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France
December 2017
Country Report
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France
Table of Contents
Page
Country Forecast
Map....................................................................................................................................................................2
Highlights .........................................................................................................................................................3
Current Data ....................................................................................................................................................5
Comment & Analysis .................................................................................................................................... 11
Forecast Scenarios
Most Likely Five-Year Regime Scenario: Centrist Coalition (60% Probability) ............................ 17
Second Most Likely Five-Year Regime Scenario: Center-Right Coalition (25% Probability) ..... 23
Third Most Likely Five-Year Regime Scenario: Broad Coalition (15% Probability) .................... 25
Forecast Summary ................................................................................................................................. 26
Political Framework
Players To Watch ................................................................................................................................... 29
Country Conditions
Climate for Investment & Trade
Overview ..................................................................................................................................................1
Tariff and Non-tariff Barriers ................................................................................................................5
Policies ......................................................................................................................................................6
Legal Framework ....................................................................................................................................8
Corruption and other Bureaucratic Obstacles ................................................................................... 10
International Agreements .................................................................................................................... 10
Labor Conditions ................................................................................................................................... 11
Background
Geography .............................................................................................................................................. 13
Social Conditions ................................................................................................................................... 13
Government ........................................................................................................................................... 13
© 2017, The PRS Group, Inc. ISSN: 1054-5514

Political Risk Services France Country Forecast
Reproduction without written permission of The PRS Group is strictly prohibited.
Neth.
U.K.
● Dunkerque
Lille
● Belg.
English Channel
Lux.
Cherbourg ●
● Rouen
Germany
✪ Paris Nancy ● ●
● Brest Strasbourg
● Orleans
Dijon
● ●
Nantes Austria
France Switz.
Bay
of
Biscay ● Limoges ● Lyon
● Bordeaux
Grenoble ● Italy
●
Valence
Nice ●
Marseille
Toulouse ● ●
●
Perpignan Toulon
●
Corsica (FR.)
➘
Spain Andorra
Mediterranean
Sea
REV2003
Page 2 Map
Political Risk Services
29-Dec-2017 Reproduction without written permission of The PRS Group is strictly prohibited.
France
Country Forecast
Highlights
MOST LIKELY REGIMES AND THEIR PROBABILITIES
18-Month: Centrist Coalition 75%
Five-Year: Centrist Coalition 60%
FORECASTS OF RISK TO INTERNATIONAL BUSINESS
Financial Direct Export
Turmoil Transfer Investment Market
18-Month: Moderate B B+ B+
Five-Year: Low B+ A- B+
( ) Indicates change in rating. * Indicates forecast of a new regime.
KEY ECONOMIC FORECASTS

Real GDP Current
Years Growth % Inflation % Account ($bn)
2012-2016(AVG) 0.7 0.8 -24.08
2017(F) 1.7 1.1 -23.10
2018-2022(F) 1.6 1.5 -22.40
Macron’s Reach May Exceed His Grasp

Key Points To Watch…
 At presidential and parliamentary elections held in April-June 2017, Emmanuel Macron
and his “third way” political movement, En Marche!, managed to completely reshape the
French political landscape. The new president scored a convincing victory over his far-right
opponent, Marine Le Pen, in a run-off election held in early May, while the centrist REM,
an alliance of En Marche! and dissident members of the two main establishment parties, the
PS and the LR, won 302 seats in the 577-member National Assembly. With the support of
the liberal MoDem and qualified pledges of cooperation from smaller parties of the left and
right, Macron began his five-year term with two-thirds legislative majority…
 However, the ambitious reform agenda includes deep cuts to social spending, civil-service
retrenchment, and workplace reforms aimed at reducing the labor-market rigidity that
weakens economic competitiveness. With the government also proposing to slash the
corporate tax rate and eliminate a wealth tax, Macron is increasingly accused of engaging
in class warfare on behalf of the wealthy, a charge that is fostering unity among France’s
divided labor organizations and carries a risk of fueling a generalized public backlash that
leads to a renewed erosion of the president’s popular support…
Highlights 29-Dec-2017 • Page 3

 Consequently, there may be only a limited window for moving aggressively to implement
reforms before the president’s sagging popularity contributes to caution on the part of
Macron and weakens the internal cohesiveness of the REM. Even if the governing bloc
retains its majority status throughout the five-year forecast period, the impetus for reform
is expected to diminish as Macron prepares to seek a second term in 2022…
Some Competitiveness Issues Will Be Addressed

 Macron’s proposed fiscal reforms imply $67 billion in cuts to existing spending programs
and the elimination of 120,000 public-sector jobs. Most of the budget savings is to be used
to fund investment in green energy projects, improved public services, and job training for
unemployed youth, as well as to offset revenue losses resulting from a reduction of the
corporate tax rate from 33.3% to 25%…
 Macron is an avowed Europhile, and he has made it his personal mission to ensure that the
EU has the institutional strength to survive the recent surge in nationalist sentiment
throughout the continent. He has many ideas about how to reform the EU, but recognizes
that he has little chance of selling some of his most controversial proposals, such as the
creation of a European Monetary Fund and a euro-zone Finance Ministry, if his own
government lacks fiscal credibility…
 The recognition that Macron has a strong personal incentive to reduce the deficit will
magnify the negative impact of any significant slippage on investor confidence. Moreover,
critics have noted that the government is relying heavily on accelerating economic growth
to narrow the deficit relative to GDP, while making insufficient effort to reduce the
structural deficit, creating a threat that the window of opportunity will have closed by the
time the government gets around to focusing on that problem…
 On that basis, real GDP growth is forecast to average just 1.6% per year through 2022. The
substantial unused capacity in jobs and manufacturing leaves plenty of room for non-
inflationary growth over the medium term, a factor that will hold inflation to 1.5% per year
on average…
 Despite anticipated improvements in competitiveness, the loss of revenue implied by the
government’s tax-reduction program will require deep cuts in state spending, resulting in a
continued weakness of domestic demand. Pressure to reduce the structural deficit and a
gradual tightening of monetary policy by the ECB will limit growth potential beyond 2018.
Real GDP growth will average 1.6% over the five-year period to 2022, which is a marked
improvement on the average pace of less than 0.7% recorded over the past decade, but it
will not be sufficient to ensure the Macron possesses the political capital that will be
required to fully implement his reform agenda.
Economic Forecasts for the Three Alternative Regimes

Centrist Coalition Center-Right Coalition Broad Coalition
Growth Inflation CACC Growth Inflation CACC Growth Inflation CACC
(%) (%) ($bn) (%) (%) ($bn) (%) (%) ($bn)
2017 1.7 1.1 -23.10 1.6 1.0 -24.30 1.3 0.9 -26.10
2018-2022 1.6 1.5 -22.40 1.7 1.6 -26.50 1.0 1.1 -17.60
Page 4 • 29-Dec-2017 Highlights

Political Fact Sheet
CAPITAL: HEAD OF STATE:

Paris President Emmanuel Macron (2017)
CONSTITUTION:
September 28, 1958 HEAD OF GOVERNMENT:
Prime Minister Edouard Philippe (2017)
ADMINISTRATIVE SUBDIVISIONS:
22 regional economic districts and 95
OFFICIALS:
departments (in metropolitan France)
Stéphane Travert, Agriculture & Food
POPULATION: Françoise Nyssen, Culture
2016: 64.66 million Florence Parly, Defense
AREA: Nicolas Hulot, Ecological & Inclusive Transition
543,965 sq. km. Bruno Le Maire, Economy & Finance
OFFICIAL LANGUAGE: Jean-Michel Blanquer, Education
French Jean-Yves Le Drian, Europe & Foreign Affairs
STATUS OF PRESS: Agnès Buzyn, Health & Solidarity
free Gérard Collomb, Interior
Nicole Belloubet, Justice
SECTORS OF GOVERNMENT
Muriel Pénicaud, Labor
PARTICIPATION:
Annick Girardin, Overseas France
communications, transportation, utilities,
Gérald Darmanin, Public Action & Accounts
energy, insurance and banking,
Jacques Mézard, Territorial Cohesian
petrochemicals, aerospace, steel, aluminum,
textiles, armaments, electronics
LEGISLATURE:
CURRENCY EXCHANGE SYSTEM: Bicameral Parliament; 577-member National
free-floating Assembly and 348-member Senate. Seat
EXCHANGE RATE: distribution in the Assembly: La République En
10/27/2017 $1=0.85 euros Marche! (REM), 308; The Republicans (LR), 112;
ELECTIONS: Democratic Movement (MoDem), 42; Socialist
Presidential elections are held every five Party (PS), 30; Union of Democrats and
years; last, April 23 and May 7, 2017; next, Independents (UC), 18; La France Insoumise, 17;
scheduled April 2022. Senate members French Communist Party (PCF), 10; National
serve six-year terms; one-half indirectly Front (FN), 8; other, 32. Seat distribution in the
elected every three years; last, September 24, Senate: LR, 144; PS, 109; Centrist Union-UDF, 42;
2017; next, scheduled September 2020. PCF, 20; European Democratic and Social Rally
Assembly members are elected for a (RDSE), 17; EELV, 10; other, 6.
maximum five-year term; last, June 11 and
18, 2017; next, scheduled June 2022.
Current Data 29-Dec-2017 • Page 5

Political Risk Services Reproduction without written permission of
The PRS Group is strictly prohibited.
29-Dec-2017
France
Databank
2007-2011 2012-2016
Average Average 2007 2008 2009 2010 2011
Domestic Economic Indicators
GDP (Nominal, $bn) 2741.46 2643.24 2582.22 2922.11 2693.06 2647.02 2862.91
Per Capita GDP ($) 43770 41239 41669 46896 42993 42043 45249
Real GDP Growth Rate (%) 0.6 0.7 2.2 -0.2 -2.9 2.0 2.1
Inflation Rate (%) 1.6 0.8 1.6 2.8 0.1 1.5 2.1
Capital Investment ($bn) 609.37 581.19 539.67 688.29 593.47 584.24 641.19
Capital Investment/GDP (%) 22.2 22.0 20.9 23.6 22.0 22.1 22.4
Budget Revenues ($bn) 1351.79 1399.50 1286.88 1413.47 1288.82 1314.21 1455.59
Budget Revenues/GDP (%) 49.3 52.9 49.8 48.4 47.9 49.7 50.8
Budget Expenditures ($bn) 1489.68 1504.90 1357.89 1508.09 1486.92 1494.07 1601.43
Budget Expenditures/GDP (%) 54.3 56.9 52.6 51.6 55.2 56.4 55.9
Budget Balance ($bn) -137.89 -105.40 -71.01 -94.62 -198.10 -179.86 -145.84
Budget Balance/GDP (%) -5.1 -4.0 -2.8 -3.2 -7.4 -6.8 -5.1
Money Supply (M1, $bn) 869.47 1048.00 789.32 852.35 858.97 877.60 969.13
Change in Real Wages (%) 2.9 1.7 2.7 3.1 1.0 2.5 5.0
Unemployment Rate (%) 8.6 10.2 8.0 7.4 9.1 9.3 9.2
International Economic Indicators
Foreign Direct Investment ($bn) 52.47 28.56 96.17 64.15 24.21 33.63 44.19
Forex Reserves ($bn) 32.81 32.40 43.59 30.38 27.73 36.21 26.15
Gross Reserves (ex gold, $bn) 46.07 53.19 45.71 33.62 46.63 55.80 48.61
Gold Reserves ($bn) 91.89 98.38 70.01 69.31 86.44 110.42 123.29
Gross reserves (inc gold, $bn) 137.97 151.57 115.72 102.93 133.07 166.22 171.90
Total Foreign Debt ($bn) 5045.72 5380.61 4547.05 5024.34 4965.61 5122.26 5569.35
Total Foreign Debt/GDP (%) 184.1 203.9 176.1 171.9 184.4 193.5 194.5
Debt Service ($bn) 193.71 216.68 180.06 191.50 188.38 196.21 212.38
Debt Service/XGS (%) 19.5 21.4 18.4 18.0 20.6 20.8 19.7
Current Account ($bn) -34.68 -24.08 -25.89 -49.38 -34.92 -33.72 -29.49
Current Account/GDP (%) -1.3 -0.9 -1.0 -1.7 -1.3 -1.3 -1.0
Current Account/XGS (%) -3.5 -2.3 -2.6 -4.6 -3.8 -3.6 -2.7
Exports ($bn) 547.17 548.51 547.18 601.44 481.65 519.06 586.50
Imports ($bn) 619.99 596.24 603.46 688.40 541.34 589.94 676.80
Trade Balance ($bn) -72.82 -47.73 -56.28 -86.96 -59.69 -70.88 -90.30
Exports of Services ($bn ) 187.62 247.82 149.16 165.29 190.66 196.32 236.68
Income, credit ($bn) 233.53 199.02 252.98 268.36 212.20 196.32 237.80
Transfers, credit ($bn) 27.35 22.08 29.29 28.82 29.95 31.60 17.09
Exports G&S ($bn) 995.67 1017.42 978.61 1063.91 914.46 943.30 1078.07
Liabilities ($bn) 163.80 164.83 105.38 147.34 171.83 178.30 216.13
Net Reserves ($bn) -25.83 -13.26 10.34 -44.41 -38.76 -12.08 -44.23
Liquidity (months import cover) -0.5 -0.2 0.2 -0.8 -0.9 -0.2 -0.8
Currency Exchange Rate 0.722 0.818 0.731 0.683 0.720 0.755 0.719
Currency Change (%) 1.9 -5.0 8.3 6.6 -5.4 -4.9 4.8
Social Indicators
Population (million) 62.63 64.12 61.97 62.31 62.64 62.96 63.27
Population Growth (%) 0.5 0.4 0.6 0.5 0.5 0.5 0.5
Infant Deaths/1000 3 3 3 3 3 3 3
Persons under Age 15 (%) 19 19 19 19 19 19 19
Urban Population (%) 77 79 77 77 77 77 77
Urban Growth (%) 0.8 1.2 1.9 0.5 0.5 0.5 0.5
Literacy % pop. 99 99 99 99 99 99 99
Agricultural Work Force (%) 4 3 4 4 4 4 4
Industry-Commerce Work Force (%) 24 22 24 24 24 24 24
Services Work Force (%) 72 74 72 72 72 72 72
Unionized Work Force (%) 8 8 8 8 8 8 8
Energy - total consumption (1015 Btu) 11.02 10.76 11.30 11.30 10.73 11.01 10.77
Energy - consumption/head (109 Btu) 0.17 0.17 0.18 0.18 0.17 0.17 0.17
Current Data 29-Dec-2017 ~ Page 6-7

Political Risk Services Reproduction without written permission of
The PRS Group is strictly prohibited.
29-Dec-2017
France
Databank
2007-2011 2012-2016
Average Average 2012 2013 2014 2015 2016
Domestic Economic Indicators
GDP (Nominal, $bn) 2741.46 2643.24 2682.39 2810.27 2843.86 2418.08 2461.62
Per Capita GDP ($) 43770 41239 42202 44021 44352 37548 38070
Real GDP Growth Rate (%) 0.6 0.7 0.2 0.6 0.6 1.2 1.1
Inflation Rate (%) 1.6 0.8 2.0 0.9 0.5 -0.1 0.6
Capital Investment ($bn) 609.37 581.19 603.47 623.51 620.72 520.10 538.16
Capital Investment/GDP (%) 22.2 22.0 22.5 22.2 21.8 21.5 21.9
Budget Revenues ($bn) 1351.79 1399.50 1395.28 1487.22 1516.34 1291.91 1306.75
Budget Revenues/GDP (%) 49.3 52.9 52.0 52.9 53.3 53.4 53.1
Budget Expenditures ($bn) 1489.68 1504.90 1524.56 1600.86 1629.19 1379.16 1390.71
Budget Expenditures/GDP (%) 54.3 56.9 56.8 57.0 57.3 57.0 56.5
Budget Balance ($bn) -137.89 -105.40 -129.28 -113.64 -112.85 -87.25 -83.96
Budget Balance/GDP (%) -5.1 -4.0 -4.8 -4.0 -4.0 -3.6 -3.4
Money Supply (M1, $bn) 869.47 1048.00 921.44 997.46 1129.59 1050.76 1140.76
Change in Real Wages (%) 2.9 1.7 2.9 1.7 1.4 1.5 1.2
Unemployment Rate (%) 8.6 10.2 9.8 10.3 10.3 10.4 10.1
International Economic Indicators
Foreign Direct Investment ($bn) 52.47 28.56 32.95 31.59 -1.05 43.92 35.41
Forex Reserves ($bn) 32.81 32.40 30.35 27.41 28.66 36.37 39.19
Gross Reserves (ex gold, $bn) 46.07 53.19 54.23 50.85 49.55 55.19 56.13
Gold Reserves ($bn) 91.89 98.38 130.29 94.08 93.90 82.97 90.65
Gross reserves (inc gold, $bn) 137.97 151.57 184.52 144.93 143.45 138.16 146.78
Total Foreign Debt ($bn) 5045.72 5380.61 5237.96 5343.86 6012.02 5071.00 5238.22
Total Foreign Debt/GDP (%) 184.1 203.9 195.3 190.2 211.4 209.7 212.8
Debt Service ($bn) 193.71 216.68 214.00 212.66 218.99 219.85 217.90
Debt Service/XGS (%) 19.5 21.4 20.9 20.0 20.2 22.8 22.9
Current Account ($bn) -34.68 -24.08 -32.89 -24.38 -31.47 -10.67 -20.98
Current Account/GDP (%) -1.3 -0.9 -1.2 -0.9 -1.1 -0.4 -0.9
Current Account/XGS (%) -3.5 -2.3 -3.2 -2.3 -2.9 -1.1 -2.2
Exports ($bn) 547.17 548.51 561.14 582.38 581.41 510.60 507.00
Imports ($bn) 619.99 596.24 630.78 639.01 635.61 538.39 537.41
Trade Balance ($bn) -72.82 -47.73 -69.64 -56.63 -54.20 -27.79 -30.41
Exports of Services ($bn ) 187.62 247.82 234.40 254.23 274.98 239.94 235.53
Income, credit ($bn) 233.53 199.02 213.70 210.77 208.58 183.32 178.74
Transfers, credit ($bn) 27.35 22.08 14.68 15.93 19.13 30.40 30.26
Exports G&S ($bn) 995.67 1017.42 1023.92 1063.31 1084.10 964.26 951.53
Liabilities ($bn) 163.80 164.83 202.79 164.61 172.01 136.28 148.47
Net Reserves ($bn) -25.83 -13.26 -18.27 -19.68 -28.56 1.88 -1.69
Liquidity (months import cover) -0.5 -0.2 -0.3 -0.4 -0.5 0.0 0.0
Currency Exchange Rate 0.722 0.818 0.778 0.753 0.753 0.902 0.904
Currency Change (%) 1.9 -5.0 -8.2 3.2 0.0 -19.8 -0.2
Social Indicators
Population (million) 62.63 64.12 63.56 63.84 64.12 64.40 64.66
Population Growth (%) 0.5 0.4 0.5 0.4 0.4 0.4 0.4
Infant Deaths/1000 3 3 3 3 3 3 3
Persons under Age 15 (%) 19 19 19 19 19 19 19
Urban Population (%) 77 79 77 77 79 80 80
Urban Growth (%) 0.8 1.2 0.5 0.4 3.0 1.7 0.4
Literacy % pop. 99 99 99 99 99 99 99
Agricultural Work Force (%) 4 3 4 4 3 3 3
Industry-Commerce Work Force (%) 24 22 24 24 21 21 21
Services Work Force (%) 72 74 72 72 76 76 76
Unionized Work Force (%) 8 8 8 8 8 8 8
Energy - total consumption (1015 Btu) 11.02 10.76 10.62 10.81 10.77 10.79 10.81
Energy - consumption/head (109 Btu) 0.17 0.17 0.17 0.17 0.17 0.17 0.17
Current Data 29-Dec-2017 ~ Page 6-7

France Country Forecast
29-Dec-2017 Comparison: France
Regional Real GDP Growth (2016): West Europe

Ireland
Spain
Sweden
Turkey
Netherlands
Finland
Germany
United Kingdom
Austria
Switzerland
Portugal
Denmark
Belgium
France
Norway
Italy
Greece
0 1 2 3 4 5 6
(percent)
Regional Inflation Rates (2016): West Europe

Turkey
Norway
Belgium
Sweden
Austria
United Kingdom
France
Portugal
Germany
Finland
Denmark
Netherlands
Ireland
Italy
Spain
Switzerland
Greece
-2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0
(percent)
Page 8 • 29-Dec-2017 Current Data

Reproduction without written permission of The PRS Group is strictly prohibited
France Country Forecast
29-Dec-2017 Comparison: France
Regional Current Account/GDP (2016): West Europe

Switzerland
Netherlands
Germany
Denmark
Norway
Sweden
Ireland
Italy
Spain
Austria
Portugal
Belgium
France
Finland
Greece
Turkey
United Kingdom
-8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0
(percent)
Economic Performance Profile

Country's Ranking Relative to All Countries Covered by Political Risk Services
2012-2016
GDP Per Capita ($)  41239
Real GDP Growth (%)  0.7
Inflation (%)  0.8
Unemployment (%)  10.2
Capital Investment  22.0

(% of GDP)
Budget Balance  -4.0

(% of GDP)
Current Account
(% of GDP)
 -0.9
Debt Service Ratio  21.4
Currency Change (%)  -5.0
BEST 25% NEXT 25% NEXT 25% WORST 25%
Current Data 29-Dec-2017 • Page 9

Reproduction without written permission of The PRS Group is strictly prohibited
Social Indicators as of 2016
Primary Energy
Energy Consumption (1015 Btu): 10.81
Per Capita Consumption (109 Btu): 0.17
Population
Annual Growth 0.4%
Infant Deaths per 1,000 3
Persons Under Age 15 19%
Urban Population 80%
Urban Growth 0.4%
Literacy 99%
Work Force Distribution

Agriculture 3%
Industry-Commerce 21%
Services 76%
Unions 8%
Ethnic Groups
European, North African, other
Languages
French
Religions
Roman Catholic, Protestant, Muslim, other
Page 10 • 29-Dec-2017 Current Data

France
Country Forecast
Comment & Analysis
Cohesiveness of Majority Bloc Uncertain
At presidential and parliamentary elections held in April-June 2017, 39-year-old
Emmanuel Macron and his “third way” political movement, En Marche!, managed to
completely reshape the French political landscape. The new president scored a
convincing victory over his far-right opponent, Marine Le Pen, in a run-off election held
in early May, while the centrist La République En Marche! (REM), an alliance of En Marche!
and dissident members of the two main establishment parties, the Socialist Party (PS) and
the Republicans (LR), won 302 seats in the 577-member National Assembly. With the
support of the liberal Democratic Movement (MoDem) and qualified pledges of
cooperation from smaller parties of the left and right, Macron began his five-year term
with a nominal two-thirds legislative majority.
Although Macron’s electoral fortunes were boosted by LR presidential candidate François

Fillon’s embroilment in an ethics scandal late in the campaign, the stunning success of
REM in the parliamentary voting confirmed the electorate’s embrace of a legislative
program that combines business-friendly reforms and a pro-EU posture with a liberal
social agenda, promises to restore political integrity, and a commitment to improving the
efficiency of social spending by targeting benefits at those most in need.
In keeping with Macron’s pledge to form a government that represents France’s

“moderate majority,” the president chose two dissident members of the LR—Edouard
Philippe and Bruno Le Maire—as his prime minister and minister of economy and
finance, respectively. At 46 years old, Prime Minister Philippe is younger than the typical
occupant of the post, but he came into the office with a reputation as someone who
possesses the political judgment and experience necessary to command the respect of
political veterans in the Parliament.
The more important question is whether Philippe will be able to count on the consistent
support of the dozens of political novices among REM’s parliamentary delegation, many
of whom are ideological purists who are not prepared to surrender their principles for the
sake of securing approval of “good enough” legislation. Thus far, the governing bloc
remains united in the Parliament, but complaints that the party has adopted a strategy of
Comment & Analysis 29-Dec-2017 • Page 11

“rule by elites” has contributed to rumblings of discontent at the grass roots that could be
a portent of trouble ahead in Paris.
Will Macron’s Reach Exceed His Grasp?

Macron’s proposals for restoring fiscal discipline were less draconian than those
presented by Fillon, but the reform program will still mean spending cuts totaling $67
billion over five years, to be achieved in part by reducing inefficiency and eliminating
120,000 public-sector jobs. However, the 2018 budget unveiled in October includes cuts
to spending of subsidies for housing and transportation for the poor, and Macron also
plans to achieve savings by tightening eligibility for unemployment insurance, reforming
the health-care system, and eliminating special pension plans for specific occupations
(such as railroad workers) that lose money.
Political gaffes that reinforced the doubts of the many voters who backed Macron as the
lesser evil in a run-off election against Marine Le Pen, the leader of the far-right National
Front (FN), contributed to a rapid fall in the president’s approval rating after he took
office. Nevertheless, as long as he retains the support of a large majority in the
Parliament, that will not pose an obstacle to implementing reforms.
In September, the president signed five decrees authorizing changes to labor rules that,
among other things, grant employers more flexibility to negotiate wages and hours
directly with workers, rather than being bound by collective bargaining agreements. The
reforms are designed to keep wage growth in check, thereby enhancing the
competitiveness of French-made goods and enabling employers to hire more workers.
The expanded use of custom contracts poses a threat to the unions, which predictably
voiced loud objections to the reforms. However, Macron is likely to face much stronger
resistance from organized labor when the government tackles proposed changes to the
pension system, which will entail significant increases in the retirement age for workers
in occupations that currently are able to retire with full benefits as young as 52. An
attempt to implement similar reforms in 1995 provoked mass strikes that ultimately
forced the government to step down.
A large portion of the budget savings will be used to fund investment in green energy
projects, improved public services, and job training for unemployed youth, all of which
are seen as crucial to attracting increased private investment. But the government’s plans
also include significant tax relief, including a proposed reduction in the corporate tax rate
from 33.3% to 25%, in keeping with Macron’s goal of harmonizing tax rates across the EU.
Page 12 • 29-Dec-2017 Comment & Analysis

The first steps toward reducing the corporate tax rate have been put on hold until 2019, as
policymakers focus initially on holding the general government budget deficit to less than
EU’s 3% of GDP ceiling for the first time in a decade. That will require closing a budget
hole amounting to 4.5 billion euros inherited by the previous PS-led government, but the
2018 budget still includes significant tax relief that will take effect next year.
In addition to limiting the application of the wealth tax to property assets, effectively
reducing the tax by 70%, the budget introduces a flat 30% tax on capital gains, dividends,
and interest. The budget also includes a cut in workers’ social security contributions.
However, critics have focused on the cuts to subsidies and an increase in the CSG, a tax
used to finance public health care and family welfare, which will apply to both wage
earners and about one-half of retirees. Mirroring the complaints among REM members
about the elitism and arrogance of their leaders, opponents of the government’s tax
strategy have derided Macron as the “president of the rich.”
It is a label that could stick, and one that will eventually hurt the president if it does.
Polls conducted in December showed Macron’s approval rating topping 50% for the first
time since July, an improvement attributed to his successful push to win approval of
reforms of the EU’s labor and migration rules related to “posted workers,” which
supporters view as a necessary response to the labor-market equivalent of dumping, and
opponents have dismissed as protectionism.
The voters whose support has helped to boost Macron’s approval rating are not likely to
remain enamored of the president once his government takes steps to reform the pension
and unemployment insurance systems in the coming months. The unions intend to pick
a fight with the government, and if Macron’s response validates claims that he is fighting
a class war on behalf of the wealthy, the support of those voters may be lost for good,
particularly if reforms do not produce a significant tangible improvement in the economic
circumstances of lower-income groups.
Consequently, there may be only a limited window for moving aggressively to

implement reforms before the president’s sagging popularity contributes to caution on
the part of Macron and weakens the internal cohesiveness of the REM. Even if the
governing bloc retains its majority status throughout the five-year forecast period, the
impetus for reform is expected to diminish as Macron prepares to seek a second term in
2022.
Fiscal Strategy Carries Risk of Missed Opportunity

The 2018 budget projects a narrowing of the general government budget deficit to 2.6% of
GDP, from an anticipated 2.9% of GDP this year. The achievement of two consecutively

yearly deficits below the 3% of GDP ceiling would enable France to exit the EU’s
excessive deficit procedure it has operated under since 2009.
Macron is an avowed Europhile, and he has made it his personal mission to ensure that
the EU has the institutional strength to survive the recent surge in nationalist sentiment
throughout the continent. He has many ideas about how to reform the EU, but
recognizes that he has little chance of selling some of his most controversial proposals,
such as the creation of a European Monetary Fund and a euro-zone Finance Ministry, if
his own government lacks fiscal credibility.
The recognition that Macron has a strong personal incentive to reduce the deficit will
magnify the negative impact of any significant slippage on investor confidence.
Moreover, critics have noted that the government is relying heavily on accelerating
economic growth to narrow the deficit relative to GDP, while making insufficient effort to
reduce the structural deficit, creating a threat that the window of opportunity will have
closed by the time the government gets around to focusing on that problem.
Threat of Labor Unrest Clouds Otherwise Bright Outlook for Economy

The near-term outlook for the economy is bright, and should remain so in the absence of
external shocks that adversely affect global demand and as long as conditions remain
stable inside France. Although there is an ever-present risk of relatively small-scale
terrorist attacks by Islamist extremists, the chief threat to internal stability, in terms of its
potential to undermine investor confidence, is the potential for broadly disruptive action
by labor unions aimed at forcing the government to abandon unpopular reforms.
Revised national accounts for the third quarter of 2017 showed year-on-year real GDP
growth accelerating to 2.3%, after averaging 1.6% in the first half of the year. Although
growth of consumption remained sluggish, both fixed investment and exports expanded
at a faster pace than the overall growth rate for the quarter compared to July–September
2016. The steady rise of the manufacturing purchasing managers’ index (PMI) and the
positive trend of other business confidence indicators suggests that the pace of real
growth continued to accelerate in the fourth quarter of the year, pushing the annual rate
close to 2% in 2017.
The tax relief included in the 2018 budget will support the continued growth of business
investment and may give a boost to household spending. Inflation has firmly taken hold,
but will remain subdued, averaging less than 1.5% in 2017–2018, and the unemployment
rate will continue to fall. On that basis, real GDP growth could top 2% this year, but the
potential for widespread and protracted disruptions to public services as a result of

strikes organized by the unions to protest the government’s proposed reforms poses a
potentially significant downside risk to the growth forecast.
The deficit in the goods balance widened in 2017 (through October), despite the
resumption of export growth, as imports grew at a faster pace in the period, reflecting
both an increase in the price of imported fuel and other commodities and stronger
demand for investment-related imports. Even so, the current account deficit narrowed
somewhat compared to the same period in 2016, the result of a stronger performance for
the tourism sector as security concerns have dissipated, which contributed to a larger
services surplus. The income and transfers balances are on track to post a larger surplus
and a smaller deficit, respectively, compared to 2016, but with oil prices remaining on an
upward trajectory, the goods deficit likely widened in the final months of the year, with
similar implications for the current account deficit, which is forecast to increase to 1% of
GDP in 2017.
A moderate strengthening of external demand will give a boost to the export sector,
resulting in a narrower current account shortfall in 2018. However, the same factors that
pose downside risks to the growth forecast will also create the potential for an expansion
of the external deficits next year.


France
Country Forecast
Forecast Scenarios
SUMMARY OF 18-MONTH FORECAST
Centrist Coalition Center-Right Broad Coalition

REGIMES & PROBABILITIES 75% Coalition 15% 10%
SUMMARY OF FIVE-YEAR FORECAST

Most Likely Regime Scenario
18-Month Forecast Period: Centrist Growth Inflation CACC

Centrist Coalition (75% Probability) Coalition (%) (%) ($bn)
Five-Year Forecast Period: 2017 1.7 1.1 -23.10
Centrist Coalition (60% Probability) 2018-2022 1.6 1.5 -22.40
At presidential and parliamentary elections held in April-June 2017, 39-year-old

Emmanuel Macron and his “third way” political movement, En Marche!, managed to
completely reshape the French political landscape. The new president scored a
convincing victory over his far-right opponent, Marine Le Pen, in a run-off election held
in early May, while the centrist La République En Marche! (REM), an alliance of En Marche!
and dissident members of the two main establishment parties, the Socialist Party (PS) and
the Republicans (LR), won 302 seats in the 577-member National Assembly. With the
support of the liberal Democratic Movement (MoDem) and qualified pledges of
cooperation from smaller parties of the left and right, Macron began his five-year term
with a nominal two-thirds legislative majority.
Although Macron’s electoral fortunes were boosted by LR presidential candidate François

Fillon’s embroilment in an ethics scandal late in the campaign, the stunning success of
REM in the parliamentary voting confirmed the electorate’s embrace of a legislative
program that combines business-friendly reforms and a pro-EU posture with a liberal
social agenda, promises to restore political integrity, and a commitment to improving the
efficiency of social spending by targeting benefits at those most in need.
Forecast Scenarios 29-Dec-2017 • Page 17

In keeping with Macron’s pledge to form a government that represents France’s

“moderate majority,” the president chose two dissident members of the LR—Edouard
Philippe and Bruno Le Maire—as his prime minister and minister of economy and
finance, respectively. At 46 years old, Prime Minister Philippe is younger than the typical
occupant of the post, but he came into the office with a reputation as someone who
possesses the political judgment and experience necessary to command the respect of
political veterans in the Parliament.
The more important question is whether Philippe will be able to count on the consistent
support of the dozens of political novices among REM’s parliamentary delegation, many
of whom are ideological purists who are not prepared to surrender their principles for the
sake of securing approval of “good enough” legislation. Thus far, the governing bloc
remains united in the Parliament, but complaints that the party has adopted a strategy of
“rule by elites” has contributed to rumblings of discontent at the grass roots that could be
a portent of trouble ahead in Paris.
Although the 2018 budget includes some tax relief for wage earners, critics have focused
on the cuts to subsidies, and, mirroring the complaints among REM members about the
elitism and arrogance of their leaders, opponents of the government’s economic strategy
have derided Macron as the “president of the rich.” It is a label that could stick, and one
that will eventually hurt the president if it does.
Polls conducted in December showed Macron’s approval rating topping 50% for the first
time since July, an improvement attributed to his successful push to win approval of
reforms of the EU’s labor and migration rules related to “posted workers,” which
supporters view as a necessary response to the labor-market equivalent of dumping, and
opponents have dismissed as protectionism. The voters whose support has helped to
boost Macron’s approval rating are not likely to remain enamored of the president once
his government takes steps to reform the pension and unemployment insurance systems
in the coming months.
The unions intend to pick a fight with the government, and if Macron’s response
validates claims that he is fighting a class war on behalf of the wealthy, the support of
those voters may be lost for good, particularly if reforms do not produce a significant
tangible improvement in the economic circumstances of lower-income groups.
Consequently, there may be only a limited window for moving aggressively to
implement reforms before the president’s sagging popularity contributes to caution on
the part of Macron and weakens the internal cohesiveness of the REM. Even if the
governing bloc retains its majority status throughout the five-year forecast period, the
Page 18 • 29-Dec-2017 Forecast Scenarios

impetus for reform is expected to diminish as Macron prepares to seek a second term in
2022.
Reforms Will Enhance Competitiveness

The top priorities for the government include addressing structural inefficiencies,
improving fiscal management, and reducing a gross public-sector debt burden that is
edging uncomfortably close to the psychologically significant threshold of 100% of GDP.
Macron’s proposals for restoring fiscal discipline were less draconian than those
presented by Fillon, but the reform program will still mean spending cuts totaling $67
billion over five years, to be achieved in part by reducing inefficiency and eliminating
120,000 public-sector jobs. However, the 2018 budget unveiled in October includes cuts
to spending of subsidies for housing and transportation for the poor, and Macron also
plans to achieve savings by tightening eligibility for unemployment insurance, reforming
the health-care system, and eliminating special pension plans for specific occupations
(such as railroad workers) that lose money.
Political gaffes that reinforced the doubts of the many voters who backed Macron as the
lesser evil in a run-off election against Marine Le Pen, the leader of the far-right National
Front (FN), contributed to a rapid fall in the president’s approval rating after he took
office. Nevertheless, as long as he retains the support of a large majority in the
Parliament, that will not pose an obstacle to implementing reforms.
In September, the president signed five decrees authorizing changes to labor rules that,
among other things, grant employers more flexibility to negotiate wages and hours
directly with workers, rather than being bound by collective bargaining agreements. The
reforms are designed to keep wage growth in check, thereby enhancing the
competitiveness of French-made goods and enabling employers to hire more workers.
The expanded use of custom contracts poses a threat to the unions, which predictably
voiced loud objections to the reforms. However, Macron is likely to face much stronger
resistance from organized labor when the government tackles proposed changes to the
pension system, which will entail significant increases in the retirement age for workers
in occupations that currently are able to retire with full benefits as young as 52. An
attempt to implement similar reforms in 1995 provoked mass strikes that ultimately
forced the government to step down.
A large portion of the budget savings will be used to fund investment in green energy
projects, improved public services, and job training for unemployed youth, all of which
are seen as crucial to attracting increased private investment. But the government’s plans

also include significant tax relief, including a proposed reduction in the corporate tax rate
from 33.3% to 25%, in keeping with Macron’s goal of harmonizing tax rates across the EU.
The first steps toward reducing the corporate tax rate have been put on hold until 2019, as
policymakers focus initially on holding the general government budget deficit to less than
EU’s 3% of GDP ceiling for the first time in a decade. That will require closing a budget
hole amounting to 4.5 billion euros inherited by the previous PS-led government, but the
2018 budget still includes significant tax relief that will take effect next year.
In addition to limiting the application of the wealth tax to property assets, effectively
reducing the tax by 70%, the budget introduces a flat 30% tax on capital gains, dividends,
and interest. The budget also includes a cut in workers’ payroll contributions to the
welfare system.
The 2018 budget projects a narrowing of the general government budget deficit to 2.6% of
GDP, from an anticipated 2.9% of GDP this year. The achievement of two consecutively
yearly deficits below the 3% of GDP ceiling would enable France to exit the EU’s
excessive deficit procedure it has operated under since 2009.
Macron is an avowed Europhile, and he has made it his personal mission to ensure that
the EU has the institutional strength to survive the recent surge in nationalist sentiment
throughout the continent. He has many ideas about how to reform the EU, but
recognizes that he has little chance of selling some of his most controversial proposals,
such as the creation of a European Monetary Fund and a euro-zone Finance Ministry, if
his own government lacks fiscal credibility.
The recognition that Macron has a strong personal incentive to reduce the deficit will
magnify the negative impact of any significant slippage on investor confidence.
Moreover, critics have noted that the government is relying heavily on accelerating
economic growth to narrow the deficit relative to GDP, while making insufficient effort to
reduce the structural deficit, creating a threat that the window of opportunity will have
closed by the time the government gets around to focusing on that problem.
The moderate tariff and non-tariff barriers permitted under the EU’s rules will remain in
place. The country’s favorable international financial position will limit the danger of an
increase in payment delays. That said, halting the upward trajectory of the debt-to-GDP
ratio will be essential to avoiding financial strains that could produce cracks in the
foundation of the banking system later in the forecast period.

Unions’ Defense of Prerogatives Will Increase Risk of Unrest

Work stoppages are the preferred weapon of France’s organized workers, who are as
likely to strike for political reasons as in pursuit of economic goals. Incidents of labor
unrest frequently spread nationwide. The tradition of walking off the job is strongly
embedded in the political culture, and as was made clear during the previous term, the
willingness of the unions to use the strike weapon is a function of the policies promoted
by the government, rather than the ideological composition of the incumbent
administration.
Macron has indicated that his government will pursue implementation of some of its
most controversial proposals in 2018, a strategy that suggests he wants to complete the
heavy lifting while the political tides are moving in his favor. There is no reason to
assume that the unions will be less aggressive in their opposition to the Macron
administration’s pension reforms than they were when similar proposals were put
forward in the mid-1990s. On that basis, the looming fight figures to be disruptive and
potentially violent, and may even pose a threat to the stability of the government.
A referendum on proposed measures granting limited autonomy to the troubled island of

Corsica was defeated in early July 2003. The outcome probably reflected the satisfaction
of many of the island’s inhabitants with the status quo in relations with France, but
armed separatist groups chose to interpret the rejection of autonomy as evidence of
widespread sentiment in favor of independence, a view that inspired a series of terrorist
attacks.
The National Liberation Front of Corsica (FNLC) formally ended its armed struggle in
2014, but there is still clear evidence of lingering resentment over the island’s rule by
France. Political attitudes have shifted in a pro-independence direction even as support
for integration has weakened across the EU. At elections held in 2015, the FNLC won
control of the regional government, putting it in a position to push for a status
referendum, at a time when support for independence is on the rise. Polling data
indicates that a majority of Corsicans favor remaining a part of France, and the regional
government is merely pushing for talks aimed at securing greater autonomy. However, it
is doubtful that Macron would be open to concessions on that point, which would not
only risk alienating his conservative allies in government, but would run counter to his
anti-nationalist views. As such, a risk of localized unrest will persist, and the possibility
that pro-independence zealots might carry out acts of violence for the cause cannot be
ruled out.
Former President Francois Hollande’s decision to intervene militarily in Mali, a former

French colony in western Africa where a military government that came to power by

coup in March 2012 was struggling to repel Al Qaeda-affiliated rebel forces, produced a
positive outcome. However, a subsequent attack on an Algerian gas facility by Islamist
militants, ostensibly intended as a show of solidarity with the Malian rebels, and the
more recent deadly terrorist attacks inside France since early 2015 highlight the risk that
France will continue to be targeted by extremists if it continues to pursue intervention in
foreign conflicts.
Macron foreign policy priorities include the strengthening of EU institutions and the
promotion of multilateralism as a check on nationalism, both of which suggest that he
will be disinclined to intervene militarily in international hot spots. Nevertheless, his
commitment to upholding France’s obligations as a member of NATO and a desire to
maintain close relations with the US create some risk of military entanglements that could
make France vulnerable to being targeted for retribution by extremists groups or lone-
wolf sympathizers.
Reforms Will Deliver Less than Promised

The near-term outlook for the economy is bright, and should remain so in the absence of
external shocks that adversely affect global demand and as long as conditions remain
stable inside France. Although there is an ever-present risk of relatively small-scale
terrorist attacks by Islamist extremists, the chief threat to internal stability, in terms of its
potential to undermine investor confidence, is the potential for broadly disruptive action
by labor unions aimed at forcing the government to abandon unpopular reforms.
Revised national accounts for the third quarter of 2017 showed year-on-year real GDP
growth accelerating to 2.3%, after averaging 1.6% in the first half of the year. Although
growth of consumption remained sluggish, both fixed investment and exports expanded
at a faster pace than the overall growth rate for the quarter compared to July–September
2016. The steady rise of the manufacturing purchasing managers’ index (PMI) and the
positive trend of other business confidence indicators suggests that the pace of real
growth continued to accelerate in the fourth quarter of the year, pushing the annual rate
close to 2% in 2017.
The tax relief included in the 2018 budget will support the continued growth of business
investment and may give a boost to household spending. Inflation has firmly taken hold,
but will remain subdued, averaging less than 1.5% in 2017–2018, and the unemployment
rate will continue to fall. On that basis, real GDP growth could top 2% next year, but the
potential for widespread and protracted disruptions to public services as a result of
strikes organized by the unions to protest the government’s proposed reforms poses a
downside risk to the 2018 growth forecast.

The deficit in the goods balance widened in 2017 (through October), despite the
resumption of export growth, as imports grew at a faster pace in the period, reflecting
both an increase in the price of imported fuel and other commodities and stronger
demand for investment-related imports. Even so, the current account deficit narrowed
somewhat compared to the same period in 2016, the result of a stronger performance for
the tourism sector as security concerns have dissipated, which contributed to a larger
services surplus. The income and transfers balances are on track to post a larger surplus
and a smaller deficit, respectively, compared to 2016, but with oil prices remaining on an
upward trajectory, the goods deficit likely widened in the final months of the year, with
similar implications for the current account deficit, which is forecast to increase to 1% of
GDP in 2017.
A moderate strengthening of external demand will give a boost to the export sector,
resulting in a narrower current account shortfall in 2018. However, the same factors that
pose downside risks to the growth forecast will also create the potential for an expansion
of the external deficits next year.
Despite anticipated improvements in competitiveness, the loss of revenue implied by the

government’s tax-reduction program will require deep cuts in state spending, resulting in
a continued weakness of domestic demand. Pressure to reduce the structural deficit and
a gradual tightening of monetary policy by the ECB will limit growth potential beyond
2018. Real GDP growth will average 1.6% over the five-year period to 2022, which is a
marked improvement on the average pace of less than 0.7% recorded over the past
decade, but it will not be sufficient to ensure the Macron possesses the political capital
that will be required to fully implement his reform agenda. A combination of fiscal and
monetary tightening will help to contain consumer-price increases over medium term,
holding average inflation for the five-year forecast period to 1.5%.
The growth outlook points to comparatively weak demand for imports that will limit the
expansion of the trade deficit over the medium term. However, smaller surpluses in the
income and services accounts will result in persistent current account deficits averaging
$22.4 billion per year through 2022.
Second Most Likely Regime Scenario
18-Month Forecast Period: Center-Right Growth Inflation CACC

Center-Right Coalition (15% Probability) Coalition (%) (%) ($bn)
Center-Right Coalition (25% Probability) 2018-2022 1.7 1.6 -26.50

Although Macron billed himself as a candidate of neither the left nor the right, but the
general thrust of his legislative program to date has been more to the liking of right-
leaning elements within the governing bloc than those who were previously affiliated
with the center-left PS, which is not surprising, given the central role of Philippe and Le
Maire, both former members of the LR, in formulating the policy agenda. As such, a
fracturing of REM that jeopardizes the government’s claim to a majority would probably
result from the administration’s abandonment by the left flank of its legislative bloc.
In that event, the president would likely attempt to attract the support of the LR. Based
on the Republicans’ campaign platform, such a partnership would seem to be a fairly
good fit. However, one result of Macron’s reshaping of the political landscape is that the
LR as it exists today would probably be better suited to partnership with the FN than
REM.
Most Republican moderates who were not willing to jump to the REM but are open to
cooperating with Macron formed a separate parliamentary group—the Constructivists—
while a smaller number formed a separate party, Agir, in November 2017. Following the
elections of conservative hard-liner Laurent Wauquiez as leader of the LR earlier this
month, the Constructivists were expelled from the party.
Despite the defections and the ejections, the Republicans still control more than 100 seats
in the lower house, and could become an essential partner for Macron if REM starts to
fragment. However, the LR would condition its support on policy concessions in the area
of immigration restrictions—Wauquiez has called for a referendum on the EU quotas—
and adopt a more nationalist posture on economic matters, both of which would
undermine Macron’s credibility as an advocate of institutional reform within the EU. For
that reason alone, the president might prefer to muddle through without a reliable
majority rather than pursue a formal agreement with the LR.
Liberal Agenda Would Encounter Some Obstacles

Despite differences on key issues, there is enough common ground between REM and the
LR with regard to views on the proper role of the private sector to create consensus
within a center-right coalition behind measures aimed at improving the climate for
business. Although this scenario assumes political instability, most likely the result of a
militant union response to the government’s aggressive pursuit of liberal economic
reforms that triggers the defection of left-leaning elements of the governing bloc,
Macron’s ability to create an alternative majority coalition that on many issues would be
more committed to reform than the current administration would help to dampen the
negative effects of the tumult on investor confidence.

On that basis, economic performance would be comparable to that forecast under the
most likely scenario. Real GDP growth would be somewhat stronger under this scenario,
averaging 1.7% annually through 2022. A stronger rebound would be accompanied by
somewhat higher inflation averaging 1.6% per year over the forecast period. Strong
demand for manufacturing inputs and marginally stronger household spending would
contribute to faster growth of imports than under the most likely scenario, resulting in
larger current account deficits averaging $26.5 billion per year through 2022.
Third Most Likely Regime Scenario
18-Month Forecast Period: Broad Growth Inflation CACC

Broad Coalition (10% Probability) Coalition (%) (%) ($bn)
Broad Coalition (15% Probability) 2018-2022 1.0 1.1 -17.60
The failure of leading members of the euro zone to find some means of resolving the
current debt crisis would have potentially devastating repercussions for the entire
regional economy. Under crisis conditions that left the government no choice but to
introduce painful austerity measures and implement wrenching structural reforms, the
leader of a pro-EU administration that lacks a parliamentary majority might seek to
strengthen the government’s position by proposing a formal partnership of all the pro-
integration parties in the Parliament.
Crisis-driven Policy Program

The investment and trade policies of a broad coalition would in large part be dictated by
the crisis conditions assumed under this scenario. Policy choices would also be limited
by the requirements of membership in the EU and the EMU.
On the positive side, the circumstances that necessitated the formation of a unity coalition
would encourage the initiation of a privatization program and progress toward greater
labor-market flexibility. Although public-sector retrenchment would create a basis for
streamlining the bureaucracy over the medium term, the immediate result would be an
increase in administrative bottlenecks that would negatively affect business operations.
After weakening in the early part of the forecast period, the economy would only
gradually recover, resulting in average annual growth of just 1% per year through 2022.
The weak anticipated rate of growth would be reflected in benign inflation averaging
1.1% per year over the forecast period. Although unfavorable conditions for the export
sector would be a factor in the poor performance of the economy, tepid domestic demand
would contain the growth of imports and, by extension, the size of the current account
deficit, which would average $17.6 billion per year through 2022.

Forecast Summary
SUMMARY OF 18-MONTH FORECAST

RISK FACTORS CURRENT
Turmoil Low SLIGHTLY MORE SLIGHTLY MORE MORE
Investment
Equity Moderate Same Same Same
Operations Low Same Same SLIGHTLY MORE
Taxation Moderate Same Same Same
Repatriation Low Same Same Same
Exchange Low Same Same Same
Trade
Tariffs Moderate Same Same Same
Other Barriers Moderate Same Same Same
Payment Delays Low Same Same Same
Economic Policy
Expansion High Same SLIGHTLY LESS SLIGHTLY MORE
Labor Costs Very High Same Same SLIGHTLY LESS
Foreign Debt High SLIGHTLY MORE Same SLIGHTLY MORE
SUMMARY OF FIVE-YEAR FORECAST

RISK FACTORS BASE
Turmoil Low Same Same SLIGHTLY MORE
Restrictions
Investment Moderate SLIGHTLY LESS SLIGHTLY LESS Same
Trade Moderate Same Same Same
Economic Problems
Domestic Moderate Same Same SLIGHTLY MORE
International High SLIGHTLY LESS SLIGHTLY LESS Same
* When present, indicates forecast of a new regime



France
Country Forecast
Political Framework
Players To Watch
Emmanuel Macron: A former investment banker who served as minister of economy,

industry, and digital affairs in the Socialist government elected in 2012, Macron founded
En Marche! last year as a centrist vehicle for his 2017 presidential bid. Although an ethics
scandal that created turmoil in the Republican camp facilitated Macron’s victory in the
two-stage election held in April-May, the stunning success of broader centrist alliance
formed ahead of the legislative elections confirmed the electorate’s embrace of a program
that combines business-friendly reforms and a pro-EU posture with a liberal social
agenda, promises to restore political integrity, and a commitment to improving the
efficiency of social spending by targeting benefits at those most in need. Macron
campaigned as a leader capable of bridging the partisan divide in Paris, which will be
essential to any chance of implementing the reforms required to revive a chronically
sluggish economy. However, his centrist credentials have been tarnished by tax reforms
and cuts to social programs that have earned him a reputation as a “president of the
wealthy,” and his ability to retain support from both the left and the right will be tested
further as the government gears up for a battle with the unions over pension reforms.
La Republique En Marche!: REM is an alliance of Macron’s centrist En Marche! and

dissident members of the PS and LR formed ahead of the June 2017 parliamentary
elections. The bloc won 302 seats in the 577-member National Assembly, but its
cohesiveness is a matter of uncertainty. Large numbers of REM’s winning candidates are
political novices whose toleration for political deal-making is debatable. Moreover, it is a
safe bet that many of the Socialists and Republicans who jumped on the Macron
bandwagon are political opportunists whose loyalty cannot be taken for granted,
particularly in the likely event that the president’s approval rating dips once again as the
government moves ahead with unpopular reforms. In that regard, the government’s
near-term legislative priorities are more likely to please supporters who lean toward the
right than those positioned to the center-left.
Édouard Philippe: A 46-year-old moderate Republican, Philippe was chosen by Macron

to serve as prime minister in an administration that the new president promised would
be a “fresh” government, but one of neither the right nor the left. Philippe was a key
Political Framework 29-Dec-2017 • Page 29

advisor for the presidential campaign of Francois Fillon, but deserted the LR candidate
when he became embroiled in a messy ethics scandal. Although the prime minister
maintained his membership in the LR, he was expelled from the party, along with
Republican lawmakers belonging to the so-called “Constructivists” group, in late 2017.
The reform agenda laid out by Philippe in July 2017 is consistent with that promised by
Macron, and the likely backlash against pension reforms will test Philippe’s leadership
skills.
Bruno Le Maire: Like Philippe, the minister of economy and finance is a former
Republican, and was appointed to his Cabinet post in accordance with Macron’s pledge
to bring ideological balance to the government. Le Maire is more Gaullist in his policy
leanings than Philippe, having in recent years advocated for very strict controls on
immigration and adopted a position on trade deals, such as a proposed agreement with
the US, that betrays a rather pronounced protectionist bent. Le Maire bears chief
responsibility for restoring France’s fiscal credibility, and could become a lightning rod
for discontent as grassroots opposition to the government’s reforms stirs social discontent
and contributes to tensions between the left and right flanks of Macron’s broad coalition.
The Republicans: A center-right party formed through the merger of several smaller
parties in 2002, the LR (known until 2015 as the Union for a Popular Movement) generally
favors market-based economic policies, but occasionally moves in the direction of
economic nationalism, a manifestation of the Gaullist emphasis on French independence.
The LR appeared to be in a strong position to reclaim the presidency in 2017, but the
party’s candidate was undermined by an ethics scandal. Most Republican moderates
who were not willing to jump to the REM but are open to cooperating with Macron
formed a separate parliamentary group—the Constructivists—while a smaller number
formed a separate party, Agir, in November 2017. Following the election of conservative
hard-liner Laurent Wauquiez as leader of the LR earlier this month, the Constructivists
were expelled from the party. Despite the defections and the ejections, the Republicans
still control more than 100 seats in the lower house, and could become an essential
partner for Macron if REM starts to fragment. However, the LR would condition its
support on policy concessions in the area of immigration restrictions—Wauquiez has
called for a referendum on the EU quotas—and adopt a more nationalist posture on
economic matters, both of which would undermine Macron’s credibility as an advocate of
institutional reform within the EU. For that reason alone, the president might prefer to
muddle through without a reliable majority rather than pursue a formal agreement with
the LR.
Page 30 • 29-Dec-2017 Political Framework

1-Sep-2017 Reproduction without written permission of The PRS Group is strictly prohibited.
France
Country Conditions
Climate for Investment & Trade
Overview
Openness to Foreign Investment
France is committed to encouraging foreign investment. In the current economic climate, the French
government sees foreign investment as a way to create jobs and stimulate growth. Investment regulations
are simple, and a range of financial incentives are available to foreign investors, who report they find
France’s skilled and productive labor force, good infrastructure, technology, and central location in Europe
attractive. France’s membership in the European Union (EU) and the Eurozone facilitates the efficient
movement of people, services, capital, and goods. However, notwithstanding French efforts at economic
reform, market liberalization, and attracting foreign investment, perceived disincentives to investing in
France include the tax environment, the high cost of labor (with the minimum wage at EUR 1,4480.27 per
month), rigid labor markets, and occasional strong negative reactions toward foreign investors planning to
restructure, downsize or close.
The French investment regime is said to be among the least restrictive in the world. With a few exceptions
in certain specified sectors, there are no statutory limits on foreign ownership of companies. Foreign entities
have the right to establish and own business enterprises, and engage in all forms of remunerative activity.
Investment promotion agency. Business France is the government agency established to promote new
foreign investment, expansion, takeovers, acquisitions, technology partnerships and financial investment.
Business France provides complementary services to help investors understand the regulatory, tax,
employment issues as well as state and local investment incentives and government support programs.
Business France also helps companies to find project finance, potential equity acquisitions and buyouts.
In addition, France updated the New Industrial France program (La nouvelle France industrielle) in 2016
targeting 47 priority industrial sectors, such as developing the next generation TGV (high speed train); an
affordable fully electric car for all; the first fully electric passenger airplane; efficient, low-emissions ships;
more powerful and longer-lasting batteries; electricity charging stations; “intelligent” fabrics; thermally-
efficient building renovation; nano-electronics; augmented reality; connected objects; robotics; electrically
propelled satellites; cloud computing; and cyber security.
The Government’s Direction Generale des Entreprises launched the second phase of Innovation 2030
program in December 2016 via a global contest called the “Worldwide Innovation Challenge,” open to all
entrepreneurs investing in France regardless of nationality. Up to 30 projects will be selected for the 2017
theme “Risk Reduction” and will receive between EUR 1 million and EUR 3 million in start-up funding.
Business France and other government agencies are particularly nurturing of foreign investment in tech
sectors. The French government has developed a brand “French Tech” to promote the development of
France’s tech sector and promote France as a location for start-ups and high-growth digital companies, with
the goal of turning France into a “Start-Up Republic.” The French Tech initiative includes an “acceleration”
investment by the French government of EUR 200 million to foster start-up ecosystems in and outside
Climate for Investment & Trade 1-Sep-2017 • Page 1

Political Risk Services France Country Conditions
France. In addition to offices in 17 French cities, French Tech hubs are established in 22 cities globally
including New York, San Francisco, Los Angeles, Shanghai, Hong Kong, Vietnam, Moscow and Berlin.
Limits on Foreign Control and Right to Private Ownership and Establishment. With a few exceptions,
there are no statutory limits on foreign ownership or control of companies. Foreign entities have the right to
establish and own business enterprises, and engage in all forms of remunerative activity.
However, French law stipulates that acquisitions in certain sectors deemed crucial to France’s national
interests relating to public order, public security and national defense are subject to prior notification,
screening, and approval by the Economy and Finance Minister. Other sectors requiring approval include
energy infrastructure; transportation networks; public water supplies; electronic communication networks;
public health protection; and installations vital to national security. As a recent example of how France’s
government remains engaged in strategic sectors, in January 2017, the government sold 100 million shares
in Engie. The French government now owns 28.7% of the energy utility and controls 32.6% of the voting
rights. The French state owns 83.1% of Electricite de France (EDF) and has reserved the right to retain a
golden share in any restructuring of Areva, the French nuclear and renewable energy company.
National security and defense are the reasons given for why the French government must review any
investment in the aforementioned specified sectors that acquires control of a French firm, surpasses a 33.33-
percent ownership threshold, or involves any part of such a firm that has established headquarters in
France.
Other Investment Policy Reviews. Given the relative development and stability of the investment climate,
France has not recently been the subject of international organizations’ investment policy reviews. The
Organization for Economic Cooperation and Development (OECD) has not conducted a review of the
French investment climate since 1996. The World Trade Organization (WTO) does not provide trade policy
reviews for the individual member states of the European Union, but does provide one for the European
Union as a whole. The United Nations Committee on Trade and Development (UNCTAD) does not have a
public report on the investment climate in France, though UNCTAD provides a statistical fact sheet on
French FDI (inward and outward) at
http://unctad.org/sections/dite_dir/docs/wir2016/wir16_fs_fr_en.pdf
Business Facilitation. Companies, including foreign companies, may use the online business process
which has been created to simplify business registration formalities: https://www.guichet-entreprises.fr/.
A government organ called “Agence France Entrepreneur” (France Business Entrepreneur) also has
information on creating a business: https://www.apce.com/pid224/8-les-formalites-de-creation.html. The
World Bank’s “Investing Across Borders” webpage on France,
(http://iab.worldbank.org/data/exploreeconomies.france) provides quantitative indicators on the
country’s laws, regulations and practices affecting how foreign companies invest across sectors, start
businesses, access industrial land, and arbitrate disputes. “Centre de formalités des entreprises” (CFE or
“business formalities center”), which are generally Chambers of Commerce and similar organizations
located throughout France, are equipped to accept registration applications. Note some required formalities
are not handled by a CFE, notably related to the domiciliation of business, the protection of the name of the
business, and business insurance. In the best case, registration may take as little as one week to complete.
Outward Investment. French firms invest more in the United States than in any other country and support
approximately 574,000 American jobs. Total French investment in the U.S. reached $234 billion in 2015.
France was our eighth-largest trading partner with nearly $115 billion in bilateral trade. The business
Page 2 • 1-Sep-2017 Climate for Investment & Trade

promotion agency Business France also assists French firms with outward investment. There is no
restriction on outward investment.
Transparency of the Regulatory System

France’s government has made considerable progress in the last decade on the transparency and
accessibility of its regulatory system. The French government generally engages in industry and public
consultation before drafting legislation or rulemaking through a regular but variable process directed by
the relevant ministry. However, the text of draft legislation is not always publicly available before
parliamentary approval. The French government has experimented with new procedures such as online
industry consultations for input related to the EU-Japan FTA, the fourth round for which began in
September 2016, as well as mandatory impact assessments.
To increase transparency in the French legislative process, all ministries are required to attach an impact
assessment to their draft bills. The Prime Minister’s Secretariat General (SGG for Secrétariat Général du
Gouvernement) is responsible for ensuring that impact studies are undertaken in the early stages of the
drafting process. The State Council (Conseil d’Etat), which must be consulted on all draft laws and
regulations, may reject a draft bill if the impact assessment is inadequate.
U.S. firms may also find it useful to become members of industry associations, which can play an influential
role in developing government policies. Even “observer” status can offer insight into new investment
opportunities and greater access to government-sponsored projects.
The government has a position of State Secretary for State Reform and Simplification tasked with making
French regulations simpler. The State Secretary consults with companies prior to the drafting of legislation
that may affect them, working in close cooperation with two other agencies under the Prime Minister: the
Prime Minister’s Secretariat General and the Secretariat General for European Affairs. (This policy is part of
a wider effort by the European Union to reduce regulatory burdens under the European Commission’s
REFIT program.) More than 400 proposed simplification measures have been presented so far, including
the “tell us once” initiative for e-government-related services and the provision on “zero additional cost”
for all new measures. This means that the impact on businesses of any change in regulations or legislation
will be quantified by independent experts, or representatives of the business community, and any new cost
should be offset by a “reduction at least equivalent to it.” The State Secretary for Simplification is also
charged with promoting open access to public data.
Major reforms extended the investigative and decision-making powers of France’s Competition Authority.
The Authority publishes its methodology for calculating fines imposed on companies charged with abuse
of a dominant position. It issues specific guidance on competition law compliance, and government
ministers, companies, consumer organizations and trade associations now have the right to petition the
authority to investigate anti-competitive practices. While the Authority alone examines the impact of
mergers on competition, the Minister of the Economy retains the power to request a new investigation or
reverse a merger transaction decision for reasons of industrial development, competitiveness, or saving
jobs.
International Regulatory Considerations. France incorporates EU regulatory norms. While developing

new draft regulations, the French government submits a copy to the World Trade Organization for review
to ensure the prospective legislation is not inconsistent with its WTO obligations.

The United States and the EU have negotiated mutual recognition agreements covering the testing and
certification of some products; French standards apply where EU-wide standards do not exist. Rigorous
testing and approval procedures are sometimes required before goods approved in the United States are
cleared for sale in France. Some foreign companies have expressed concern regarding France’s standard-
setting procedures.
Legal System and Judicial Independence. French law is codified into what is sometimes referred to as the
Napoleonic Code, but is officially the Code Civil des Français, or French Civil Code. Private law governs
interactions between individuals (e.g., civil, commercial, and employment law) and public law governs the
relationship between the government and the people (e.g., criminal, administrative, and constitutional law).
France also has an administrative court system to challenge a decision by local governments and the
national government; the State Council (Conseil d’Etat) is the appellate court. France enforces foreign legal
decisions such as judgments, rulings and arbitral awards through the procedure of exequatur introduced
before the Tribunal de Grande Instance (TGI), which is the court of original jurisdiction in the French legal
system.
France has a distinctive system of protection of intellectual and industrial property rights, applicable not
only to artistic or creative rights approximately equivalent to copyright, but also to designs, drawings,
patents and trademarks. Firms can register and protect innovation on French territory with the centralized
authority for registering industrial property rights, the INPI (Institut National de la Propriété Industrielle,
http://www.inpi.fr). French attorneys are qualified and specialized in the specific field of intellectual
property. No French commercial court has a monopoly on intellectual property rights. The French Courts
are frequently called upon to decide claims from holders of intellectual property rights.
With regard to French patents, actions are generally brought before the High Court (Tribunal de Grande
Instance), however questions of jurisdiction may arise concerning foreign patents. The French judicial
system is independent, competent, and substantively fair and reliable. Firms can also protect their rights on
the European territory or in foreign countries. Cases related to intellectual property rights on a European
community brand can be brought to the European courts or the European Court of Justice. French courts
must recognize and enforce judgments of foreign courts.
France’s Commercial Tribunal (Tribunal de Commerce or TDC) specializes in commercial litigation.

Magistrates of the commercial tribunals are lay judges, who are well-known in the business community and
have experience in the sectors they represent. Decisions by the commercial courts can be appealed before
the Court of Appeals. France’s judicial system is procedurally competent, fair, and reliable and is
independent of the government. Regulatory decisions may be appealed administratively, or in the court of
first instance.
Laws and Regulations on Foreign Direct Investment. Foreign and domestic private entities have the right
to establish and own business enterprises and engage in all sorts of remunerative activities. U.S. investment
in France is subject to the provisions of the Convention on Establishment between the United States of
America and France, which was signed in 1959 and remains in force. The rights it provides U.S. nationals
and companies include: Rights equivalent to those of French nationals in all commercial activities
(excluding communications, air transportation, water transportation, banking, the exploitation of natural
resources, the production of electricity, and professions of a scientific, literary, artistic and educational
nature as well as certain regulated professions like doctors and lawyers);

Treatment equivalent to that of French or third-country nationals with respect to transfer of funds between
France and the United States; property is protected from expropriation except for public purposes,
accompanied by payment that is just, realizable and prompt.
Potential investors can provide relevant investment information and links to laws and investment
regulations at http://www.businessfrance.fr/.
Competition and Anti-Trust Laws. Major reforms extended the investigative and decision-making powers
of France’s Competition Authority. The Authority publishes its methodology for calculating fines imposed
on companies charged with abuse of a dominant position. It issues specific guidance on competition law
compliance, and government ministers, companies, consumer organizations and trade associations now
have the right to petition the authority to investigate anti-competitive practices. While the Authority alone
examines the impact of mergers on competition, the Minister of the Economy retains the power to request a
new investigation or reverse a merger transaction decision for reasons of industrial development,
competitiveness, or saving jobs.
A new law on Economic Growth, Activity and Equal Opportunities (known as the “Macron Law”), adopted
in August 2016, vested the Competition Authority with the power to review mergers between retailers ex
ante (beforehand). The law provides that all contracts binding a retail business to a distribution network
shall expire at the same time. This enables the retailer to switch to another distribution network more easily.
Furthermore, distributors are prohibited from restricting a retailer’s commercial activity via post-contract
terms. The civil fine incurred for restrictive practices can now amount to up to 5% of the business’s revenue
earned in France.
The Competition Authority is also active in highly regulated industries such as energy. Together with the
energy regulator CRE (Commission de Régulation de l’Énergie), the Authority submits a report every five
years to the government on the implementation and effects of the Regulated Access to Incumbent Nuclear
Electricity (ARENH) mechanism, particularly regarding its impact on the wholesale and retail markets, as
well as investments in electricity production facilities. The ARENH mechanism entitles suppliers to
purchase electricity from EDF at a regulated price, in volumes determined by the CRE. In its opinion
published on February 16, 2016, the Authority urged the government to give a clear indication that it would
start progressively phasing out this mechanism. The Authority has deemed the current system not
conducive to “effective competition in France’s basic energy production market.”
Tariff and Non-tariff Barriers

France’s regulations and bureaucratic procedures can be a difficult hurdle for companies wishing to enter
the market and require close attention by U.S. exporters. Complex safety standards, not normally
discriminatory but sometimes rigorously applied, complicate access to the market for many U.S. products.
U.S. suppliers are well advised to do their homework thoroughly and make sure they know precisely which
standards apply to their product and that they obtain timely testing and certification.
For information on existing trade barriers, please see the National Trade Estimate Report on Foreign Trade
Barriers, published by USTR.
Information on agricultural trade barriers can be found at the following website: USDA France: Market
Information

To report existing or new trade barriers and get assistance in removing them, contact either the Trade
Compliance Center at http://www.trade.gov/tcc or the U.S. Mission to the European Union
Policies
Conversion and Transfer
Foreign Exchange. There are no restrictions or limitations placed on foreign investors in converting,
transferring, or repatriating funds associated with an investment. Funds associated with any investment
may be freely converted from euro into U.S. dollars or any other world currency. France is one of nineteen
countries (known collectively as the Eurozone) that use the euro currency. Exchange rate policy for the euro
is handled by the European Central Bank, located in Frankfurt, Germany. The euro has been trading in a
range from USD 1.2 to USD 1.067 between January 1, 2015 and March 31, 2017.
Remittance Policies. France’s investment remittance policies are stable and transparent. All inward and
outward payments must be made through approved banking intermediaries by bank transfers. There is no
restriction on the repatriation of capital. Similarly, there are no restrictions on transfers of profits, interest,
royalties, or service fees. Foreign-controlled French businesses are required to have a resident French bank
account and are subject to the same regulations as other French legal entities. The use of foreign bank
accounts by residents is permitted.
For purposes of controlling exchange, the French government considers foreigners as residents from the
time they arrive in France. French and foreign residents are subject to the same rules; they are entitled to
open an account in a foreign currency with a bank established in France, and to establish accounts abroad.
They must report all foreign accounts on their annual income tax returns, and money earned in France may
be transferred abroad.
France is a founding member of the OECD-based Financial Action Task Force (FATF, a 34-nation
intergovernmental body). As reported in the Department of State’s France Report on Terrorism, the French
government has a comprehensive anti-money laundering/counterterrorist financing (AML/CTF) regime
and is an active partner in international efforts to control money laundering and terrorist financing. Tracfin,
the French government’s financial intelligence unit, is active within international organizations, and has
signed new bilateral agreements with foreign countries.
Sovereign Wealth Funds. France has no sovereign wealth fund per se (none that use that nomenclature),
but does operate funds with similar intent. The Public Investment Bank (Banque Publique d’Investissement
– BPI, now known as Bpifrance). Bpifrance’s role is to support small and-medium term enterprises (SMEs),
larger enterprises (Entreprises de Taille Intermedaire) and innovating businesses. The government strategy
is defined at the national level and aims to fit with local strategies. Bpifrance also provides export
insurance. All investment made by Bpifrance is domestic. Bpifrance may hold direct stakes in companies,
hold indirect stakes via generalist or sectorial funds, venture capital, development or transfer capital. It has
taken minority stakes in firms and 250 investment funds, including 90 local investment funds that invest in
businesses.
Performance Requirements and Incentives

Investment Incentives. France offers a range of financial incentives, generally equally available to both
French and foreign investors. The French government continued a competitiveness and employment tax
credit (Crédit d’Impôt pour la Compétitivité et l’Emploi - CICE) in 2017 that reduces payroll taxes paid by
businesses, and temporarily exempts some firms based on geographic location (urban tax-free zones, rural

regeneration zones, etc.) or status as an innovative start-up. The Responsibility and Solidarity Pact provides
firms established in France cuts in payroll taxes totaling EUR 41 billion through 2017, and a gradual
reduction in the rate of corporate tax on SMEs.
Recognizing that French corporate taxes are higher compared to those in other leading industrial countries,
the government plans to gradually reduce the nominal corporate tax rate from 33% to 28% by 2020 and to
further decrease corporate tax on SMEs to 15%, on top of tax credits already in place.
The government provides corporate investors incentives for capital investment in small companies. Under
the plan, a French company or French subsidiary of a foreign company that invests in a minority
shareholding (less than 20%) in a small, innovative SME, either directly or indirectly (i.e., through a fund),
would benefit from a five year, linear amortization of their investment. To qualify, SMEs must allocate at
least 15% of their spending on research.
Research and Development. Incentivizing research and development (R&D) and innovation is a priority for
the French government with Business France reporting that the percentage of foreign investment projects in
R&D rose to 32% in 2016, accounting for 10% of all foreign investment decisions in 2016, and resulting in
37% of all jobs created by foreign investors. New innovation outlays from foreign firms created an
estimated 2,700 R&D jobs in France in 2016. Inward R&D investments increased 5% in 2016 in key sectors
such as pharmaceutical and biotechnologies, electronics, agriculture, alternative energy, and software. R&D
continues to be a major component that attracts foreign investment. International companies may join
France’s 71 innovation clusters increasing access to both production inputs and technical benefits of
geographical proximity. The Research Tax Credit (Crédit Impôt Recherche), innovative new company
status (Jeune Enterprise Innovante), National Investment Program, and La French Tech form part of this
innovation policy. Additional programs include La French Tech Ticket and the French Young
Entrepreneurs Initiative.
The Research Tax Credit (Crédit Impôt Recherche - CIR) offsets R&D expenditures undertaken by both
domestic and foreign firms operating in France, regardless of size or business sector, covering both R&D
spending and innovation expenses incurred by small and medium-sized enterprises. The French
government provides tax credits to support up to 30% of a firm’s first EUR 100 million in R&D costs, and an
additional 5% in credits above this threshold. Additionally an “innovation tax credit” is available that
reduces the cost of innovation expenditure by 20% up to EUR 400,000. The research tax credit and
innovation schemes are set through 2017.
La French Tech initiative supports the growth of startups and digital companies by providing funding
under the umbrella of the National Investment Program. La French Tech accelerates the growth of startups
throughout France, accrediting 17 French Tech cities in 2017, and investing EUR 200 million in acceleration
programs for digital companies. Additionally, La French Tech aids in the internationalization of startups
and aims to attract foreign investors, corporations, startups, and talent. French Tech Hubs in foreign cities
help French companies to expand to the global marketplace. La French Tech Ticket is a Paris-based
program that focuses on bringing international startups to France by offering benefits which include a
residence permit, a grant of EUR 25,000 and free mentoring in a Parisian startup incubator. Following the
first selection of winners in March 2016, the program was expanded to cover 200 selected startups in 17
French cities.
Performance and Data Localization Requirements. While there are no mandatory performance
requirements established by law, the French government will generally require commitments regarding
employment or R&D from both foreign and domestic investors seeking government financial incentives.

Incentives like PAT regional planning grants (Prime d’Aménagement du Territoire pour l’Industrie et les
Services) and related R&D subsidies are based on the number of jobs created, and authorities have
occasionally sought commitments as part of the approval process for acquisitions by foreign investors. PAT
has been revised to benefit SMEs with the objective of promoting the development of businesses in priority
regional zones, including EUR 30 million in direct government subsidies.
The French government imposes the same conditions on domestic and foreign investors in cultural
industries: all purveyors of movies and television programs (i.e., television broadcasters, telecoms
operators, internet service providers and video services) must invest a percentage of their revenues to
finance French film and television productions. They must also abide by broadcasting content quotas
(minimum 40% French, 20% EU).
Legal Framework
Expropriation and Compensation
Government cannot legally expropriate property to build public infrastructure without fair market
compensation. There have been no expropriations of note during the reporting period.
Dispute Settlement
ICSID Convention and New York Convention. France is a member of both the International Centre for
Settlement of Investment Disputes (ICSID) Convention and a signatory to the Recognition and Enforcement
of Foreign Arbitral Awards (1958 New York Convention) which means local courts are obligated to enforce
international arbitral awards under this system.
France was one of the first countries to enact a modern arbitration law in 1980-1981. In 2011, the French
Ministry of Justice issued Decree 2011- 48 which introduced further international best practices into French
arbitration procedural law. As a result of that decree, parties are free to agree orally to settle their disputes
through arbitration, and the arbitrators to apply their chosen procedure, subject only to minimum
standards of due process and a newly enacted principle of procedural efficiency and fairness. The President
of the Tribunal de Grande Instance (High Civil Court of First Instance) of Paris has the authority to issue
orders related to ad-hoc international arbitration (i.e., not institutional arbitration). Paris is the seat of the
International Chamber of Commerce’s International Court of Arbitration, composed of representatives from
90 countries, that handles investment as well as commercial disputes.
International Commercial Arbitration and Foreign Courts. As part of France’s arbitration law parties are
free to agree orally to settle their disputes through arbitration, and the arbitrators to apply their chosen
procedure, subject only to minimum standards of due process and a newly enacted principle of procedural
efficiency and fairness.
The timeframe for dispute resolution varies considerably — up to two years (all forms of appeal included).
For emergency situations, a so-called référé procedure is available provided there is a danger of irreparable
harm; this expedited procedure takes just a few days.
Bankruptcy Regulations. France has extensive and detailed bankruptcy regulations. Any creditor,
regardless of the amount owed, may file suit in bankruptcy court against a debtor. Foreign creditors, equity
shareholders and foreign contract holders have the same rights as their French counterparts. Monetary
judgments by French courts on firms established in France are generally made in euros. Not bankruptcy
itself, but bankruptcy fraud — the misstatement by a debtor of his financial position in the context of a

bankruptcy — is criminalized. Under France’s bankruptcy managers and other entities responsible for the
bankruptcy of a French company are prevented from escaping liability by shielding their assets (Law 2012-
346). France adopted a law that enables debtors to implement a restructuring plan with financial creditors
only, without affecting trade creditors. In the World Bank’s 2017 Doing Business rankings, France remained
in 24th of 189 on ease of resolving insolvency.
Privatization Program. The government has partially or fully privatized many large companies, including
Air France, France Telecom, Renault, and Thales. However, the government maintains a strong presence in
some sectors, particularly power, public transport, and defense industries. The government sold its stakes
in the Nice and Lyon airports in November 2016.
Protection of Property Rights

Real Property. Real property rights are regulated by the French civil code and are enforced. In the World
Bank’s Doing Business Report (DBR), France is ranked 100 of 190 on registering property. French civil-law
notaries (notaires) — highly specialized lawyers in private practice appointed as public officers by the
Justice Ministry — handle residential and commercial conveyancing and registration, contract drafting,
company formation, successions and estate planning. The official system of land registration, the “cadastre”
is maintained by the French public land registry under the auspices of the French tax authority (Direction
Générale des Finances Publiques - DGFiP); available online at http://www.cadastre.gouv.fr. Mortgages are
widely available, usually for a 15-year period.
Intellectual Property Rights. France is a strong defender of intellectual property rights. Under the French
system, patents and trademarks protect industrial property, while copyrights protect literary/artistic
property. By virtue of the Paris Convention and the Washington Treaty regarding industrial property, U.S.
nationals have a priority period following filing of an application for a U.S. patent or trademark in which to
file a corresponding application in France: twelve months for patents and six months for trademarks.
Counterfeiting is a costly problem for French companies, and the government of France maintains strong
legal protections and a robust enforcement mechanism to combat trafficking in counterfeit goods — from
copies of luxury goods to fake medications — as well as the theft and illegal use of intellectual property.
The French Intellectual Property Code has been updated repeatedly over the years to face this challenge. In
recent years Parliament passed a law reinforcing France’s anti-counterfeiting law and its implementation of
EU directives on intellectual property rights. The new legislation increases the euro amount for damages to
companies that are victims of counterfeiting and extends trademark protection to smartcard technology,
certain geographic indications, plants, and agricultural seeds. The new legislation also increases the statute
of limitations for civil suits from three to ten years and strengthens the powers of customs officials to seize
fake goods sent by mail or express freight. The government also reports on seizures of counterfeit goods.
France’s top private sector anti-counterfeiting organization, UNIFAB, dedicated its 2016 counterfeiting
report to exposing the links between crime, terrorism, and counterfeiting. The report (available at
http://www.unifab.com/en/counterfeiting-terrorism/) makes clear that terrorist networks and criminal
organizations raise money from selling counterfeit goods (including via both legitimate and illicit e-
commerce sites).
France has robust laws against online piracy. The government agency called the High Authority for the
Dissemination of Artistic Works and the Protection of Rights on Internet (Haute Autorité pour la Diffusion
des Œuvres et la Protection des droits sur Internet - HADOPI) administers a “graduated response” system
of warnings and fines. It has taken enforcement action against several online pirate sites, including
Megaupload. HADOPI cooperates closely with the U.S. Patent and Trademark Office (USPTO) including

pursuing voluntary arrangements that target intermediaries that facilitate or fund pirate sites. (Note that
one of HADOPI’s tasks is to ensure that the technical measures used to protect works do not prevent the
right of individuals to make private copies of television programs for their private use.) Despite HADOPI’s
efforts.
EY global consultancy and accountancy group estimates 13 million people accessed pirated media in France
2016, costing €1.35b ($1.42b) in lost tax revenue and earnings in 2016.
For additional information about treaty obligations and points of contact at French IP offices, please see the
World Intellectual Property Organization’s (WIPO) country profiles at
http://www.wipo.int/directory/en/.
Corruption and other Bureaucratic Obstacles

In November 2016, France’s parliament adopted the “Transparency, Anti-corruption, and Economic
Modernization Law” which is also known as the “Loi Sapin II”. Key aspects of the law include: creating a
new anti-corruption agency; establishing “deferred prosecution” for defendants in corruption cases and
prosecuting companies (French and foreign) suspected of bribing foreign public officials abroad; requiring
lobbyists to register with national institutions; and expanding legal protections for whistleblowers. The U.S.
embassy in Paris has received no specific complaints from U.S. firms of unfair competition in France in
recent years. France ranked 23rd of 168 on Transparency International’s (TI) 2016 corruption perceptions
index; TI maintains that France continues to face corruption challenges in certain areas, see
https://www.transparency.org/country/FRA. According to TI’s chapter in France, the sectors most
affected by corrupt practices are public works and the defense industry. TI France works with French
companies of all sizes to discourage and avoid corruption when investing in foreign countries.
Resources to Report Corruption. The Central Office for the Prevention of Corruption (Service Central de
Prévention de la Corruption or SCPC) will be replaced in 2017 by the new national anti-corruption agency -
Corruption, Detection and Prevention Agency (CDPA). The CDPA will be charged with preventing
corruption by establishing anti-corruption programs, making recommendations, and centralizing and
disseminating information to prevent and detect corrupt officials and company executives. The CDPA will
work under the supervision of both the Ministry for Justice and the Ministry for Finances.
International Agreements
Trade Agreements. For a list of trade agreements with the EU and its member states, as well as concise
explanations, please see http://tcc.export.gov/Trade_Agreements/index.asp.
Bilateral Investment Agreements and Taxation Treaties. Investments in France by other EU member states
are governed by the provisions of the Treaty of Rome and by European Union Law. France has Bilateral
Investment Treaties (BITs) with 96 countries: Albania, Algeria, Argentina, Armenia, Azerbaijan, Bahrain,
Bangladesh, Bosnia and Herzegovina, Bulgaria, Cambodia, Chile, China, the Democratic Republic of the
Congo, Costa Rica, Croatia, Cuba, Czech Republic, Djibouti, Dominican Republic, Ecuador, Egypt, El
Salvador, Equatorial Guinea, Estonia, Ethiopia, Georgia, Guatemala, Haiti, Honduras, Hong Kong,
Hungary, India, Iran, Israel, Jamaica, Jordan, Kazakhstan, Korea (South), Kuwait, Kyrgyz Republic, Laos,
Latvia, Lebanon, Liberia, Libya, Lithuania, Macedonia (FYRM), Madagascar, Malaysia, Malta, Mexico,
Moldova, Mongolia, Montenegro, Morocco, Mozambique, Namibia, Nepal, Nicaragua, Nigeria, Oman,
Pakistan, Panama, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Russian Federation, Saudi Arabia,
Senegal, Serbia, Seychelles, Singapore, Slovakia, Slovenia, Sri Lanka, Sudan, Tajikistan, Trinidad and

Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, Uruguay, Uzbekistan,
Venezuela, Vietnam, Yemen, and Zambia.
Bilateral Investment Treaties between France and the following countries have been signed but are not in
force: Belarus, Brazil, Chad, Colombia, Ghana, Iraq, Kenya, and Zimbabwe. France previously had BITs
with Mauritius and Syria; new BITs with these two countries have been signed but have not yet entered
into force. The list of ratified and non-ratified BITs is on the UNCTAD website:
http://investmentpolicyhub.unctad.org/IIA/CountryBits/72#iiaInnerMenu
The United States and France have enjoyed a Navigation and Commerce Treaty since 1822, which
guarantees national tax treatment of U.S. citizens.
OPIC and Other Investment Insurance Programs. Given France’s high per capita income, investments in
France do not qualify for investment insurance or guarantees offered by the Overseas Private Investment
Corporation (OPIC). Further information can be found on the OPIC website (http://www.opic.gov).
Labor Conditions
France’s private sector labor force is a major asset in attracting foreign investment, despite the relatively
high cost of labor and rigid labor regulations.
Unemployment rose sharply after the 2008 economic crisis. The number of unemployed rose to an all-time
high in 2015 with 3.84 million unemployed (3.59 million in Metropolitan France), up from 3.5 million in
2014. The rate of unemployment remains high, but is improved at 9.7% in Metropolitan France and 10%
overall (including overseas territories). Regional disparities are significant, with unemployment rates
ranging from 8.8% to 14%.
Youth unemployment is 25.1% (the unemployment rate among those aged 20 to 24 has been at or above
22% since 2009). Many educated youth in the 20 to 24 age bracket take up internships or short-term
employment contracts, but cannot find a permanent job that gets them on the path to the taxpaying,
property-owning French ideal that was the norm for decades. The number of job-seekers over age 50 has
nearly doubled since 2008 to reach 592,000. The underemployment ratio (defined as part-time workers
unable to find full-time positions) was 6.3% in 2016.
Labor-Management Relations: While the rate of union membership in France (around 8% overall; 5% in the
private sector and 14% in the public sector) has steadily declined to just over half the rate of union
membership in the United States, French labor law provides an extensive institutional role for employee
representatives and organized labor. This is due in part to the fact that union delegates represent all
employees (nonmembers and members alike). In addition, at companies with 50 or more employees,
management is required to establish and meet regularly with a workers’ council and employees’ health-
and-safety council on an array of managerial decisions. As a result, many SMEs hover at employing no
more than 49 employees; when they do cross the trip-wire, French unions continue to play a significant
(even outsized) role in labor-management relations. Indeed, the top five unions and the top three employer
associations (collectively known as the partenaires sociaux or social partners) have a statutory role in
national-level negotiations. Strikes are common and are part of the social fabric of France but strikes do not
pose a serious commercial risk to foreign or local investors. Labor tribunals (playing a role largely
equivalent to the U.S. National Labor Relations Board in resolving labor disputes) are comprised of equal
numbers of union and employer representatives. Appeals are possible to the level of the Cour de Cassation,
France’s highest civil court.

France adopted an important labor reform commonly referred to as the ‘El Khomri law’ after the French
Minister of Labor, Myriam El Khomri, in August 2016. The legislation was designed to revise France’s
Labor Code with the aim of making the country’s labor market more flexible, which the government
claimed would reduce unemployment. Within the law are limited provisions for companies to lay off
workers, reductions to overtime payments for hours worked beyond France’s statutory 35-hour workweek,
and reductions to severance payments that workers are entitled to if their company has made them
redundant.
Labor rights: Working conditions are generally excellent in France and workers are well-protected. The
labor code sets minimum standards for working conditions including the workweek, layoffs, overtime,
vacation and personal leave. The 35-hour work week (beyond which overtime compensation must be paid)
is standard. Most French retire at age 62. Work contracts follow requirements stipulated in industry-wide
collective bargaining agreements. For example, an employee of a large company who is laid off for
economic reasons may benefit from training, short-term contracts, or transfer to another company. Other
labor standards are contained in collective agreements, usually negotiated by sector (at a national or
regional level) by various trade union federations and employers’ associations. Additionally, occupational
health and safety committees are mandatory under French law in medium and large companies. When a
company grows beyond 10 employees, it must begin to meet a wider range of administrative requirements;
companies with 50 or more employees face a larger number of administrative and health regulations.
Sources: 2017 INVESTMENT CLIMATE STATEMENT–FRANCE, BUREAU OF ECONOMIC AND BUSINESS

AFFAIRS, US DEPARTMENT OF STATE; FRANCE COUNTRY COMMERCIAL GUIDE FY 2017, US & FOREIGN
COMMERCIAL SERVICE AND US DEPARTMENT OF STATE; PRS Date Files.

France
Country Conditions
Background
Geography
Largely surrounded by water—the Mediterranean Sea, the Bay of Biscay, and the English Channel—France
also shares land borders with Spain in the southwest, Belgium and Luxembourg to the northeast, and
Germany, Switzerland, and Italy on the east and southeast. Most of northern and western France is a broad
plain bounded on the south by the Pyrénées and on the east by the Alps. The country’s principal rivers are
the Rhône, the Loire, the Garonne, and the Seine. France has sizable resources of coal, iron ore, bauxite, and
natural gas, and its ample, rich arable land makes it one of Europe’s most important agricultural producers.
The northern and western regions have cold winters and mild summers. Southern France has a
Mediterranean climate of mild winters and hot summers. In January, the capital, Paris, has average
temperatures of 3°C to 8°C and receives an average of 10 days of rainfall; in July, the average temperatures
range between 15°C and 25°C, and it has an average of seven days of rainfall.
Social Conditions
Ethnic and Racial Divisions. The large immigrant population is an occasional cause of tension. An
estimated 12% of the population consists of documented immigrants, undocumented foreigners,
naturalized citizens, or foreigners who are permanent residents. Thirty percent of immigrants are North
African; most of the others came from less-industrialized parts of Europe, especially Portugal. In periods of
economic stress, hostility toward immigrant workers increases. The native French resent the unwillingness
of many immigrants to adapt to French customs; North African Muslims are especially singled out for
abuse. The French also blame the immigrants for increased illegal drug use and other crime. While France
has been spared widespread rioting by immigrant populations, racial incidents have become common.
Education. Public schooling is free and compulsory for all children through age 16; many religious and
private schools are available. There are also extensive opportunities for university and technical education.
Health. The average life expectancy stands at 82 years of age. Almost all legal residents are covered by the
health and social security systems. The infant mortality rate is three deaths per 1,000 live births.
Government
The constitution of the Fifth Republic was approved by public referendum on September 28, 1958. It greatly
strengthened the powers of the executive in relation to those of Parliament. Under this constitution,
presidents were elected directly for a seven-year term. Beginning in 2002, the presidential term of office was
reduced to five years, and a constitutional reform passed on July 21, 2008 limits presidents to two
consecutive terms in office. The next presidential elections are scheduled for 2022.
The main components of France’s executive branch are the president, the prime minister and government,
and the permanent bureaucracies of the many ministries. The president names the prime minister, presides
over the cabinet, commands the armed forces, and concludes treaties. The president can submit questions to
a national referendum and can dissolve the National Assembly. In certain emergency situations, with the
Background 1-Sep-2017 • Page 13

approval of Parliament, the president may assume dictatorial powers and rule by decree. Led by a prime
minister, who is the head of government, the cabinet is composed of a varying number of ministers,
ministers-delegate, and secretaries of state.
Parliament meets for one nine-month session each year. Under special circumstances the president can call
an additional session. Under the constitution, the legislative branch has few checks on executive power;
nevertheless, the National Assembly can still cause a government to fall if an absolute majority of the total
Assembly membership votes to censure. The Parliament is bicameral, with a National Assembly and a
Senate. The National Assembly is the principal legislative body. Its deputies are directly elected to five-year
terms, and all seats are voted on in each election. Senators are chosen by an electoral college and, under
new rules passed in 2003 to shorten the term, serve for six years, with one-half of the Senate being renewed
every three years. The Senate’s legislative powers are limited; the National Assembly has the last word in
the event of a disagreement between the two houses. The constitutional reform passed in July 2008 granted
authority to the Parliament to set its own agenda. The government can declare a bill to be a question of
confidence, thereby linking its continued existence to the passage of the legislative text; unless a motion of
censure is introduced and voted, the text is considered adopted without a vote. The constitutional reform
passed in July 2008 limited that process to the vote of the national budget, the financing of the social
security, and to one bill per session of the Parliament. As of September 2009, impact assessment is
mandatory for all draft laws going to the Council of State and the Parliament.
A distinctive feature of the French judicial system is that the Constitutional Council protects basic rights
when they might be potentially violated by new laws, and the Council of State protects basic rights when
they might be violated by actions of the state. The Constitutional Council examines legislation and decides
whether it conforms to the constitution. Unlike the U.S. Supreme Court, it considers only legislation that is
referred to it by Parliament, the prime minister, or the president. Moreover, it considers legislation before it
is promulgated. The Council of State has a separate function from the Constitutional Council and provides
recourse to individual citizens who have claims against the administration. The Ordinary Courts—
including specialized bodies such as the police court, the criminal court, the correctional tribunal, the
commercial court, and the industrial court—settle disputes that arise between citizens, as well as disputes
that arise between citizens and corporations. The Court of Appeals reviews cases judged by the Ordinary
Courts.
Traditionally, decision-making in France has been highly centralized, with each of France’s departments
headed by a prefect appointed by the central government. In 1982, the national government passed
legislation to decentralize authority by giving a wide range of administrative and fiscal powers to local
elected officials. In March 1986, regional councils were directly elected for the first time, and the process of
decentralization continues, albeit at a slow pace.
Page 14 • 1-Sep-2017 Background

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France

© 2017, The PRS Group, Inc. ISSN: 1054-5514

KEY ECONOMIC FORECASTS

Macron’s Reach May Exceed His Grasp

Highlights 29-Dec-2017 • Page 3

Some Competitiveness Issues Will Be Addressed

Economic Forecasts for the Three Alternative Regimes

Page 4 • 29-Dec-2017 Highlights

Political Fact Sheet

CAPITAL: HEAD OF STATE:

Current Data 29-Dec-2017 • Page 5

Current Data 29-Dec-2017 ~ Page 6-7

Current Data 29-Dec-2017 ~ Page 6-7

Regional Real GDP Growth (2016): West Europe

Regional Inflation Rates (2016): West Europe

Page 8 • 29-Dec-2017 Current Data

Regional Current Account/GDP (2016): West Europe

Economic Performance Profile

GDP Per Capita ($)  41239

Real GDP Growth (%)  0.7

Inflation (%)  0.8

Unemployment (%)  10.2

Capital Investment  22.0

Budget Balance  -4.0

Debt Service Ratio  21.4

Currency Change (%)  -5.0

BEST 25% NEXT 25% NEXT 25% WORST 25%

Current Data 29-Dec-2017 • Page 9

Social Indicators as of 2016

Work Force Distribution

Page 10 • 29-Dec-2017 Current Data

Although Macron’s electoral fortunes were boosted by LR presidential candidate François

In keeping with Macron’s pledge to form a government that represents France’s

Comment & Analysis 29-Dec-2017 • Page 11

Will Macron’s Reach Exceed His Grasp?

Page 12 • 29-Dec-2017 Comment & Analysis

Consequently, there may be only a limited window for moving aggressively to

Fiscal Strategy Carries Risk of Missed Opportunity

Comment & Analysis 29-Dec-2017 • Page 13

Threat of Labor Unrest Clouds Otherwise Bright Outlook for Economy

Page 14 • 29-Dec-2017 Comment & Analysis

Comment & Analysis 29-Dec-2017 • Page 15

Page 16 • 29-Dec-2017 Comment & Analysis

Centrist Coalition Center-Right Broad Coalition

SUMMARY OF FIVE-YEAR FORECAST

Centrist Coalition Center-Right Broad Coalition

Most Likely Regime Scenario

18-Month Forecast Period: Centrist Growth Inflation CACC

At presidential and parliamentary elections held in April-June 2017, 39-year-old

Although Macron’s electoral fortunes were boosted by LR presidential candidate François

Forecast Scenarios 29-Dec-2017 • Page 17

In keeping with Macron’s pledge to form a government that represents France’s

Page 18 • 29-Dec-2017 Forecast Scenarios

Reforms Will Enhance Competitiveness

Forecast Scenarios 29-Dec-2017 • Page 19

Page 20 • 29-Dec-2017 Forecast Scenarios

Unions’ Defense of Prerogatives Will Increase Risk of Unrest

A referendum on proposed measures granting limited autonomy to the troubled island of

Former President Francois Hollande’s decision to intervene militarily in Mali, a former

Forecast Scenarios 29-Dec-2017 • Page 21

Reforms Will Deliver Less than Promised

Page 22 • 29-Dec-2017 Forecast Scenarios

Despite anticipated improvements in competitiveness, the loss of revenue implied by the