IMF Executive Board Concludes 2010 Article IV Consultation with France

Public Information Notice (PIN) No. 10/103
July 30, 2010

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2010 Article IV Consultation with France is also available.

On July 28, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with France.1


A fragile recovery is underway in France. The recession was less severe in France than in most other advanced economies, reflecting 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, and possible spillovers from mature markets.

The authorities have taken important policy actions to stabilize the financial system and have implemented a suitable fiscal stimulus to cushion the downturn. With the recovery underway, the policy focus is shifting from crisis management to strengthening the foundations of the economy through fiscal consolidation, supporting the full recovery of the financial system and improving financial regulation. The authorities are also implementing structural reforms to raise potential growth, create jobs, and strengthen competitiveness.

In light of the sharply increased public debt and the turbulence on European financial markets, the authorities are firmly committed to strong fiscal adjustment beginning in 2011, and to reduce the overall fiscal deficit to 3 percent of gross domestic product (GDP) by 2013. The fiscal stimulus is set to expire by end-2010. Revenue and expenditure measures that have already been announced are sizable and would reduce the deficit by some 2 percentage points in 2011. However, further measures at all levels of government are needed to achieve the envisaged fiscal consolidation over the medium term. In June, a major pension reform was announced that is to be legislated in the coming months. The reform would gradually increase the effective retirement age and aims to achieve financial equilibrium in the pension system by 2018.

French banks are emerging relatively stronger from the global financial crisis and a gradual exit from crisis-related government support is underway. The EU-wide stress test results released on July 23 have confirmed the resilience of French banks. The new supervisory structure that merges banking and insurance supervision responds to the need for systemic supervision while measures to control financial sector remuneration aim to reduce incentives for excessive risk-taking. The regulatory reform will be completed by the planned creation of a systemic risk board with participation of all relevant supervisors and government bodies. However, increases in nonperforming loans as a result of the recession and possible spillovers from the European sovereign debt crisis may exert renewed pressure on the financial sector and constrain lending growth. On the structural front, the authorities continue to implement their ambitious reform agenda, particularly in the labor and product markets, with a view to boosting job creation, increasing growth, and strengthening competitiveness.

The French economy is expected to recover gradually. Real GDP is projected to grow by 1.4 percent in 2010 and 1.6 percent in 2011, somewhat faster than in the Euro Area as a whole. The same features of the French economy that partly shielded it during the recession are also likely to slow the pace of the recovery. Risks to the outlook are slanted to the downside. Lingering concerns about sovereign risks in the Euro Area could dampen confidence, increase financing costs, and depress demand.

Executive Board Assessment

Executive Directors noted that the French economy weathered the global crisis better than most of its peers. The timely government intervention succeeded in stabilizing the financial system and cushioning the downturn. Directors noted that the outlook is challenging and that growth is expected to pick up only gradually. Unemployment and public debt are relatively high; the imminent fiscal consolidation in France and most European countries will weigh on demand; and lingering concerns about sovereign risks call for continued vigilance. A vigorous implementation of the authorities’ reform agenda will be needed to support the recovery.

Directors considered the fiscal stimulus in 2009-10 to be well designed, including the abolition of the local business tax. Given the sharply increased public debt, the focus in the years ahead should be on a significant and credible fiscal consolidation. Directors commended the authorities’ determination to reduce the overall fiscal deficit to 3 percent of GDP by 2013. They welcomed the already specified consolidation measures, including continued spending restraint in the central government and a nominal freeze of transfers to local governments. The announced pension reform is a key component of the consolidation strategy and rightly emphasizes an increase in the retirement age. Efforts to better control healthcare spending should also be pursued.

Directors noted that beyond the measures to meet the fiscal target for 2011, further steps, including contingency measures, will be needed to achieve the medium-term objectives. To enhance the credibility of the consolidation effort, Directors stressed the importance of ensuring that the multiyear budget framework is based on realistic macroeconomic assumptions, and saw merit in proposals for the establishment of an independent council and the adoption of a fiscal rule.

Directors observed that the French banks are emerging from the crisis with improving profitability, and welcomed the confirmation of the resilience of the French banks by the Europe-wide stress test results. They noted that the communication of key exposures helps transparency and allows for a better assessment of financial sector stability. A sluggish recovery and relatively high exposures to peripheral Europe may pose new risks, including for asset quality. Although these risks appear manageable, they require continued strong supervision. Directors recommended that the authorities should be prepared to take appropriate additional measures to support banks, if needed. They welcomed the recent unification of banking and insurance supervision and encouraged France to continue to play an active role in promoting international regulatory reforms.

Directors stressed the importance of pressing ahead with the structural reform agenda, in order to strengthen competitiveness, boost job creation and promote innovation. 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 in tandem with the pension reform. Directors encouraged further steps to improve product and services market flexibility.

France: Selected Economic and Social Indicators, 2007–15














  2007 2008 2009 2010 2011 2012 2013 2014 2015

Real economy (change in percent)










Real GDP

2.3 0.1 -2.5 1.4 1.6 1.8 2.0 2.1 2.1

Domestic demand

3.3 0.4 -2.4 1.1 1.5 1.7 1.9 2.1 2.1

CPI (year average)

1.6 3.2 0.1 1.3 1.6 1.8 1.9 1.9 1.9

Unemployment rate (in percent)

8.4 7.8 9.5 10.0 10.1 9.7 9.2 8.7 8.4

Gross national savings (percent of GDP)

21.2 19.8 16.7 17.9 18.5 18.7 18.9 19.1 19.3

Gross domestic investment (percent of GDP)

22.2 22.0 19.0 19.5 19.9 20.1 20.2 20.4 20.6











Public finance (percent of GDP)










Central government balance

-2.1 -2.8 -6.2 -5.6 -3.6 -2.3 -1.4 -0.6 0.2

General government balance

-2.7 -3.3 -7.5 -8.0 -6.1 -4.8 -3.9 -3.2 -2.4

Structural balance (percent of potential GDP)

-3.2 -3.1 -5.0 -4.9 -3.7 -3.0 -2.6 -2.4 -2.0

Primary balance

0.0 -0.5 -5.2 -5.4 -3.3 -1.9 -1.0 -0.1 0.7

General government gross debt 1/

63.8 67.5 78.1 84.3 87.8 89.7 90.3 90.1 89.1











Money and interest rates (in percent)










Money market rate 2/

4.0 3.8 1.0 0.7

Government bond yield 2/

4.3 4.2 3.6 3.5











Balance of payments (in percent of GDP)










Exports of goods

21.1 21.1 17.8 20.7 20.8 20.9 21.0 21.1 21.1

Volume growth (in percent)

2.5 -0.8 -12.2 6.8 3.3 3.5 3.6 3.7 3.8

Imports of goods

23.2 24.1 20.2 22.7 22.7 22.6 22.6 22.7 22.8

Volume growth (in percent)

5.7 0.3 -10.6 5.1 2.6 2.9 3.3 3.6 3.8

Trade balance

-2.1 -3.0 -2.5 -1.9 -1.8 -1.7 -1.7 -1.6 -1.6

Current account

-1.0 -2.3 -2.2 -1.6 -1.5 -1.4 -1.4 -1.3 -1.3

FDI (net)

-2.5 -3.6 -3.8 -2.3 -2.2 -2.1 -2.0 -1.9 -1.8

Official reserves (US$ billion)

45.7 33.6 46.6 ... ... ... ... ... ...











Fund position (as of May 31, 2010)










Holdings of currency (percent of quota)


Holdings of SDRs (percent of allocation)


Quota (SDRs million)












Exchange rates










Euro per U.S. dollar 2/

0.73 0.68 0.72 0.76 ... ... ... ... ...

Nominal effective rate (2000=100)

102.4 104.9 104.3 ... ... ... ... ... ...

Real effective exchange rate (2000=100)

103.2 105.3 101.0 ... ... ... ... ... ...

Potential output and output gap










Potential output

2.1 1.6 1.1 1.1 1.1 1.2 1.2 1.3 1.4

Output gap

1.1 -0.4 -3.9 -3.6 -3.0 -2.4 -1.7 -0.9 -0.2

Social indicators










  Per capita GDP (2006): US$35,471; Life expectancy at birth (2006): 77.2 (male) and 84.1 (female); 

Poverty rate (2005): 12.1 percent (60 percent line), 6.3 percent (50 percent line);

Income distribution (ratio of income received by top and bottom quintiles, 2004): 4.2.


Sources: French authorities; IMF staff estimates and projections.

1/ The debt figure does not include guarantees on nongeneral government debt.

2/ For 2010, average for January- March.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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