CELEX: 52011SC0806
Language: en
Date: 2011-06-07 00:00:00
Title: Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Franceand delivering a Council opinionon the updated Stability Programme of France, 2011-2014

EUROPEAN COMMISSION
                                    Brussels, 7.6.2011
                                    SEC(2011) 806 final
                     Recommendation for a
              COUNCIL RECOMMENDATION
      on the National Reform Programme 2011 of France
               and delivering a Council opinion
   on the updated Stability Programme of France, 2011-2014
                    {SEC(2011) 719 final}
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 ---pagebreak---                                            Recommendation for a
                                     COUNCIL RECOMMENDATION
                          on the National Reform Programme 2011 of France
                                      and delivering a Council opinion
                       on the updated Stability Programme of France, 2011-2014
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty on the Functioning of the European Union, and in particular
   Article 121(2) and 148(4) thereof,
   Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of
   the surveillance of budgetary positions and the surveillance and coordination of economic
   policies1, and in particular Article 5(3) thereof,
   Having regard to the recommendation of the European Commission2,
   Having regard to the conclusions of the European Council,
   Having regard to the opinion of the Employment Committee,
   After consulting the Economic and Financial Committee,
   Whereas:
   (1)     On 26 March 2010, the European Council agreed to the European Commission's
           proposal to launch a new strategy for jobs and growth, Europe 2020, based on
           enhanced coordination of economic policies, which will focus on the key areas where
           action is needed to boost Europe’s potential for sustainable growth and
           competitiveness.
   (2)     On 13 July 2010, the Council adopted a recommendation on the broad guidelines for
           the economic policies of the Member States and the Union (2010 to 2014) and on 21
           October 2010, adopted a decision on guidelines for the employment policies of the
           Member States,3 which together form the “integrated guidelines”. Member States were
           invited to take the integrated guidelines into account in their national economic and
           employment policies.
   1
           OJ L 209, 2.8.1997, p. 1.
   2
           OJ C , , p. .
   3
           Maintained for 2011 by Council Decision 2011/308/EU of 19 May 2011.
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 ---pagebreak---    (3) On 12 January 2011, the Commission adopted the first Annual Growth Survey,
       marking the start of a new cycle of economic governance in the EU and the first
       European semester of ex-ante and integrated policy coordination, which is anchored in
       the Europe 2020 strategy.
   (4) On 25 March 2011, the European Council endorsed the priorities for fiscal
       consolidation and structural reform (in line with the Council’s conclusions of 15
       February and 7 March 2011 and further to the Commission’s Annual Growth Survey).
       It underscored the need to give priority to restoring sound budgets and fiscal
       sustainability, reducing unemployment through labour market reforms and making
       new efforts to enhance growth. It requested Member States to translate these priorities
       into concrete measures to be included in their Stability or Convergence Programmes
       and National Reform Programmes.
   (5) On 25 March 2011, the European Council also invited the Member States participating
       in the Euro Plus Pact to present their commitments in time to be included in their
       Stability or Convergence Programmes and their National Reform Programmes.
   (6) On 3 May 2011, France submitted its 2011 Stability Programme update covering the
       period 2011-2014 and its 2011 National Reform Programme. In order to take account
       of the interlinkages, the two programmes have been assessed at the same time.
   (7) France was relatively less affected than other EU Member States by the economic and
       financial crisis, with a decline of 2.7% in GDP in 2009, partly due to sizeable
       economic stabilisers and a relatively low degree of openness of its economy, which
       reduced the impact to some extent on France of the collapse in world trade. The
       banking sector also proved to be resilient. In 2010, the economy recovered and,
       overall, GDP growth came out at 1.5%. However, the economic crisis has substantially
       impacted France's public finances. Due to the automatic stabilisers and discretionary
       fiscal stimulus, the general governement deficit rose from 3.3% of GDP in 2008 to
       7.5% in 2009. Similarly, the crisis has exacerbated the insufficient utilisation of labour
       and the structural weaknesses of the French labour market, where there was a
       relatively high level of unemployment of 9.7% in 2010. In addition, the trade balance
       of goods has gradually deteriorated during the last decade, highlighting the challenges
       of French companies in terms of cost and non-price competitiveness.
   (8) Based on the assessment of the updated Stability Programme pursuant to Council
       Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic
       scenario underpinning the budgetary projections is too favourable. Expected growth
       levels are slightly higher than the most recent projections of the Commission services
       for 2011 and 2012 and they remain well above the potential growth in later years.
       After a better-than-expected deficit of 7% of GDP in 2010, the programme plans to
       bring it down to 3% in 2013, which is the deadline set by the Council for correcting
       the situation of excessive deficit, and to continue consolidation thereafter. Starting
       from a debt of 82% of GDP in 2010, the debt ratio is set to increase until 2012 (86%),
       after which it will decline slightly. The deficit and debt adjustment paths are subject to
       downside risks, which include the possibility of a macroeconomic scenario that could
       turn out to be less favourable, a lack of specification of measures, and the fact that
       targets have often been missed in the past. Therefore, in the absence of further
       measures it cannot be ensured that the excessive deficit will be corrected by 2013. The
       medium-term objective (MTO) of a balanced budget in structural terms is not likely to
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 ---pagebreak---         be reached within the programme period. The average annual fiscal effort over the
        2010-2013 period, based on the trend of the (recalculated) structural balance, is
        slightly below what was called for in the Council recommendation (above 1% of
        GDP).
   (9)  Implementation of fiscal consolidation remains a major challenge. Avoiding
        expenditure slippages by means of a strengthened fiscal effort based on fully specified
        measures is vital to re-establishing a sustainable fiscal position, especially since the
        2013 target does not provide any safety margin below the 3% of GDP threshold.
        Moreover, it would be appropriate to use all windfall revenues to accelerate the deficit
        and debt reduction. To improve the long-term sustainability of public finances, France
        adopted a new pension reform in 2010. The planned measures, including the gradual
        increase in the minimum retirement age from 60 to 62 and the phasing out of early
        retirement schemes, should have an impact on the low employment rate of older
        workers. Moreover, the pension system is expected to be in balance by 2020. A deficit
        is likely to appear thereafter unless further measures are taken. The latest pension
        reform has also created a new public body, the "Comité de pilotage des régimes de
        retraite", which is in charge of presenting annual assessments of the budgetary
        situation of pension accounts and, if there is any likelihood of a deterioration, of taking
        corrective measures.
   (10) The current employment protection legislation is still too strict: the conditions for
        economic dismissals are subject to legal uncertainty, while there are major
        redeployment obligations that apply to large collective dismissals (Plans de
        sauvegarde de l'emploi). This is leading to labour market outcomes where workers on
        indefinite labour contracts (majority of the labour 'stock') benefit from a relative
        degree of security and workers on temporary labour contracts (majority of the inflow
        into the labour market) are exposed to uncertainties. Hence, the share of temporary
        contracts is significantly higher for young workers, and there are few transitions from
        temporary contracts to permanent contracts. This segmentation also applies to access
        to vocational training. There is consequently a high turnover and a limited
        accumulation of human capital in these workers. Young workers and the low-skilled
        are therefore exposed to disproportionate risks in the labour market. The aim of the
        2008 Labour Market Modernisation Act was to modernise social dialogue and to
        address the issue of labour market dualism. However, the reform did not tackle
        contractual segmentation and generally fell short of the measures needed to resolve the
        dualism of the French labour market.
   (11) The French unemployment rate was slightly above the EU average in 2010 and long-
        term unemployment is on the rise (3.9% in 2010 vs. 2.9% in 2008). In this context,
        public employment services should play an important role in supporting the
        unemployed in their search for a job. In France, the new one-stop shop public
        employment service Pôle Emploi has so far shown mixed results. In 2009-2010, its
        main objective was mainly focused on the merger of the two pre-existing
        administrative entities. Outsourcing of placement services has so far yielded mixed
        results in achieving the return to work targets set by Pôle Emploi. At the same time,
        Pôle emploi resources dedicated to individualised support of job seekers remain
        underdeveloped (71 full-time equivalents per 10 000 unemployed, which is
        significantly below the levels recorded in some peer countries).
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 ---pagebreak---    (12) The French current account deficit has gradually deteriorated during the last decade,
        reflecting the decline in the trade balance of goods, partly due to a decrease in labour
        cost competitiveness after the single minimum wage was reintroduced in the 2003-
        2005 period (the previous reform of the 35 hours working week had resulted in five
        different minimum levels). Some improvements have been made to the indexation
        procedure (creation of an advisory commission of independent experts, elimination of
        discretionary hikes) leading to a moderation of the increase in the minimum wage. As
        a result, the proportion of employees that are paid the minimum wage has decreased
        substantially, enabling better wage differentiation. However, the French minimum
        wage is still among the highest in the European Union when compared to the median
        salary even if the tax-wedge is much lower than for the average salary due to cuts in
        employers' social security contributions.
   (13) France has one of the highest tax and social security burdens on labour in the EU,
        while the tax on consumption remains relatively low. Moreover, environmental tax
        revenues as a share of GDP are also well below the EU average. Rebalancing the tax
        system by switching taxation from labour towards consumption and the environment
        is likely to have a beneficial effect on jobs as well as on environmental objectives.
   (14) Tax and social security exemptions (including ‘niches fiscales’) in France are very
        high (around 11% of GDP) and pose a threat to the consolidation of its public
        finances. In addition, understanding and exploiting the benefits of the system requires
        firms and households to invest in extensive expertise. While tax expenditures are used
        to implement a given economic policy, there is no systematic assessment whether they
        have managed to fulfil the objectives pursued. Eventually, their substitutability with
        public expenditures has allowed the French authorities to formally meet existing
        spending rules. A decrease of the budgetary cost of tax expenditures (partly linked to
        the reduction of their number) by around 0.75% of GDP over the period 2011-2013 is
        foreseen by the French authorities. However, the precise tax expenditures to be
        abolished have not yet been identified as from 2012.
   (15) Competition in the retail sector is still hampered by administrative restrictions on the
        opening of large retail outlets, and a ban on resale below cost. In the services sector,
        there are still barriers to competition for several regulated professions, which could be
        tackled either by reviewing the entry conditions, or by gradually doing away with
        certain quotas (numerus clausus) and the exclusive rights that these professions hold.
   (16) France has made a number of commitments under the Euro Plus Pact4. On the fiscal
        side, France has undertaken to swiftly implement the 2010 pension reform. With a
        view to strengthening fiscal sustainability, France will also change its constitution to
        introduce binding multiannual budget planning. To increase labour participation,
        various measures are being considered to increase active labour market policies (e.g.
        apprenticeship to ease the school-to-work transition of younger workers, additional
        childcare facilities by 2012 to improve female employment prospects, strengthening of
        the public employment services for jobseekers). The competitiveness measures focus
        on improving the higher education system and promoting R&D and innovation
        ("investissements d'avenir"), as well as reducing the administrative burden by
        implementing a comprehensive programme of administrative simplification. These
   4
        More details on the commitments made under the Euro Plus Pact can be found in SEC(2011) 719.
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 ---pagebreak---         commitments refer to three of the four areas of the Pact, leaving out the financial
        sector. Although they are taken in those areas where the main French challenges lie,
        many of them (particularly those concerning fiscal governance or support to higher
        education and R&D) are confirmations of existing public policies/reforms. The reform
        agenda does not seem fully consistent with the extent of the macroeconomic
        challenges faced in the labour market or the business environment. In addition, the
        envisaged constitutional reform is subject to political uncertainty. These Euro Plus
        Pact commitments have been assessed and taken into account in the recommendations.
   (17) The Commission has assessed the Stability Programme and National Reform
        Programme, including Euro Plus Pact commitments for France5. It has taken into
        account not only their relevance to sustainable fiscal and socio-economic policy in
        France but also their conformity with EU rules and guidance, given the need to
        reinforce the overall economic governance of the European Union by providing EU
        level input into future national decisions. In this light, the Commission considers that
        the fiscal consolidation strategy needs to be made more specific, particularly for 2012
        and beyond, in order to ensure that the excessive deficit is corrected by 2013 and the
        debt is brought onto a downward path. Any windfall revenues should be used to
        accelerate the deficit and debt reduction. A shift from labour towards environmental
        and consumption taxes, and a streamlining of tax expenditure, would bolster fiscal and
        environmental objectives and improve the business environment. Further steps in
        2011-12 should focus on adapting the employment protection legislation to reducing
        the dualism of the labour market, and on strengthening public employment services in
        order to provide comprehensive support to jobseekers. Existing policy on minimum
        wage moderation should be pursued. Competition should be fostered in regulated
        professions and retail trade.
   (18) In light of this assessment, also taking into account the Council Recommendation
        under Article 126(7) Treaty on the Functioning of the European Union of 2 December
        2009, the Council has examined the 2011 update of the Stability Programme of France
        and its opinion6 is reflected in particular in its recommendation under (1) set out
        below. Taking into account the European Council conclusions of 25 March 2011, the
        Council has examined the National Reform Programme of France,
   HEREBY RECOMMENDS that France should take action within the period 2011-2012 to:
   (1)    Ensure the recommended average annual fiscal effort of more than 1% of GDP over
          the period 2010-2013 and rigorously implement the correction of the excessive
          deficit by 2013; specify the necessary corresponding measures and use any windfall
          revenues to accelerate the deficit and debt reduction; continue to review the
          sustainability of the pension system and take additional measures if needed.
   (2)    Undertake renewed efforts, in accordance with national practices of consultation with
          the social partners, to combat labour market segmentation by reviewing selected
          aspects of employment protection legislation; ensure that any adaptations in the
          minimum wage are supportive of job creation, especially for the young and the low-
          skilled.
   5
        SEC(2011) 719.
   6
        Foreseen in Article 5(3) of Council Regulation (EC) No 1466/97.
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 ---pagebreak---    (3)     Encourage access to training in order to help maintain older workers in employment
           and create incentives to support return to employment. Step up active labour market
           policies and introduce measures to improve the organisation, decision-making, and
           procedures of the public employment service to strengthen services and
           individualised support provided to those at risk of long-term unemployment.
   (4)     Increase the efficiency of the tax system, including through a move away from
           labour towards environmental and consumption taxes, and implementation of the
           planned reduction in the number and cost of tax and social security exemptions
           (including 'niches fiscales').
   (5)     Take further steps to remove unjustified restrictions on regulated trades and
           professions, in particular in services and the retail sector.
   Done at Brussels,
                                                For the Council
                                                The President
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