2010 Article IV Consultation: Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for France

The French economy weathered global crisis better than most of its peers. The authorities have taken important policy actions to stabilize the financial system and have implemented suitable fiscal stimulus to cushion the downturn. Executive Directors welcomed the policy, which aims to strengthen the economy through fiscal consolidation, recovery of financial system, improving financial regulation, and also implementing structural reforms to raise potential growth, create jobs, and strengthen competitiveness. They stressed the importance of a multiyear budget framework to enhance the credibility of the consolidation effort.


The French economy weathered global crisis better than most of its peers. The authorities have taken important policy actions to stabilize the financial system and have implemented suitable fiscal stimulus to cushion the downturn. Executive Directors welcomed the policy, which aims to strengthen the economy through fiscal consolidation, recovery of financial system, improving financial regulation, and also implementing structural reforms to raise potential growth, create jobs, and strengthen competitiveness. They stressed the importance of a multiyear budget framework to enhance the credibility of the consolidation effort.

I. Context: From Recession To Recovery

A. The Recovery is Underway

1. Following a less severe recession than in most other advanced economies, a fragile recovery in underway. France outperformed its peers in 2009, with real GDP contracting by 2½ percent, compared to a downturn of 5 percent in both Germany and Italy and about 4 percent in the Euro Area as a whole. The relatively less severe downturn in France reflects the comparatively low trade openness, a fairly resilient financial sector, the large social safety net, and timely and decisive government intervention. The French economy exited the recession in 2009:Q2, but the recovery is being tested in the first part of 2010 by weakening household confidence and demand amid market concerns about sovereign risks in the Euro Area.


Recession and Recovery in Selected Economies

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Source: WEO, and IMF staff estimates.

2. The recovery has been driven by private consumption and net exports, as well as a turn in the inventory cycle. Household spending received a significant boost from the government stimulus measures, notably the car scrapping scheme (Box 1), although automobile purchases plummeted in early 2010 as a result of payback effects. Fixed investment declined throughout 2009 and in the first quarter of 2010 despite substantial public intervention (Figure 1). Net exports have supported the recovery as foreign demand picked up, although imports strengthened toward the end of 2009 and in early 2010. At the same time, the large output gap has kept inflation low, despite the rebound in commodity prices.

Figure 1.
Figure 1.

France: Economic Developments

(Percent change)

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Sources: Global Insight/DataInsight, and IMF, World Economic Outlook.

3. Notwithstanding the rebound, the unemployment rate continued to increase, notably among the young. After reaching a low of 7.2 percent in June 2008, the unemployment rate has risen steeply and stood at 9½ percent as of May 2010. The increase is larger than expected given the depth of the downturn, likely reflecting, in part, the adjustment in specific sectors, including financial services and construction, where the reduction in employment has likely exceeded the output decline.

The Impact of the Car Scrapping Program

The French car scrapping scheme (prime à la casse) was launched in January 2009 as a part of the fiscal stimulus package. The program introduced a bonus of €1,000 off the price of a new car with emissions under 160g CO2/km if the buyer scraps a car that is more than 10 years old in the course of 2009. While the scheme remains in place through the end of 2010, the size of the bonus dropped to â700 in January and is set to further diminish to â500 in July. The total amount of the program is â620 million, or about 0.03 percent of GDP. In addition, a state guarantee for car loans in the amount of â6.5 million and several eco-friendly tax measures have also been introduced. Finally, France has likely indirectly benefitted from the German car scrapping program.

Staff estimates suggest that the scheme’s effects can account for the bulk of private consumption growth in 2009. The behavior of private expenditure on cars since 2000 can be explained by a simple model including gasoline price growth, two lags of the dependent variable, and a moving average term. However, this model cannot explain the rise in car sales during 2009. Dummy variables for the four quarters of 2009 suggest that the car scrapping scheme raised car consumption growth by about 5 percentage points, on average, with the strongest effect in Q4. These effects translate into a contribution to total private consumption growth in 2009 of 0.3 percentage points, on average, in quarter-on-quarter terms and 0.6 percentage points in year-on-year terms. In actuality, private consumption in 2009 grew by 0.4 percentage points, on average, in quarter-on-quarter terms and 0.9 percentage points in year-on-year terms.

Source: Haver Analytics, and IMF staff estimates.

Following the success of the scheme during 2009, auto sales plummeted and lowered private consumption growth in early 2010. The phasing out of the car scrapping scheme gave rise to the “payback effect” of the inter-temporal shift in vehicle purchases. Although it may have been mitigated to the extent that the scheme had crowded out other private spending, the effect was still significant. This dynamic is in line with past experiences, as France saw sharp declines in car sales following previous scrapping schemes introduced in the 1990s.

4. Although financial conditions have improved, credit growth remains depressed. The global financial crisis has had a relatively less negative impact on French banks than on most European peers, in part reflecting their comparatively conservative lending practices and the consistent supervisory coverage of all lending institutions. Nevertheless, asset quality has worsened and additional writedowns on risky assets are likely. Private credit growth has remained sluggish but available evidence suggests that loan developments, especially in the corporate sector, are driven more by depressed credit demand than by short supply (see Analytical Note 1).

5. Sovereign spreads remain moderate, but concerns over sovereign risks linger. The debt crisis in Greece and widespread concerns about its repercussions for other vulnerable members of the Euro Area continue to influence the economic agenda in the region. That said, the spread over German Bunds remains moderate. French banks have relatively large exposures to Greece, Ireland, Italy, Portugal, and Spain that account for seven percent of bank assets and 30 percent of GDP. These exposures are dominated by holdings of private Italian and Spanish debt, while sovereign debt positions in Greece are small.

B. The Policy Focus is Changing

6. The policy focus is shifting from crisis management to strengthening the foundations of the economy. The authorities have taken important policy actions to stabilize the financial system and implemented a suitable fiscal stimulus package to cushion the downturn (Box 2). As the recovery gains momentum, the policy focus is on fiscal consolidation, better financial regulation, and structural reforms to raise potential growth and strengthen competitiveness. At the same time, the authorities need to stand ready to take action to support the banking sector if the sovereign near-crisis worsens.

Key Measures Taken by the Government to Support the Economy

Financial sector measures included the creation of two separate agencies to recapitalize banks and provide government guarantees for bank refinancing:

  • Recapitalization has been handled by a €40 billion (2 percent of GDP) bank recapitalization fund (Société de Prise de Participations de l’ tat, SPPE). It actually injected about half of this amount into the six largest French banks in the form of deeply subordinated debt securities and preference shares with built-in buy-back incentives. In the fall of 2009, banks started to repay the state capital by issuing equity, cooperative certificates or deeply subordinated debt. All but one bank have now repaid the public capital injections.

  • Refinancing operations have been undertaken by a €265 billion (about 14 percent of GDP) bank refinancing scheme (Société de Financement de l’Économie Française, SFEF). SFEF issued government-guaranteed bonds denominated in various currencies and was the largest single issuer of the new asset class, attracting a wide range of investors. It actually raised the equivalent of €77 billion (about 4 percent of GDP), about 37 percent of which will fall due in 2012. SFEF on-lent to banks in proportion to the market share of each bank in terms of customer loans and assets at a rate that was a function of the funding costs, CDS spreads, and a fee of 20 basis points. French banks started to issue bonds without government guarantees in the summer of 2009 and the bank refinancing scheme was allowed to expire at end-2009.

  • Fiscal stimulus in the amount of 2¼ percent of GDP over 2009–10 is helping to cushion the downturn and its execution is effectively managed. The package includes a series of cash-flow measures to buttress the corporate sector (tax credits on R&D outlays, accelerated reimbursement of VAT credits, and accelerated depreciation of investment); actions to support households (a temporary reduction of the personal income tax in 2009, public expenditures on social housing, and additional unemployment benefits); and public investment by the central government, local authorities, and public enterprises. Measures to support the automobile sector, including a car scrapping scheme (prime à la casse), have been very effective in stimulating consumption. In addition, the government has abolished the local business tax (taxe professionelle).

7. In public finances, the focus is moving from supporting demand to fiscal consolidation, as both the deficit and the debt have risen sharply. With the operation of automatic stabilizers and discretionary fiscal measures, the general government deficit rose from 3.3 percent of GDP in 2008 to 7.5 percent in 2009 (Figure 2). For 2010, a deficit of 8 percent of GDP is expected. France has been under the excessive deficit procedure (EDP) of the European Commission since February 2009.1 The general government gross debt reached 78.1 percent of GDP in 2009. Unless a substantial fiscal consolidation is undertaken, the debt is bound to further increase over the medium term (including as a result of population aging), thereby threatening the sustainability of public finances.

Figure 2.
Figure 2.

France: Fiscal Developments

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Sources: Eurostat; Datastream; Haver; and IFS.1/ Sample of twelve EU countries for which full historical data are available, classified by the ratio of debt to GDP in a given year.

Fiscal Deficit in 2007 and 2009

(In percent of GDP)

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Source: WEO

General Government Gross Debt, 2000–15

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Note: Projections are based on current policies.

8. In the financial sector, crisis support measures are being phased out while steps are being taken to improve the regulatory framework. As stability returned to the French banking sector, a gradual exit from crisis-related financial support proceeded. However, with asset quality weakened by the recession and new threats to financial stability arising from sovereign debt concerns, enhanced vigilance, more transparency, better communication, and effective implementation of newly agreed regulatory guidelines are coming to the policy forefront. With a view to improving financial regulation, the authorities have created a new regulatory and supervisory framework and are playing an active role in international and European financial sector reforms.

II. Outlook And Risks: A Gradual Rebound And Challenges Ahead

A. The Recovery is Fragile

9. France is expected to recover gradually. Staff projects real GDP to grow by 1.4 percent in 2010 and 1.6 percent in 2011, in line with Germany and somewhat faster than in the Euro Area as a whole. The authorities expected a stronger rebound in 2011, assuming a more vigorous recovery in domestic demand. Staff, however, believes that the recovery is likely to be weaker than after previous recessions, due to the global nature of the recent downturn and the damage to financial markets in France and elsewhere (Box 3). In addition, the same features of the French economy that partly shielded it during the recession—large automatic stabilizers, high social protection, and long-standing rigidities in labor and product markets—are also likely to slow the pace of the recovery.

The French Recovery in Historical Context

The French recovery is expected to be somewhat faster than in the Euro Area as a whole. The latest recession has done less damage to the French economy, than to many of its peers in the Euro Area. Indeed, the output loss in France between the pre-recession peak and the trough in early 2009 was about 3½ percent, compared to over 5 percent in the Euro Area. Staff forecasts that by early 2011 France will recoup about three quarters of this loss, while the Euro Area as a whole will regain less than a half.

However, the current recovery is expected to be slower than comparable past recoveries. There have been only three recessions over the past 50 years that are comparable in scope to the most recent global downturn: the mid-1970s, the early 1980s, and the early 1990s.1/ Of these, the early 1990s recession was also associated with financial crises in a number of industrial countries, including France. Staff forecasts that the current recovery will be slower than the recoveries from these past recessions both in France and in the Euro Area, owing to the more global nature of the most recent downturn and the more widespread financial distress than in the past.

The current recovery will likely be slow and weak because it follows a global financial crisis. The recoveries following financial crises tend to be weak due to persistently sluggish domestic demand, as households and firms adjust their balance sheets amid lower asset prices and scarce credit. However, countries recovering from financial distress usually benefit from relatively strong external demand, unless their recessions were synchronized with many other countries. In these latter cases, the recoveries tend to be slow mostly because export growth is much weaker than after localized recessions


Recoveries After Highly Synchronized Recessions

(Real GDP =100 at the trough, quarters on x-axis)

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Source: WEO; IMF staff calculations.
1/ International Monetary Fund (2009), From Recession to Recovery: How Soon and How Strong? World Economic Outlook, April 2009.
Figure 3.
Figure 3.

France: A Fragile Recovery

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Sources: Global Insight/DataInsight; Haver Analytics; and IMF, World Economic Outlook.

10. The recovery is expected to be driven mainly by domestic demand, with net exports supportive in the near term. Private consumption growth is expected to pick up somewhat in 2010–11, but the resilience of private consumption will be weakened by high unemployment—forecast at around 10 percent over 2010–11—with the withdrawal of stimulus measures and prospects of fiscal consolidation adding to caution on the part of households. At the same time, investment will be held back by excess capacity and uncertainty, including about continued credit availability, with residential investment projected to lag business investment as the house price correction continues. Stockbuilding is expected to buttress growth in 2010–11. The export rebound in the first part of 2010 will contribute to output expansion but export growth over the medium term would be limited by the moderate recovery in main trading partners and by competitiveness problems in the French economy, with the depreciation of the euro likely to provide only limited relief. With imports boosted by rising demand, the growth contribution of net exports would turn slightly negative in the medium term. Against this background, and with the impact of recent exchange rate movements partly offset by the dynamics of commodity prices, inflation is forecast to remain low at 1.3 percent in 2010 and 1.6 percent in 2011, broadly in line with that in the Euro Area.

11. Staff sees risks to the outlook as slanted to the downside while the authorities saw them as more balanced. Lingering concerns about sovereign risks in the Euro Area could dampen confidence, increase financing costs, and depress demand. A slower-than-expected recovery in trading partners, linked to the European debt turbulence and intensified fiscal consolidation efforts, would weaken exports. Since roughly half of French exports are destined for the Euro Area and about two-thirds for the European Union, growth prospects there are most important. Risks in the financial sector, linked to the impact of the recession on asset quality and to potential spillovers from mature markets, could further depress credit growth. A sharp decline in housing prices would further weaken the construction sector, which at about 6½ percent of GDP is still some 1 percent larger than its historical size. However, the fallout from a house price correction for household consumption would be limited by the relatively low level of household indebtedness and the relatively difficult access to mortgage financing.2 On the upside, a smaller-than-projected increase in unemployment could strengthen consumption growth and bolster confidence. A further depreciation of the euro could lend additional support to exports. Visible progress in the reform agenda, including fiscal consolidation, financial regulation, and structural measures, would inspire confidence and boost demand.


Real GDPGrowth: Risks to the Forecast

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Sources: IMF staff estimates and projections.Notes: The chart includes the following risks to the baseline growth projections in 2010 and 2011:(a) a weakening in foreign demand;(b) a smaller increase in unemployment.;(c) a rise in funding costs;(d) a depreciation of the euro.The risk assessment is based on the methodology described in the IMF Working Paper WP/09/178 by Selim Elekdag and Prakash Kannan.

B. Potential Growth has Fallen

12. Potential growth is expected to return to trend over the medium term while the trend rate would be lower than in the recent past due to demographic factors. Potential growth is expected to remain at about 1 percent in 2010–11 and to gradually return to its trend rate of about 1½ percent over the medium term. In staff’s view, the trend rate would be some ½ percent lower than over the last decade owing notably to population aging. The drop in potential growth over 2009–11 is associated with the impact of the recession and financial stress. It is linked to the sharp contraction of investment and the resulting slowdown in capital accumulation, a rise in structural unemployment, and a possible temporary reduction in allocative efficiency that could lower total factor productivity growth. Although potential growth is projected to gradually rebound to its trend rate, the French economy has suffered a permanent loss of about 3½ percent in the level of potential output. The adjustment to the diminished productive capacity could result in persistently high unemployment going forward. The authorities were more optimistic regarding both the trend growth rate of potential output and the impact of the past recession, mainly reflecting their higher estimate of total factor productivity growth.

Sources: WEO and IMF staff estimates.

III. Policy Challenges: Safeguarding Fiscal Sustainability, Ensuring Financial Stability, And Increasing Growth

13. To strengthen the French recovery, key policy challenges lie in the areas of safeguarding fiscal sustainability, ensuring financial stability, and increasing growth. The authorities have taken important policy actions that have helped to reestablish financial stability and mitigate the impact of the global downturn on the French economy. However, the recession has left significant policy challenges in its wake, key among which are fiscal consolidation, better financial regulation, and structural reforms.

A. Fiscal Sustainability: Achieving a Large and Durable Consolidation

14. The fiscal stimulus package that has helped support domestic demand is set to largely expire by end-2010. The stimulus measures of about 2¼ percent of GDP enacted in 2009–10 have been mostly front-loaded, diversified, and well-targeted. Good public financial management has helped maintain an appropriate pace of implementation of the stimulus. The amended budget law for 2010 includes additional stimulus of 0.6 percent of GDP from the abolition of the local business tax (taxe professionelle), in order to stimulate business investment, that is only partly offset by other taxes (Box 4), and 0.1 percent of GDP from the new public investment program focused on education and research (investissements d’avenir). The bulk of stimulus measures is set to automatically end in 2010.

The 2010 Local Business Tax Reform in France

Beginning in 2010, the government suppressed the controversial local business tax (taxe professionnelle, TP), as part of the stimulus measures targeted at boosting competitiveness and growth, especially for SMEs. The TP used to be levied on the value of the fixed asset base of companies, namely property (that will still be taxed but under a different name) and capital equipment (abolished). As a result, investment suffered, especially in industry, energy and transport sectors, which contributed about two-thirds of the total revenues generated by the tax. Over the past years, the government had already made some concessions to certain types of business, exempting artisans, farmers as well as rural and urban development zones, introduced an exemption for new capital investment, and added a cap on tax increases for larger companies.

TP was one of three local taxes that funded local government services in France. In 2007, TP amounted to 1.5 percent of GDP, as compared to the respective revenues of 1.1 and 0.8 percent of GDP from the property tax (the taxe foncière, TF) and the residence tax (the the taxe d’habitation (TH). The proceeds from TP were split between local governments (0.9 percent of GDP, of which about 0.3 percent came from the central government to substitute for TP exonerations), departments (0.45 percent of GDP), and regions (the remaining 0.1 percent of GDP). TP came under fire for its poor horizontal redistribution properties as it favored more industrialized jurisdictions, for some of which it accounted for up to 80 percent of total revenues.

The central government pledged to shelter the local governments from any revenue loss due to TP reform. After being compensated in 2010, local authorities will be assigned revenues from several other taxes, many with a less volatile base than capital investment under TP. In particular, the TP revenue loss is expected to be offset by a combination of quotas from the property tax on enterprises (the cotisation foncière des enterprises, CFE) and VAT (the cotisation sur la valeur ajoutée des enterprises, CVAE). The CVAE progressive rates will range from zero to 1.5 percent, depending on turnover. Large energy, telecommunications, and railway companies will pay an additional lump-sum levy. For the central government, the losses are projected to phase out gradually, in line with the widening tax base for the corporate income tax.

15. The impact of the recession on the fiscal balance has aggravated the challenging debt situation associated with mounting aging-related spending pressures. Under current policies, the primary balance is set to remain in deficit through 2014 and, as a result, the debt ratio could climb more than 25 percentage points above its pre-crisis level, reaching 90 percent of GDP over the medium term. About two-thirds of the debt buildup between 2007 and 2015 is estimated to come from the automatic stabilizers and the crisis-induced loss of potential output, as well as the crisis-related revenue loss, the cost of the fiscal stimulus package, and financial sector support. The remainder is explained by interest payments and structural deterioration not related to the crisis that would occur without consolidation measures over 2011–15. In the absence of significant policy adjustment, large spending pressures from agingrelated entitlements on health care and pensions threaten to raise the public debt to unsustainable levels over the long term.


Debt Decomposition for Advanced G20 Countries and France, 2007–15

(in percent of GDP

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Sources: WEO; IMF staff estimates and projections.

France: Projected Pension and Healthcare Expenditures, 2010–50

(in percent of GDP)

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Sources: From Stimulus to Consolidation: Revenue and Expenditure Policies in Advanced and Emerging Economies, IMF Policy Paper, April 2010 and Conseil d'Orientation des Retrailes, Eighth Report, April 2010.

16. The government is firmly committed to undertaking a large fiscal consolidation starting in 2011, which staff supports. France’s Stability Program 2010–13 aims to reduce the deficit to 3 percent of GDP by 2013, and important steps have been taken to increase the national ownership of the targeted consolidation, including by further strengthening the multiyear budgetary framework for 2011–13. Pursuant a national conference on the public deficit, a number of working groups are suggesting ways to re-establish equilibrium in public finances in France, encompassing all levels of government. In June, a major pension reform was announced that is to be legislated in the coming months (see below). Already announced revenue measures include gradually offsetting the revenue loss due to the abolishment of the local business tax and reducing the numerous tax expenditures (by €5 billion during 2011–12, to reach the total of €6 billion in 2013). The proposed ban on introducing new tax expenditures and exonerations from social security contributions outside the budgetary process would mark encouraging progress in improving fiscal discipline. On the expenditure side, the announced measures envisage increased efforts of the central government, including continued personnel reduction (replacing only one in two retiring civil servants) and a nominal spending freeze, also applicable to transfers to the local governments, but excluding interest and pension outlays.

17. Overall, the recently announced fiscal measures, provided these are legislated and implemented, are sizeable and ensure that all levels of government participate in fiscal consolidation. The table below quantifies the announcements in terms of their impact on revenues and expenditures. Key efforts will come from spending freezes and cuts at the central government level and from the pension reform package. For local governments, the freeze on central government transfers is very important to improve spending discipline.

France: Announced Fiscal Measures, 2011–13

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Sources: French authorities and IMF staff estimates.

Includes freezing of the salary grid for the public servants, transfers to local governments, and the moratorium on new off-budget tax expenditures.

Measures yet to be legislated.

18. The announced fiscal package contains a range of necessary elements but further efforts are needed to achieve the envisaged consolidation beyond 2011. The government’s consolidation program is based on the overly optimistic assumption that annual growth will increase to 2½ percent in 2011–13. The authorities indicated that they are in the process of revising their growth projections and saw merit in staff’s advice of developing a set of contingency spending measures in case economic developments turn out worse than projected. The baseline scenario, that is built on staff’s macroeconomic projections and excludes measures that still need to be legislated, shows that the overall deficit would appropriately decline to about 6 percent of GDP in 2011, but remain at about 4 percent of GDP by 2013. A debt sustainability analysis shows a debt ratio that would remain well above the Maastricht threshold even in good times, but that could reach over 110 percent of GDP in case of adverse shocks.3 Further efforts would be required to reduce the overall deficit to the target of 3 percent of GDP by 2013, as illustrated in the consolidation scenario. Such additional efforts should aim to limit detrimental effects on growth and include implementation of the announced reform of the pension system; implementation of effective spending ceilings in health care, taking account of the complicated publicprivate ownership structure of the health insurance system; and strict containment of local government spending. In parallel, broadening the VAT and the CIT bases as well as the introduction of a carbon tax coordinated at the European level would be important.

Sources: IMF, WEO; and IMF staff estimates.

France: Fiscal Scenarios, 2009–15

(in percent of GDP)

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Source: IMF staff estimates and projections.

19. A major pension reform has recently been announced as a key part of the authorities’ strategy to control social spending over the medium term. On June 16, the details were unveiled of the proposed reform, which aims to achieve financial equilibrium in the pension system by 2018 from a current deficit of almost 1.5 percent of GDP. In particular, the reform would gradually increase the effective retirement age by simultaneously raising the legal retirement age from 60 to 62 years and the legal minimum age of full pension entitlement from 65 to 67 years; raise high-income pension contributions; and gradually align the pension system of civil servants with that of the private sector. In parallel, resulting from previous reforms, the contribution period is being lengthened to reach 41 years in 2012 (Box 5). The reform is expected to provide a tangible increase in the effective retirement age, currently among the lowest among OECD countries. This will allow for better synchronizing the retirement policies with life expectancy at retirement, which at 28 years for women and 24 for men is the longest among advanced countries. In healthcare, significant reforms are needed to contain spending, in order to put the healthcare system on a solid financial footing and reduce its persistent deficits. A number of proposed measures aim to limit hospital and drugs costs and to better enforce the planned reduction of the existing spending norm (ONDAM), but significantly more needs to be done.4

The Pension System in France

France’s compulsory pay-as-you-go pension system, one of the oldest in Europe, is also one of the most generous. Currently, about a quarter of the French population (16 million people) receives pensions that total 13.5 percent of GDP. France tops the list of advanced countries with respect to the share of pensions financed by public transfers (over 85 percent). Since 2006, France has started to feel the demographic effect of aging, adding 280 thousand new retirees every year. The contribution ratio is projected to continue its decline from an already low 1.8 workers per retiree in 2010 to 1.2 by 2050, in spite of the highest birth rates in Europe. The system is fragmented between over 30 different schemes with public employees in particular enjoying higher pension benefits than their counterparts in the private sector, a situation the government wants to alter.


Percentage of Public Transfers in the Income of Persons Aged 65 and Over

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Source: “Pensions at a Glance 2009: Retirement-Income System in OECD Countries”, OECD, 2009.

Previous reform efforts in France succeeded in changing the parameters of the system, though at a significant cost, including lengthy periods of social unrest. During 1985–91, the government raised the employees’ contribution rates from 4.7 to 6.55 percent. The 1993 reform increased the base wage for calculating pensions in the private sector from the top 10 years to the top 25 years. Subsequent attempts have only brought limited cost-savings. The 2003 reform aimed at linking the contribution years for a full pension to life expectancy. The minimum contribution period for a full pension was increased from 37.5 to 40 years and, gradually, to 41 years by 2012 and 41.5 years by 2020. The 2007 reform extended the increase in contribution period to pensions under special regimes. These reforms will continue under the current reform effort.

20. Efforts to control local government spending are underway but need to be decisively maintained over the medium term. The significant decentralization efforts between 1990 and 2004 brought rapid growth of local government spending that averaged above 8 percent per year in real terms during the past decade, bolstered by increasing transfers from the central government. The authorities pointed out that freezing central government transfers to local governments in nominal terms over 2011–13 will encourage efficiency gains, including by reducing the duplication of responsibilities for each of the four layers of the local government. The latter could be accomplished by mimicking the central government policy of not replacing some retiring civil servants at the departmental and regional levels. The recent local business tax reform, combined with efforts to increase transparency and accountability, including by tying future increases in the local tax burden on firms to those on households, are welcome steps.

21. A sizable consolidation requires strengthening of the credibility and full national ownership of the medium-term consolidation objectives. Based on the experience from previous fiscal consolidations in France and elsewhere, successful adjustments usually rely on credible, comprehensive multi-year budgetary frameworks (see Analytical Note 2). The authorities concurred that to support the current consolidation plan the formal fiscal framework needs to be extended beyond the central government to encompass the local governments and the social security systems. To enhance credibility, the multiyear budget should rely on realistic independent macroeconomic forecasts (Box 6). The authorities are considering setting up a council to validate the macroeconomic assumptions underlying the multiyear budget.

22. Introducing a fiscal rule would significantly strengthen the credibility of the consolidation and support better fiscal discipline in the Euro Area. A high-level working group is examining the modalities of a possible fiscal rule and will present its recommendations by end-June.5 The authorities indicated their desire to have a rule that is tailored to France-specific circumstances, notably as regards the coordination of the contribution of the different levels of government to the implementation of the rule. Staff encouraged the authorities to adopt, like others European countries, a fiscal rule on the structural government balance, preferably with a built-in debt-brake mechanism. To be credible, the rule should be enshrined in high-level legislation (e.g., either the Constitution or a loi organique). With a further large EU member following this route, the step would constitute a de facto strengthening of the implementation of the Stability and Growth Pact and boost fiscal discipline in the Euro Area.

Strengthening Macroeconomic Assumptions for Multiyear Budgets

Multiyear macroeconomic forecasts done by the budget-preparing entities tend to be systematically biased upwards for the outer years. This bias has been present, in particular, in the Stability Programs submitted annually by members of the Euro Area. A recent study by the European Commission found substantial positive forecast errors in growth assumptions underlying fiscal projections one year ahead in a number of countries (see table).

Average Forecast Errors, Official GDP Growt

(projections one year ahead (1987–2004))

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Sources: European Commission (2004), Economic Papers No. 210.

Defines estimates significantly different from zero at the 10 percent significance level.

More realistic forecasts can be obtained by a fully independent forecasting body or through validation of the government’s forecast by an independent council. Examples of the first approach include the Netherlands, Belgium, Austria, Canada, the US, and, since very recently, the UK. As for the second approach, the references are Sweden, Hungary, Germany, and Japan. There is considerable variation in the extent to which an independent agency of either type is expected to analyze current fiscal developments and the costs of budgetary initiatives. However, the existence of an independent agency of either type helps make the forecasts of the relevant macroeconomic variables more realistic.

Country experiences include the Central Planning Bureau (CPB) of the Netherlands which conducts detailed analyses and provides the economic assumptions for the budget. It also undertakes research on a broad range of economic issues and plays a key role in the development of the fiscal policy contained in the agreements among the government coalition partners. The U.S. Congressional Budget Office (CBO) advises Congress on a range of fiscal issues. It analyzes the administration’s budget based on its own assumptions, “scores” new legislative proposals, and produces a large number and variety of in-depth analyses and reports. In Canada, budgets are based on macroeconomic assumptions averaged across the lower bound of the private forecasters’ consensus. In Chile, to strengthen the implementation of the structural fiscal rule, the projection of inputs needed for estimating the trend GDP and “trend” copper prices is delegated to two independent expert panels.

B. Financial Stability: Towards a Safer and More Resilient Financial Sector

23. French banks are emerging relatively stronger from the global financial crisis and a gradual exit from crisis-related financial support is under way. Staff and authorities agreed that the response the financial crisis had been successful. The refinancing scheme was allowed to expire at end-2009, and BPCE (see below) is the only bank still retaining some state capital. Driven by rising revenues across business lines (including retail, corporate and investment banking) and good control over operating expenses, gross operating profits of major French banks surged from €25 billion in 2008 to about €45 billion in 2009, in part reflecting low refinancing costs at the ECB. Despite the increase in the cost of risk, all major banks registered rising net profits and the rate of return on equity rose by two percentage points to above 6 percent in 2009. Retained earnings, equity issuances and a reduction of risk weighted assets, helped increase Tier 1 capital ratios from 8.7 in 2008 to 10.2 in 2009, above the Euro Area average of 9.1.

24. The crisis-related mergers in the financial sector increased the systemic importance of major institutions. A high level of concentration and significant crossownership among financial institutions—including between banks and insurance companies (“bank assurance”)—have been long-standing characteristics of the French financial system. As a result of the crisis, this feature became more dominant, given that domestic and cross-border consolidation has been one of the responses to address financial sector problems. Specifically, the acquisition by BNP Paribas of Fortis Banque in Belgium and Luxembourg and the merger of Groupe Caisse d’Épargne (GCE) and Groupe Banque Populaire (GBP) to create BPCE made the sector more dominated by systemically important financial institutions (SIFIs).

25. The new supervisory structure responds to the need for systemic supervision while control over remuneration aims to reduce incentives for excessive risk taking. The new Autorité de Contrôle Prudentiel (ACP) introduced in early 2010 merges banking and insurance supervision, licensing, and consumer protection. Staff and authorities agreed that a unified agency can more effectively control risks arising from cross-ownership and the systemic implications of the large entities active in different sectors. The responsibilities of the Autorité des Marchés Financiers (AMF) now include all markets and products as well as consumer protection, and a risk committee has been added. The reform will be completed by the planned creation of a systemic risk board (Conseil de Régulation Financière et du Risque Systémique), with participation of all relevant supervisors and government bodies. This body will also be linked to the European Systemic Risk Board to be established at the ECB. The authorities introduced one-time taxes on bonuses granted in 2009, and implemented G20 recommendations for sound compensation practices. France, along with other EU countries, is planning to impose a financial levy to protect taxpayers from the costs of future potential financial crises.

26. The fragile recovery and possible spillovers from the European sovereign debt crisis are now putting renewed stress on the financial system. As a result of the recession, asset quality has worsened, and large exposures of the French financial system to Southern Europe have raised concerns about spillovers and contagion (Box 7). On asset quality, nonperforming loans increased to 3.8 percent of the total loan portfolio in 2010:Q1. Staff expressed concern that the slow and fragile recovery may lead to further pressures on loan quality and banking income, and require additional provisions. With interest rates and exceptional liquidity conditions normalizing and competition returning, corporate and investment banking revenues are unlikely to be sustained at their 2009 level. Additional writedowns on portfolios of risky assets, including commercial real estate, legacy troubled and illiquid securities, and leveraged buy-outs (LBOs), are likely to continue, although at a lower rate than before. Fears of negative spillovers to French banks and insurance companies from the recession and sovereign debt problems in Southern Europe could have a negative impact on performance and outlook; they have already led to significant losses in market valuation, and contributed to the difficulties in medium and longer term funding. Spillovers of potential financial sector stress in France could imply reduced lending in Central and Eastern Europe.

Exposures of French Banks to Greece, Ireland, Italy, Portugal, and Spain (EA5)

France has diversified exposures to other European countries, including the EA5. Based on the latest BIS data, French bank exposures to EA5 account for about 7 percent of bank assets and 30 percent of nominal GDP. Of the French exposures to EA5 countries, 15 percent are to Greece, Ireland, and Portugal, while 60 percent are to Italy and 25 percent to Spain. The BIS data comprise of holdings of government debt, interbank loans, equity shares, and subsidiaries in EA5 countries. French banks published their exposures to Greece.

Exposures of French banks to EA5 are dominated by claims on nonfinancial corporates. The sector breakdown shows that about half of the exposures are accounted for by claims on corporates and a third are accounted for by holdings of government securities. The breakdown varies by individual countries with exposures to Italy’s public and corporate sector being the highest among public and corporate exposures to EA5 countries and exposures to Spain’s financial sector being the highest among exposures to banks in EA5 countries.

The direct impact on French banks of the Greek debt crisis is likely to be manageable. The two French banks most exposed to Greece gain substantial exposures mostly through the loan books in their Greek subsidiaries, which are small in comparison with the size of the respective French parent banks. Individual French banks’ exposures to Greece, Portugal, and Spain range from 2 to 10 percent of equity, compared with about 70 percent of large European banks having exposures above 10 percent of equity and the largest one having exposures of over several times of equity. The counterparty risk and funding risk of French banks may increase consequently, but given the dominance of corporate loans, the direct impact will depend to a large extent on the depth of the recession in these countries.

However, French banks remain vulnerable to spillovers. The foreign exposures of French banks tilt toward mature markets. Exposure to mature markets represented 83 percent of total foreign claims in 2009, dominated by exposures to Belgium, Germany, the U.S., and the U.K. France would be vulnerable to spillovers from these countries too if they were to be affected in the first place, which would significantly weaken the capital and liquidity position of the banks.

Sources: BIS, BdF, and Fund staff estimates.

27. As a result of spillovers, funding pressures could intensify. The funding environment for all banks in Europe is difficult: they face high rollover needs, competition for funding from much higher sovereign issuances, the expected withdrawal of extensive liquidity support from the ECB, and more competition for deposits to meet new liquidity requirements. French banks rely considerably on wholesale funding and have increased their reliance on ECB longer-term funding over recent quarters, although their share remained lower than their weight in the Euro Area banking sector. Banks have to either find ways to renew their funding, extend maturities, issue more long-term debt, build stronger liquidity buffers, or deleverage from the funding side. Staff noted that in addition to pressures common to all European banks, French banks might suffer from the perceived risks of their comparatively larger exposures to Southern Europe, which could reduce access and increase costs of funding, especially in US dollars. The authorities felt that the diversified nature of the exposures of the financial sector across different Southern European countries, including both sovereign and commercial debt, would limit potential fallout. Nevertheless, reactivating the government-supported bank refinancing scheme may be considered if needed as well as continuing with the bank recapitalization scheme, in case banks are unable to raise sufficient capital to fully address a shortfall should this be revealed by the ongoing stress tests.

28. More transparency and better communication may help market assessment of the French financial system. Staff argued that publication of stress tests and greater transparency on country exposures could be confidence enhancing. While seeing merit in the publication of the stress tests coordinated by the Committee of European Banking Supervisors (CEBS), the authorities were concerned that certain types of stress tests—particularly those testing resilience to sovereign risk—could put in question the credibility of the European response to the ongoing crisis.6 Staff noted that appropriate and coordinated disclosure of key exposures, preferably at the European level, could also provide better guidance to markets than publicly available but possibly misleading information. More frequent publication of supervisory data on financial soundness, including developments in nonperforming loans, would also be helpful.

29. France actively supports international financial regulatory reform but has raised concerns that elements of the proposals might impose excessively high costs. The authorities have participated in the expert groups and discussions of the Basel Committee on Banking Supervision (BCBS) and CEBS on enhanced capital and liquidity requirements. They have also contributed to the regulation of over-the-counter derivatives markets along with the AMF and to the design of an EU framework for crisis management and resolution of cross-border financial institutions along with the US Treasury. While fully supporting the aims of the regulatory reform proposals for banks and insurance companies, the authorities raised concerns that Basel III might require substantial additional capital for integrated financial systems such as those in France. If implemented without further adaptations, it could lower lending and depress growth. Staff noted that these reforms remain to be fully defined and urged France to actively participate in ongoing macroeconomic impact studies and follow-up work to refine the reform proposals.

C. Increasing Growth: Modernizing the Economic Structure

30. The output losses from the crisis require a renewed and more effective emphasis on measures to raise competitiveness, in order to enable France to benefit more from the rebound in global trade. Like most advanced economies, France has experienced a marked deterioration in export performance over the last decade, with the current account balance deteriorating and foreign market shares sliding (Figure 4). Although the overall exchange rate assessment based on the CGER methodologies does not suggest disequilibrium, the overvaluation of the Real Effective Exchange Rate (REER), driven in part by the dynamics of the euro, points to a lack of competitiveness in global markets. The recent depreciation of the euro would help strengthen competitiveness vis-à-vis outside the Euro Area. Within the Euro Area, there is a widening competitiveness gap, in particular related to diverging unit labor costs, with the best performers, which are France’s principal competitors in the global market. The current boon to French competitiveness from a sharp increase in unit labor costs in a number of France’s trading partners is likely to be temporary, as short-time work schemes in these countries are being phased out. In addition, supply rigidities in responding to changing global demand have also played an important role in hampering export performance. Restoring competitiveness will require policies to encourage wage moderation, foster research and development, promote innovation, improve competition, and create favorable conditions for businesses to grow (see Analytical Note 3).

Figure 4.
Figure 4.

France: Competitiveness and External Performance

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Sources: INSEE; IFS; Eurostat; European Commission; Haver; and IMF staff estimates.

Estimates Applying the CGER Methodology 1/

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Source: IMF staff estimates.

Positive number indicates that REER is above equilibrium.

31. The authorities agreed that with the ongoing sluggish recovery, structural reforms that help increase economic growth in a durable manner are urgent. The recession has done substantial harm to the productive capacity of the French economy and has further increased the already high unemployment rate. In this environment, measures introduced under the Plan de Relance to shield workers and specific sectors, such as the car industry and construction, during the downturn need to be phased out in order to avoid lasting damage to incentives and economic efficiency. At the same time, structural reform efforts must be stepped up to facilitate job creation and achieve higher potential growth. Staff estimates suggest that further labor and product market reforms that would bring France in line with best practices could raise growth by about ¾ percent per year over the medium term. The mission also emphasized that higher growth in France would help to reduce global imbalances.

32. The main policy priorities in the labor market include facilitating re-absorption of the unemployed and increasing the employment rate. The recent recession caused a substantial increase in the unemployment rate (Box 8). Since the recovery is expected to remain sluggish, unemployment is likely to stay high for some time, calling for policy action to promote job creation. At the same time, the French employment rate remains one of the lowest among OECD countries, especially among seniors, low-skilled, and young workers (Figure 5). The authorities attached great importance to lifting the employment rate to boost potential growth and help restore fiscal sustainability, in part through reducing unemployment-related public expenditures.

Why has Unemployment Increased?

Notwithstanding the relatively mild recession in France, the unemployment rate has increased on par with many other advanced economies. In particular, the unemployment rate has gone up considerably more in France than in Germany and Italy, both of which have experienced much deeper recessions than France. These developments can be explained by different sensitivities of unemployment to the recent recession in France and its peers.1/

Staff estimates suggest that in normal times the sensitivity of unemployment to real output growth in France is similar to its peers, in particular Germany and Italy. The unemployment dynamics can be explained by Okun’s law that relates changes in the unemployment rate to real output growth. Estimates of this model suggest that over the 20 years before the latest recession responses of unemployment to real output growth in France, Germany, and Italy were broadly similar.

However, during the recent recession, the unemployment response in France was stronger than usual, while it was weaker than usual in Germany, Italy, and a few other countries. In France, nearly half of the total unemployment increase during the recession cannot be explained by its depth. Some of this gap can be attributed to the adjustment in specific sectors, including financial services and construction, where the reduction in employment has likely exceeded the decline in the value added. At the same time, generous partial unemployment programs adopted in a number of countries, in particular Germany and Italy, have likely reduced the effect of the recession on unemployment. Staff estimates suggest that in the absence of these programs unemployment would have increased about ½ percent more in Germany and 1½ percent more in Italy.


Changes in Unemployment Rate During the Recession: Actual versus Model

(In percentage points, peak-to-trough)

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Source: WEO.

Employment Growth by Sector

(In percent, quarter-on-quarter)

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

1/ International Monetary Fund (2010), Unemployment Dynamics during Recessions and Recoveries: Okun’s Law and beyond, World Economic Outlook, April 2010.
Figure 5.
Figure 5.

France: Labor Market Indicators

Citation: IMF Staff Country Reports 2010, 240; 10.5089/9781455204748.002.A001

Sources: OECD; DataInsight; and IMF staff calculations.

33. The need to re-absorb the unemployed and avoid a rise in structural unemployment calls for measures to stimulate job creation and to step up activation policies. On the demand side, staff suggested to consider temporary hiring incentives (in the form of credits for new hires or lower payroll contributions) that target vulnerable categories of workers and would encourage employers to take on new employees. On the supply side, the authorities indicated that the unified job placement agency (Pôle emploi) is poised to better support unemployed workers in their job search, while continued efforts to improve training opportunities and reduce skill mismatches would facilitate efficiency-enhancing labor mobility. In addition, staff considered that job-search requirements need to be strictly enforced.

34. Beyond cyclical factors, lifting the low employment rate would require durably improving job-search and hiring incentives and increasing labor force participation, especially among seniors, the youth, and the low-skilled. While progress is being made on this front, the authorities and staff agreed that much remains to be done. The policy priorities in these areas are:

  • Eliminating inactivity traps. The high minimum wage (SMIC) keeps potential employees, especially low-skilled and young workers, out of the labor force. Thus, moderation of SMIC increases and the elimination of the coup de pouce should be pursued, in order to gradually reestablish a motivating pay scale. Further steps should also be taken to reduce the relatively high tax wedge and employment protection. The recently introduced Working Solidarity Benefit (RSA) is a welcome step toward removing inactivity traps. In addition, the recent creation of the self-employed status should expand the set of job opportunities.

  • Integrating senior workers. Weak job-search and hiring incentives contribute to underemployment of senior workers. The removal of financial obstacles to combining earned income with a pension after age 60 and the abolishment of forced retirement before age 70 are steps in the right direction. Increasing the minimum age for pension eligibility, part of the announced pension reform, is a critical step toward raising senior employment and should be combined with improved incentives for continued work, including effective implementation of job-search requirements.

35. Further enhancing domestic competition would increase economic efficiency. While France is gradually catching up with best practices in product market competition reform, the authorities agreed that more needs to be done, particularly in retail trade and services. In retail trade, the Economic Modernization Law (Loi de Modernisation de l’Economie, LME) has introduced measures to strengthen competition and eased some restrictions on new retail establishments, but discounters continue to face administrative limitations to entry into the French market. Deregulating opening hours and sales periods of stores would promote a more competitive environment leading to lower prices for consumers. Also, the benefits to the consumer of ending price regulations on key products, for example over-the-counter drugs, would be enhanced if followed by market liberalization. In the services sector, the EU Services Directive should be followed to achieve further liberalization. Introducing greater competition in health-related services and professional services to businesses and individuals (notaries, accountants) would be welcome.

IV. Staff Appraisal

36. The French economy weathered the “great recession” better than most of its peers, but the recovery is fragile. The less severe downturn in France can be attributed to the comparatively low trade openness, fairly resilient financial sector, large social safety nets, and timely and decisive government intervention. Nonetheless, the unemployment rate has risen steeply, notably among the young. The financial crisis and economic downturn have exerted a significant toll on public finances, and in the financial sector concerns remain about asset quality, possible spillovers from mature markets, and regulatory uncertainty.

37. The turbulence in European debt markets and a challenging domestic policy agenda make the outlook for France highly uncertain. Growth is expected to pick up only slightly during 2010–11. Persistently high unemployment and imminent fiscal consolidation in France and her main trading partners will weigh on demand, while the recent depreciation of the euro will provide some relief. Inflation is expected to remain moderate. Risks to the outlook are mostly on the downside in view of concerns about sovereign risks and possible spillovers in the Euro Area. Potential growth is expected to remain subdued, and the output gap would narrow only gradually.

38. Under these demanding circumstances, the key policy challenge is to strengthen the foundations of the economy by implementing a credible multiyear fiscal consolidation strategy underpinned by pension reform, supporting the full recovery of the financial system and increasing financial stability, and accelerating progress on structural reforms in order to boost competitiveness, create jobs, and increase economic growth.

39. The sharply increased public debt and the turbulence in European financial markets call for significant and credible fiscal consolidation. While the fiscal stimulus in 2009-10 has been appropriate, the authorities must now focus on achieving their objective under the Stability and Growth Pact of reducing the overall fiscal deficit to 3 percent of GDP by 2013. This is crucial to anchor expectations and avoid an unsustainable debt dynamics. The adjustment efforts should concentrate on measures that have the least detrimental impact on economic activity. In particular, entitlement reforms in the pension and health care systems are key while full attention should be given to limiting the growth of local government spending.

40. The announced fiscal consolidation measures would result in an appropriate deficit reduction in 2011, but further measures need to be prepared to achieve the medium-term fiscal objectives. Expenditure constraint of the central government, including continued personnel reductions and a nominal freeze of transfers to local governments are important. The recently announced pension reform rightly emphasizes an increase in the effective retirement age in order to reduce the deficit of the pension system over time. Efforts to control local government spending need to be decisively maintained over the medium term. The proposed ban on off-budget introduction of new tax expenditures and exemptions from social security contributions will improve fiscal discipline.

41. The consolidation effort should be based on realistic macroeconomic assumptions and supported by a fiscal rule. In order to avoid underestimating the size of the needed fiscal efforts and derailing the consolidation process, the multiyear budget should rely on an independent council to validate the underlying macroeconomic forecasts. Adopting a fiscal rule would strengthen the consolidation strategy and add credibility both to the national efforts and to the broader European fiscal governance reforms. Staff encourages the authorities to adopt a fiscal rule on the structural general government balance that is enshrined in the highest legislation.

42. French banks are emerging from the crisis with improving profitability but the sluggish recovery and concerns about European sovereign debt pose new risks. Banks have significantly shored up capital adequacy ratios and are gradually exiting from state support. However, nonperforming loans have risen and low growth may put further pressure on loan quality and require additional provisions. Although the direct impact on French banks of the Greek debt problem is likely to be manageable, the counterparty risk and funding risk of French banks vis-à-vis Southern Europe has increased. If needed, the authorities should stand ready to support banks with public refinancing and recapitalization schemes. More transparency and better communication of key exposures, in addition to publication of the results of EU-wide stress tests, may help the market’s assessment of the French financial system.

43. Reform of supervisory arrangements has progressed well and France is playing an active role in promoting international regulatory reforms. The recent unification of banking and insurance supervision is welcome. It is now important to set up the national systemic risk board to enable close cooperation with the envisage European Systemic Risk Board. Staff encourages France to remain engaged in the international regulatory reform process and to actively participate in ongoing macroeconomic impact studies and follow-up work to refine the current reform proposals.

44. A more competitive and growth-oriented economy is essential for recouping the output loss incurred during the recession. To catch up with the most competitive countries in the Euro Area and benefit more from the expansion in world trade, wage moderation, promoting competition, and promoting innovation are critical. In view of the considerable growth impact, it is urgent to focus on job creation and improving market efficiency. In addition to labor market activation and training policies, minimum wage moderation should continue to gradually establish a motivating pay scale for young and low-skilled workers. For senior workers, efforts to improve incentives for continued work, including effective job-search requirements, need to be pursued. Further deregulation of product markets would enhance economic efficiency and raise welfare. The EU Services Directive should be followed to achieve further liberalization, including in professional services.

45. It is proposed that the next Article IV consultation be held on the regular 12-month cycle.

Table 1.

France: Selected Economic and Social Indicators, 2007–15

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Sources: French authorities; IMF staff estimates and projections.

The debt figure does not include guarantees on non-general government debt.

For 2010, average for January-March.

Table 2.

France: Balance of Payments, 2007–15

(Percent of GDP)

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Sources: French authorities; IMF staff estimates and projections.
Table 3.

France: General Government Accounts, 2007–15

(In percent of GDP, unless otherwise indicated)

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Sources: French authorities; IMF staff estimates and projections.

Maastricht definition.

In percent of potential GDP.

The debt figure, based on Maastricht definition, does not include guarantees on nongeneral government debt.

Excludes fiscal stimulus package and unemployment benefits.

Table 4.

France: High-Frequency Financial Indicators

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Sources: Bloomberg; Datastream.

Euros; change in percentage points.

Basis points, 5-year CDS.

Index; change in percentage points.

Percent; change in percentage points.

Basis points; 3-month interbank rate minus 3-month Treasury Bill.

Table 5.

France: Vulnerability Indicators, 2003–10

(In percent of GDP; unless otherwise indicated)

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Sources: French authorities; FNAIM; IMF, International Financial Statistics; and Bloomberg.

The debt figure does not include guarantees on non-general government debt.

This index combines the effect of real disposable income, repayment conditions for loans, real estate prices, and interest subsidies.

Table 6.

France: The Core Set of Financial Soundness Indicators, 2002–09

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Sources: Banque de France, ACP

These may be grouped in different peer groups based on control, business lines, or group structure.

All credit institutions’ aggregated data on a parent-company basis.

Consolidated data for the seven main banking groups (2005, IFRS).

Impact of the creation of the euro has to be taken into account.