1109,1106,7Central bank liquidity as % of liabilities(1)2,32,31,72,31,91,9Private debt (% of GDP)141,5142,8143,7145,5148,9-Gross external debt (% of GDP)(2) - public62,460,358,955,653,756,6    - private52,854,256,056,946,146,9Long-term interest rate spread versus Bund (basis points)*50,334,737,749,238,838,6Credit default swap spreads for sovereign securities (5-year)*31,024,422,714,411,110,0 
 
 
  
 
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) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2019 for the employment rate, unemployment rate and gender employment gap.       
Source: Eurostat 

79 

Table C.2: Headline social scoreboard indicators201420152016201720182019 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)8,89,28,88,98,9:Gender employment gap (pps)7,57,27,57,97,67,2Income inequality, measured as quintile share ratio (S80/S20)4,34,34,34,34,2:At-risk-of-poverty or social exclusion rate(1) (AROPE)18,517,718,217,017,4:Young people neither in employment nor in education and training (% of population aged 15-24)11,212,011,911,511,1:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)69,269,570,070,671,371,5Unemployment rate(2) (15-74 years)10,310,410,19,49,18,6Long-term unemployment rate (as % of active population)4,54,64,64,23,83,5Gross disposable income of households in real terms per capita(3) (Index 2008=100) 100,3100,8102,0103,1104,0:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)237612429124579:::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)0,020,440,56:::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)44,643,142,445,044,4:Children aged less than 3 years in formal childcare39,541,748,950,550,0:Self-reported unmet need for medical care2,81,21,31,01,2:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):57,056,057,0:: 
 
  
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores.       
(5) Average of first three quarters of 2019. Data for youth unemployment rate is seasonally adjusted.       
Source: Eurostat, OECD 

80 

Table C.3: Labour market and education indicatorsLabour market indicators201420152016201720182019 5Activity rate (15-64)71,071,371,471,571,971,6Employment in current job by durationFrom 0 to 11 months11,712,112,713,513,9:From 12 to 23 months7,67,67,68,28,7:From 24 to 59 months14,214,013,613,514,2:60 months or over65,665,265,163,762,2:Employment growth* (% change from previous year)0,50,20,61,01,00,9Employment rate of women(% of female population aged 20-64)65,666,066,366,767,667,9Employment rate of men (% of male population aged 20-64)73,173,273,874,675,275,1Employment rate of older workers* (% of population aged 55-64)46,948,749,851,352,152,7Part-time employment* (% of total employment, aged 15-64)18,618,418,318,218,017,5Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)15,316,016,116,816,716,3Transition rate from temporary to permanent employment(3-year average)10,010,010,711,712,1:Youth unemployment rate (% active population aged 15-24)24,224,724,622,320,819,4Gender gap in part-time employment23,122,722,221,921,120,3Gender pay gap(2) (in undadjusted form)15,515,315,315,4::Education and training indicators201420152016201720182019Adult participation in learning(% of people aged 25-64 participating in education and  training)18,418,618,818,718,6:Underachievement in education(3):23,5::::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)43,745,043,644,346,2:Variation in performance explained by students' socio-economic status(4):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 

81 

Table C.4: Social inclusion and health indicators201320142015201620172018Expenditure on social protection benefits* (% of GDP)Sickness/healthcare9,09,19,19,29,1:Disability2,12,12,12,12,0:Old age and survivors14,614,614,614,614,4:Family/children2,52,52,52,42,4:Unemployment2,02,02,02,01,9:Housing0,80,80,80,80,8:Social exclusion n.e.c.0,90,91,01,01,0:Total31,932,131,932,031,7:of which: means-tested benefits3,53,53,53,53,5:General government expenditure by function (% of GDP)Social protection24,524,524,324,524,3:Health8,18,28,18,18,0:Education5,55,55,45,55,4:Out-of-pocket expenditure on healthcare9,99,99,79,69,4:Children at risk of poverty or social exclusion (% of people aged 0-17)*20,821,621,222,622,122,9At-risk-of-poverty  rate(1) (% of total population)13,713,313,613,613,213,4In-work at-risk-of-poverty rate (% of persons employed)7,88,07,57,97,37,1Severe material deprivation rate(2)  (% of total population)4,94,84,54,44,1:Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan0,91,11,31,70,91,0Tenant, rent at market price5,26,34,66,24,06,4Proportion of people living in low work intensity households(4) (% of people aged 0-59)8,19,68,68,48,18,0Poverty thresholds, expressed in national currency at constant prices*112481128311330114781157211575Healthy life yearsFemales10,710,710,710,610,8:Males9,810,49,89,59,3:Aggregate replacement ratio for pensions(5)0,70,70,70,70,70,7Connectivity dimension of the Digital Economy and Society Index (DESI)(6):49,151,252,655,2:GINI coefficient before taxes and transfers*49,048,449,049,649,1:GINI coefficient after taxes and transfers*30,129,229,229,329,3: 
 
  
 
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       
*Please be aware that the indicator values from 2003 to 2013 are comparable, however the methodology has considerably 
changed in 2018 and therefore past vintages cannot be compared with the 2018 PMR indicators.       
(8) Simple average of the indicators of regulation for lawyers, accountants, architects and engineers.       
(9) 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). 

82 

Performance indicators201320142015201620172018Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry1,730,942,210,811,190,00Labour productivity growth in construction0,96-1,961,971,383,15-1,19Labour productivity growth in market services0,560,950,850,270,460,75Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry0,120,520,630,310,561,87ULC growth in construction1,141,85-0,531,321,002,97ULC growth in market services0,690,430,261,261,051,24Business environment201320142015201620172018Time needed to enforce contracts3 (days)447447447447447447Time needed to start a business3 (days)6,54,54,03,53,53,5Outcome of applications by SMEs for bank loans40,600,530,510,320,230,23Research and innovation201320142015201620172018R&D intensity2,242,232,272,252,192,20General government expenditure on education as % of GDP5,505,505,405,505,40:Employed people with tertiary education and/or people employed in S&T as % of total employment484949505051Population having completed tertiary education5293030313133Young people with upper secondary education6868887888888Trade balance of high technology products as % of GDP0,750,750,880,850,780,99Product and service markets and competition2003200820132018*OECD product market regulation (PMR)7, overall1,771,521,471,57OECD PMR7, retail3,763,802,642,00OECD PMR7, professional services82,202,452,342,26OECD PMR7, network industries93,372,772,511,68 
 
  
 
C. Standard Tables 

Table C.6:  Green Growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices)  
Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)  
Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)  
Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)  
Waste intensity: waste (in kg) divided by GDP (in EUR)  
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP.   
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP.  
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change).  
Real unit energy cost: real energy costs as % of total value added for the economy.  
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR).  
Real unit energy costs for manufacturing industry excluding refining: real costs as % of value added for manufacturing sectors.  
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP.  
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000 -100 000 GJ; figures 
excl. VAT.  
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste.  
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP.  
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions.  
(excl. land use, land use change and forestry) as reported by Member States to the European Environment Agency.  
Transport energy intensity: final energy consumption of transport activity including international aviation (kgoe) divided by 
gross value added in transportation and storage sector (in 2010 EUR).  
Transport carbon intensity: GHG emissions in transportation and storage sector divided by gross value added in transportation 
and storage sector (in 2010 EUR).  
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels.  
Aggregated supplier concentration index: Herfindahl index covering oil, gas and coal. Smaller values indicate larger 
diversification and hence lower risk.  
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels. Smaller values indicate larger diversification.  
* European Commission and European Environment Agency - 2018 provisional data.  
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). 

83 

Green growth performance201320142015201620172018MacroeconomicEnergy intensity kgoe / €0,130,120,120,120,120,11Carbon intensity kg / €0,240,220,220,220,21-Resource intensity (reciprocal of resource productivity)kg / €0,380,370,350,340,360,36Waste intensity kg / €-0,16-0,15--Energy balance of trade % GDP-3,1-2,5-1,8-1,4-1,7-1,9Weighting of energy in HICP%9,459,859,418,978,588,88Difference between energy price change and inflation p.p.2,91,3-0,7-1,82,54,4Real unit of energy cost% of value added10,69,69,910,2--Ratio of environmental taxes to labour taxesratio0,120,120,120,130,12-Environmental taxes% GDP2,02,02,22,22,32,4Sectoral Industry energy intensity kgoe / € 0,080,080,070,080,070,07Real unit energy cost for manufacturing industry excl. refining% of value added14,213,414,014,7--Share of energy-intensive industries in the economy% GDP5,765,705,705,685,615,51Electricity prices for medium-sized industrial users€ / kWh0,090,100,100,090,090,09Gas prices for medium-sized industrial users€ / kWh0,040,040,040,040,030,04Public R&D for energy % GDP0,050,040,050,040,070,05Public R&D for environmental protection% GDP0,010,010,020,010,010,01Municipal waste recycling rate%38,739,740,741,943,044,0Share of GHG emissions covered by ETS*%23,822,122,022,423,222,1Transport energy intensitykgoe / €0,600,600,630,620,610,60Transport carbon intensitykg / €0,570,540,550,530,520,51Security of energy supplyEnergy import dependency%48,146,246,047,448,6-Aggregated supplier concentration indexHHI8,58,68,18,39,2-Diversification of energy mixHHI29,732,231,829,829,530,4 
  
 
ANNEX D: INVESTMENT GUIDANCE ON JUST TRANSITION FUND 

2021-2027 FOR FRANCE 

Building  on  the  Commission  proposal,  this  Annex  (76)  presents  the  preliminary  Commission  services’ 
views on priority investment areas and framework conditions for effective delivery for the 2021-2027 Just 
Transition  Fund  investments  in  France.  These  priority  investment  areas  are  derived  from  the  broader 
analysis  of  territories  facing  serious  socio-economic  challenges  deriving  from  the  transition  process 
towards a climate-neutral economy of the Union by 2050  in France, assessed in the report. This Annex 
provides  the  basis  for  a  dialogue  between  France  and  the  Commission  services  as  well  as  the  relevant 
guidance  for  the  Member  States  in  preparing  their  territorial  just  transition  plans,  which  will  form  the 
basis for programming the Just Transition Fund. The Just Transition Fund investments complement those 
under  Cohesion  Policy  funding  for  which  guidance  in  the  form  of  Annex  D  was  given  in  the  2019 
Country Report for France (77). 

In France, the regions (départements) with the highest GHG emission intensities are Bouches-du-Rhône, 
which is part of the region Provence-Alpes-Côte d’Azur, and Nord, which is part of the region Hauts-de-
France. The  high intensities are caused  mostly by energy,  chemical and  steel industries  in Bouches-du-
Rhône;  the  steel  industry  is  also  present  in  Nord.  These  industrial  sectors  are  an  important  source  of 
employment in the two regions as they provide for almost 153,000 jobs. 

Following France’s commitment to reach carbon neutrality by 2050, the carbon intensity of the industry 
in  the  two  regions  highlights  the  scale  of  the  decarbonisation  challenge,  suggesting  that  several  sectors 
would be likely to undergo substantial restructuring in their industrial processes, with a likely significant 
socio-economic  impact.  Based  on  this  preliminary  assessment,  it  appears  warranted  that  the  Just 
Transition Fund concentrates its intervention on these regions. 

In  order  to  tackle  these  transition  challenges,  investments  needs  have  been  identified  to  diversify  the 
regional  economy  and  alleviate  the  socio-economic  costs  of  the  transition.  The  smart  specialisation 
strategies (78) of these regions provide an important framework to set priorities for innovation in support 
of economic transformation.. In addition, Hauts-de-France is funding the digitalisation of local SMEs in 
the  framework  of  the  European  Commission  pilot  action  “Regions  in  Industrial  Transition”.  The  Just 
Transition Fund could complement these efforts by targeting its actions in particular on: 

• 

• 

• 

• 

investments in the creation of new firms, including through business incubators and consulting 
services; 
investments in the deployment of technology and infrastructures for affordable clean energy, in 
greenhouse gas emission reduction, energy efficiency and renewable energy; 
investments  in  research  and  innovation  activities  and  fostering  the  transfer  of  advanced 
technologies; 
upskilling and reskilling of workers. 

Industrial sites in the départments of Bouches-du-Rhône and Nord, performing activities listed in Annex I 
to Directive 2003/87/EC, employ a substantial number of workers and their activity is at risk due to their 
high  greenhouse  gas  emissions.  Support  to  investments  to  reduce  the  emissions  could  be  considered, 
provided  that  they  achieve  a  substantial  reduction  of  emissions  (going  substantially  below  the  relevant 
benchmarks  used  for  free  allocation  under  Directive  2003/87/EC)  and  on  the  condition  that  the 
investments are compatible with the European Green Deal. 

(76)  This Annex is to be considered in conjunction with the EC proposal for a Regulation of the European Parliament and of the 
Council  on  the  Just  Transition  Fund  2021-2027  (COM(2020)22)  and  the  EC  proposal  for  a  Regulation  of  the  European 
Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European 
Social Fund Plus, the Cohesion Fund, and the European Maritime and Fisheries Fund and financial rules for those and for the 
Asylum and Migration Fund, the Internal Security Fund and the Border Management and Visa Instrument (COM(2020)23) 

(77) SWD(2020) 1009 final 
(78) As defined in Article 2(3) of Regulation (EU) No 1303/2013 (CPR) 

84 

 
 
 
 
                                                           
ANNEX E: SUSTAINABLE DEVELOPMENT GOALS 

Assessment of France’s short-term progress towards the SDGs (79) 

Table E.1 shows the data for France and the EU28 for the indicators included in the EU SDG indicator set 
used by Eurostat for monitoring progress towards the SDGs in an EU context (80). As the short-term trend 
at EU-level is assessed over a 5-year period, both the value at the beginning of the period and the latest 
available  value  is  presented.  The  indicators  are  regularly  updated  on  the  SDI  dedicated  section  of  the 
Eurostat website. 

Table E.1: 

Indicators measuring France’s progress towards the SDGs 

(79)  Data  extracted  on  9  February  2020 

from 

the  Eurostat  database 

(official  EU  SDG 

indicator 

set; 

see 

https://ec.europa.eu/eurostat/web/sdi/main-tables).  

(80)  The EU SDG indicator set is aligned as far as appropriate with the UN list of global indicators, noting that the UN indicators are 
selected for global level reporting and are therefore not always relevant in an EU context. The EU SDG indicators have strong 
links with EU policy initiatives. 

(Continued on the next page) 

85 

 
 
                                                           
 
  
 
References 

Table (continued) 

(Continued on the next page) 

86 

 
 
 
 
   
 
References 

Table (continued) 

(Continued on the next page) 

87 

 
 
 
 
   
 
References 

Table (continued) 

(Continued on the next page) 

88 

 
 
 
 
 
 
   
 
References 

Table (continued) 

Source: Eurostat 

89 

 
 
   
References 

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