Chapter V

Balance of Payments and Debt Conditions

Balance of Payments with Components: Current Account

According to France’s FR: BOP: Current Account: Balance data was reported at -18.514
USD bn in Dec 2017. This records an increase from the previous number of -21.124 USD bn for
Dec 2016. France’s FR: BOP: Current Account: Balance data is updated yearly, averaging -
875.999 USD mn from Dec 195 to 2017, with 43 observations. The data reached an all-time high
of 50.694 USD bn in 1999 and a record low of -37.356 USD bn in 2014. France’s FR: BOP:
Current Account: Balance data remains active status in CEIC and is reported by World Bank.
The data is categorized under Global Database’s France – Table FR.World Bank.WDI: Balance
of Payments: Current Account. Current account balance is the sum of net exports of goods and
services, net primary income, and net secondary income. Data are in current U.S. dollars.; ;
International Monetary Fund, Balance of Payments Statistics Yearbook and data files.; ; Note:
Data are based on the sixth edition of the IMF's Balance of Payments Manual (BPM6) and are
only available from 2005 onwards.

Figure 5.1 Balance of Payments: Current Account

Source: https://www.ceicdata.com/en/france/balance-of-payments-current-account

https://www.ceicdata.com/en/france/bpm6-balance-of-payments-current-
account/balance-of-payment-bop-current-account-ca
Balance of Payments with Components: Capital Account

According to France’s BoP: Capital Account (CAA) data was reported at 273.000 EUR
mn in Aug 2019. This records an increase from the previous number of 3.000 EUR mn for Jul
2019. France’s BoP: Capital Account (CAA) data is updated monthly, averaging 7.500 EUR mn
from Jan 2008 to Aug 2019, with 140 observations. The data reached an all-time high of 816.000
EUR mn in Feb 2019 and a record low of -587.000 EUR mn in Aug 2012. France’s BoP: Capital
Account (CAA) data remains active status in CEIC and is reported by Bank of France. The data
is categorized under Global Database’s France – Table FR.JB004: BPM6: Balance of Payments:
Capital Account.

Figure 5.2 Balance of Payments: Capital Account

Source:https://www.ceicdata.com/en/france/bpm6-balance-of-payments-capital-account/bop-
capital-account-caa
Balance of Payments with Components: Financial Account

According to France’s BoP: Financial Account (FA) data was reported at -5,060.000
EUR mn in Aug 2019. This records an increase from the previous number of -13,346.000 EUR
mn for Jul 2019. France’s BoP: Financial Account (FA) data is updated monthly, averaging -
2,343.500 EUR mn from Jan 2008 to Aug 2019, with 140 observations. The data reached an all-
time high of 27,028.000 EUR mn in Dec 2018 and a record low of -23,947.000 EUR mn in Feb
2016. France’s BoP: Financial Account (FA) data remains active status in CEIC and is reported
by Bank of France. The data is categorized under Global Database’s France – Table FR.JB006:
BPM6: Balance of Payments: Financial Account.

Figure 5.3 Balance of Payments: Financial Account

Source:https://www.ceicdata.com/en/france/bpm6-balance-of-payments-financial-account/bop-
financial-account-fa
Policies Implemented

Introduction
Conditions for a long-term reduction in France's public debt ratio

The public debt ratios of France and Germany (as a % of GDP) were similar in the early 2000s.
Since 2010, the ratio has fallen sharply in Germany, but has continued to rise in France. Using a
simple model, we show that the economic and financial context is now favourable to triggering a
lasting reduction in France's public debt, provided that efforts to curb public spending are
stepped up.

Chart 1: Public debt as a % of GDP in France and Germany under different

scenarios Sources: Eurostat for the past, BdF calculations for the future
A simple, flexible and illustrative model

Chart 1 compares the change in public debt as a percentage of GDP in France and Germany
since the creation of the euro area. It also shows the impact of different scenarios over the 20
coming years.

We use a simple model for public debt trajectories with four variables directly influencing public
debt as a percentage of GDP: (i) an increase in interest rates pushes up debt service costs and
therefore the ratio; conversely, all other things being equal, (ii) an improvement in the primary
public balance (excluding interest costs), (iii) stronger growth in real GDP or (iv) a rise in
inflation reduces the ratio. The variables themselves are determined by stylised macroeconomic
relationships. Inflation gradually moves towards its long-term target of approximately 2%. GDP
growth in the medium term is anchored to potential growth and impacted in the short-term (via a
fiscal multiplier of around 0.5) by fiscal "structural" adjustments. The primary public balance
also varies because of fluctuations in economic growth, via its cyclical component.

In this simple approach, the interdependence between interest rates and growth and inflation, as
well as public debt, is not modelled. And, in the benchmark scenario, future interest rates are
derived from the current market rate curve, with a 10-year yield only a little above 2% until the
end of the projection period. However, other interest rate assumptions can be made (see, for
example, the 200 bp shock scenario).
In macroeconomic terms, we assume potential growth of 1% to 1.25% only, until 2030, and
1.25% to 1.5% thereafter (in accordance with European Commission estimates). If potential
growth proves to be stronger, public debt will decline more sharply.

Furthermore, the average fiscal multiplier can vary depending on the composition of the fiscal
structural adjustments. However, this only has an impact at the beginning of the simulations.

Ultimately, as the simple approach chosen for this study can be easily modulated, it is possible to
run as many scenarios as may be required. Here, we give some examples.

The case of Germany shows that a reduction in the public debt ratio is possible

In 2010, the public debt ratios of France and Germany as a percentage of GDP were very similar.
Their trajectories have since diverged and France's public debt is now around 30 percentage
points of GDP higher than the level observed in Germany.

Germany's public debt, which stood at around 60% of GDP in 1999, drifted to some extent in the
early 2000s and then increased by around 15 percentage points in the space of a few years after
the country was hit hard by the crisis of 2007. However, in 2010, Germany stabilised its public
debt and, from 2012 onwards, began rapidly reducing it, by almost 3 percentage points of GDP
per year, so that it will soon fall back below 60% of GDP. In Germany, the fiscal consolidations
implemented as a preventive measure before the crisis, and then reimplemented quickly after,
have been a key factor in the rapid reduction in the public debt ratio since 2010. Thanks to its
control over public spending coupled with relatively robust growth that boosted tax revenues,
Germany quickly posted a primary surplus again after 2010 and then recorded global fiscal
surpluses, including interest costs. In the future, Germany is expected to move to a balanced
budget.

The so-called "snowball effect" (see Chart 2), essentially determined by the difference between
the nominal interest rate and the nominal growth rate, has also been favourable in Germany since
2010, as the average interest rate on German public debt has declined while nominal GDP
growth has become more robust. This has also contributed to reducing the public debt ratio.

Consequently, Germany has regained substantial leeway in terms of its policy mix.
Chart 2: "Snowball effects", in percentage points of GDP: past trends and
simulations Sources: Eurostat for the past, BdF calculations for the future

Note: The snowball effect is equal to the difference between the nominal interest rate on public
debt and the nominal GDP growth rate, multiplied by the debt level as a percentage of GDP. A
negative snowball effect contributes to reducing the public debt ratio.

The current period is favourable to triggering a reduction in France's public debt ratio

France's public debt evolved almost identically to that of Germany from 2000 to 2010 (even
though the driving forces behind the changes may have differed). During the crisis, France's
fiscal deficit widened in a similar way to that of Germany, but its starting budgetary position was
less balanced.

However, since 2010, France's fiscal deficit – both primary and overall – has declined far more
slowly and public debt has continued to increase to well beyond 90% of GDP. Today, without
fiscal consolidation, there will be no significant reduction in France's public debt ratio (see Chart
1).

An annual structural adjustment of the primary fiscal deficit of around 0.35 percentage point of
GDP over a six-year period would put France's public debt ratio on a gradual but marked long-
term downward trajectory. At a constant tax-to-GDP ratio, this corresponds to growth in real
primary public spending of approximately 0.7 pp less than growth in potential GDP, and
therefore amounts to an annual increase slightly below 0.5% per year over the coming years
(compared with slightly above 1% for the 2011-17 period and above 2% from 2000 to 2010).
Here again, comparisons with Germany could shed light on possible fiscal consolidation options
with regard to public spending (see Aouriri and Tournoux, 2017).

In this scenario, with a stable primary structural balance of a little over one percentage point of
GDP, the overall fiscal deficit would be broadly balanced in five to six years (around the
Medium-Term Budgetary Objective set for France by the European Commission). This condition
is essential, under the macro-financial assumptions applied in this study, if France's public debt-
to-GDP ratio is to return to around 60% of GDP in the next 20 years or so (see Chart 1).
The current economic and financial context offers a window of opportunity, as the "snowball
effect" on France's public debt has also recently become favourable (see Chart 2): long-term
interest rates are at a historical low and according to market expectations should remain so, while
at the same time nominal GDP growth in France should exceed pre-2017 levels. By the end of
2035, the context could be even more favourable in France than in Germany if its potential
growth proves to be stronger than in Germany thanks to a faster population growth rate and
provided structural reforms are successful.

The possibility of higher long-term interest rates heightens the need for fiscal consolidation

The context could become less favourable if real long-term interest rates return to levels that
more closely resemble their past averages. Chart 1 shows that, in the absence of an improvement
in the primary structural balance, an upward interest rate shock (of 200 bp in this example)
would lead to a lasting increase in France's public debt ratio, taking it well above 100% of GDP.

This provides further grounds for considering that France's public debt should be reduced as a
priority. A lower public debt ratio would provide greater leeway in terms of policy mix in the
event of a macroeconomic or financial shock.

Source: https://blocnotesdeleco.banque-france.fr/en/blog-entry/conditions-long-term-reduction-
frances-public-debt-ratio
 Implemented Policies

0.1 Legal environment 0.1.1 Responsibility for collecting, processing, and disseminating statistics

Banque de France

The Monetary and Financial Code (title IV) governs the status and the
functions of Banque de France.

Banque de France is an integral part of the European System of Central Banks

(ESCB).

The collection of statistical information for the fulfilment of the ESCB tasks is
carried out under Council Regulation (EC) No 2533/98 of 23 rd November
1998 concerning the collection of statistical information by the European
Central Bank, as last amended by Council Regulation (EC) 951/2009.

Banque de France disseminates the data as a service to the public.

Debt securities

All debt security statistics collected on a mandatory basis and published are
governed by the ECB Regulation on holdings of securities statistics
(ECB/2012/24) and by the article L141-6-II of the Monetary and Financial
Code: “Banque de France establishes the balance of payments and the external
position of France. It contributes to the establishment of the balance of
payments and to the global external position of the euro area in connection
with its membership in the European System of Central Banks as well as to the
establishment of the statistics of the European Community in the domain of
balance of payments, international trade in services and foreign direct
investments.”

0.1.2 Data sharing and coordination among data producing agencies

Article L.141-6-IV of the Monetary and Financial Code states that “The
Banque de France, the National Institute for Statistics and Economic Research
and ministerial statistic services exchange, in compliance with applicable legal
provisions, the data which are necessary for the accomplishment of their
respective tasks. The modalities of exchange are determined in agreements.

Banque de France has signed a memorandum of agreement with the National

Statistical Institute INSEE and has set up the institutional arrangements with
the Supervisory Authorities (Prudential Supervisory and Resolution Authority
– ACPR in French, and Financial Markets Authority – AMF in French) which
enable to fulfil its statistical responsibilities regarding security statistics.

0.1.3 Confidentiality of individual reporters' data

Banque de France staff is bound by professional secrecy (defined by Law No.

83-634 on the rights and duties of civil servants). Additional guarantees for the
confidentiality of individual data are provided by Banque de France’s
Financial Code of Conduct. Furthermore, any communication to third parties
of nonpublic information held by Banque de France is subject to the penalties
set forth in Article 226-13 of the Criminal Code relating to professional
secrecy. Detailed references to legal terms and conditions of dissemination and
confidentiality of reported data are contained in the manual of regulations
provided to all reporting agents by Banque de France. Also, all statistical tasks
such as production and dissemination of statistics are governed by the
Statistical Law of 7th June 1951, which provides confidentiality of individual
data.

0.1.4 Ensuring statistical reporting

A clear guidance is provided to respondents in the reporting documentation,

posted on Banque de France’s website (http://www.banque-france.fr/) under
item Economics and Statistics / Reporting information and access. In order to
 facilitate statistical reporting, Banque de France pays attention to direct
contacts with respondents. This includes documentation on reporting
requirements and on the purpose of the data collections.

Source: https://www.insee.fr/en/statistiques/2136564

Source: https://dsbb.imf.org/sdds-plus/dqaf-base/country/FRA/category/DSE00

Source: https://hal-sciencespo.archives-ouvertes.fr/hal-01069371/document

CHAPTER IV

The Environment and Development

This chapter elaborate the Environmental Policies in France

Policies Implemented

Introduction

We try to illustrate why French environmental policies remain fairly cautious with regard
to international policies concerning climate change and biodiversity. The main question is to
specify what France can change to be an exemplary leader in international environmental
commitments. Let us first examine whether the competitiveness argument can justify the less
ambitious French environmental policy. More generally, there are many reasons to consider a
positive relationship between environmental regulations, the use of economic instruments, and
competitiveness. First, regulations encourage a switch to cleaner products and processes within
domestic production.

Clean Technology in France

In recent years, the French government has aggressively pursued the embrace of clean
technology through the use of government subsidies. Many French corporations have also been
aggressively acquiring clean technology companies in the United States and other countries. In
2012, the French government passed laws aimed at boosting the country’s car industry based on
clean technology. Measures in the legislation included subsidies for state payments for buyers of
hybrid and electric cars from both foreign and French carmakers. Since 2015, French citizens
owning electric or hybrid vehicles that produce emissions lower than 100 g CO2/km are eligible
for federal bonuses.

Electric cars like these pictured in Nice, France in 2014 are being subsidized by the French
government in efforts to reduce carbon emissions

A Clean Future of France

While France is still coping with the legacy of its industrial past, pressures of its massive
agricultural sector and high resource demand, it appears the country is aggressively pursuing a
cleaner future in both the public and private sectors. Over the next few years, France is expected
to take the following steps to continue their dedication towards improving the environment:

 Increase taxation on high emission vehicles to improve air pollution

 Provide a sustainable form of financing both water infrastructure programs and
wastewater services
 Continue to support the R&D and dissemination of clean technologies
 Promote agro ecology by increasing the training, researching and financing programs.
Conclusion

Despite French efforts on environmental policies, it seems that France needs to be more
consistent in the relationship between its international position and its national acts. Basically,
major challenges remain. France could enforce the application of the international conventions
signed in the past. It could also increase the penalties to make them more of a deterrent, in
comparison with the benefits that can be expected from not respecting the international
conventions. Moreover France is a leader in environmental international policies; it should
promote the international implementation of new tax policies and new regulation conventions.
France is developing a roadmap to implement the SDGs with input from stakeholders at each
stage (definition, implementation, monitoring and evaluation, and regular reviews).

Source: https://www.cairn.info/revue-economie-internationale-2006-4-page-153.htm#

https://www.azocleantech.com/article.aspx?ArticleID=550#targetText=Many20nati
onal%20and%20territorial%20action,emissions%20of%20pollution%20into20water.

https://www.oecd-ilibrary.org/sites/9789264301061-5-
en/index.html?itemId=%2Fcontent%2Fcomponent%2F9789264301061-5-
en&fbclid=IwAR2fvyzAAl_u_geoPJELl8k_ZvXhENnmILnJo_XuxWYa7OsD6qyR_
16Nj1o