France

major macro economic indicators

(e): Estimate (f): Forecast

Risk assessment

Stagnation of activity and persistent inflation

The economy will slow down sharply in 2023 due to sluggish domestic demand in a context of persistent inflation. While the cap on gas and electricity price increases (energy shield) enabled the country to post the lowest inflation of the European Union over the whole of 2022, the lifting of the fuel rebate and the 15% increase in electricity and gas tariffs on 1 January 2023 will drive inflationary pressures, which will only ease in the second half of the year. As wage increases (+3.7% y/y in the third quarter of 2022) and support measures (fuel vouchers, indexation of the income tax scale to inflation, automatic revaluation of the minimum wage) will not fully offset the rise in prices, households will see their purchasing power decline. In an uncertain environment conducive to precautionary savings, household consumption will thus come to a halt. At the same time, households will reduce their investment in real estate due to the sharp rise in interest rates. The tightening of financing conditions will also have a considerable impact on companies, which will have to cope with lower demand, even though their production costs will continue to rise (acceleration of wages, gradual expiry of fixed-rate energy contracts, and repayment of state-guaranteed loans). Under these conditions, despite a clear slowdown in investment and hiring, corporate margins and cash flow will be under pressure. Business insolvencies, which began to rebound in 2022 after two years of historically low figures, will continue to rise and will probably exceed their pre-pandemic level in 2023. While the increase in imports will be limited by sluggish domestic demand, exports will be hampered by the stagnation of activity in the main partner countries. The contribution of foreign trade is therefore expected to be zero.

Public deficit still high due to support measures

The public deficit will remain high in 2023 after a sharp increase due to the pandemic and measures taken to deal with the consequences of the war in Ukraine. The increase in tax revenue rendered possible taxing profits generated by producers when they sell electricity above a certain price according to the technology (EUR 11 billion, or 0.4% of GDP) should remain lower than the increase in expenditure. The latter will be driven by the continuation of anti-inflation measures, the cost of which will increase a little more (EUR 60 billion), and by wage increases for civil servants, in line with high inflation. At the same time, the interest burden will continue to grow in the wake of interest rates and inflation. Public debt will therefore remain very high and its sustainability will be one of the main challenges in the medium term.
The current account deficit will remain high in 2023 due to a durably high energy bill. This will continue to make a large contribution to the deficit in the balance of goods (5% of GDP in the first nine months of 2022). The surplus of the services balance (2.3% of GDP), historically high in 2022 thanks to the recovery of tourism and, above all, maritime transport, whose freight rates reached records before falling back at the end of the year, should reduce in 2023. The current account deficit is mainly financed by debt issues or, to a lesser extent, by listed shares purchased by non-residents. At the end of 2021, non-residents held 48% of the securities issued by government administrations, and more than half of those issued by non-financial companies (57%) and French banks (69%).

Without an absolute majority for President Macron, the risk of political instability is high

In power since 2017, President Macron, of the centre-liberal La République En Marche (LaREM) party, was re-elected in April 2022. Although he won again against Marine Le Pen of the far-right Rassemblement National (RN), the second-round score this time was much closer (58.5%-41.5%, compared to 66%-34% in 2017). In the legislative elections that followed two months later, his party won only 170 out of 577 seats in the National Assembly. Forming an alliance with two other centre-right parties only able to muster 250 seats in total, the government will be forced to negotiate agreements on each reform, or pass bills without a vote in the National Assembly, and expose itself to the possibility of a motion of censure. The two main opposition forces are the RN (88 MPs) and the left-wing alliance NUPES (149 seats, including 74 for the far-left party LFI). Both parties tabled numerous motions of censure against the government at the end of 2022 and, as such, Les Républicains (right-wing, 62 seats) will have a central role in approving reforms and also in ensuring the continuity of the government in case of new motions of censure (so far constantly rejected). If the government is unable to pass certain reforms, President Macron may also choose to dissolve the National Assembly and call for fresh legislative elections. In this situation of no absolute majority for the President of the Republic, the risk of political and social instability is clearly increased, and no scenario can be ruled out.

Last updated: February 2023

Payment

Bank cards are now the most commonly-used form of payment in France, although cheques are still widely used. In value terms, cheques and transfers are still the most popular forms of payment.

If a cheque remains unpaid for more than 30 days from the date of first presentation, the beneficiary can immediately obtain an enforcement order (without need for further procedures or costs). This is based on a certificate of non-payment provided by the creditor’s bank, following a second unsuccessful attempt to present the cheque for payment and when the debtor has not provided proof of payment within 15 days of receipt of a formal notice to pay served by a bailiff (Article L.131‑73 of the Monetary and Financial Code).

Bills of exchange, a much less frequently used payment method, are steadily becoming rarer in terms of number of operations – although they remain important in terms of total value. Bills of exchange are still an attractive solution for companies, as they can be discounted or transferred and therefore provide a valuable source of short-term financing. Moreover, they can be used by creditors to pursue legal proceedings in respect of “exchange law” (droit cambiaire) and are particularly suitable for payment by instalments.

Bank transfers for domestic or international payments can be made via the SWIFT electronic network used by the French banking system. SWIFT offers a reliable platform for fast payments, but requires mutual confidence between suppliers and their customers. France is also part of the SEPA network.

Debt collection

Unless otherwise stated in the general sales conditions, or agreed between the parties, payment periods are set at thirty days from the date of receipt of goods or performance of services requested. Interest rates and conditions of application must be stipulated in the contract – otherwise the applicable interest rate is that applied by the European Central Bank in its most recent refinancing operations. Throughout the first half of the year in question, the rate applicable is that in force on January 1 and for the second half year in question, the rate applicable is that in force on July 1.

Amicable phase

During this phase, the creditor and the debtor try to reach an amicable solution via direct contact in order to avoid legal procedures. All documents signed between the parties (such as contracts and invoices) are analysed. Where possible, the debtor can be granted an extended time period to pay his debts, with the period’s length negotiated as part of the amicable settlement.

Legal proceedings

Order for payment (injonction de payer)

When a debt claim results from a contractual undertaking and is both liquid and undisputable, creditors can use the injunction-to-pay procedure (injonction de payer). This flexible system uses pre-printed forms and does not require the applicants to argue their case before a civil court (tribunal d’instance) or a competent commercial court (with jurisdiction over the district where the debtor’s registered offices are located). By using this procedure, creditors can rapidly obtain a court order which is then served by a bailiff. The defendant then has a period of one month in which to dispute the case.

Fast-track proceedings

Référé-provision provides creditors with a rapid means of debt collection. If the debtor is neither present nor represented during the hearing, a default judgment can be issued. The court then renders a decision, typically within seven to fourteen days (though same-day decisions are possible). The jurisdiction is limited to debts which cannot be materially contested. If serious questions arise over the extent of the debt, the summary judge has no jurisdiction to render a favourable decision. Judgments can be immediately executed, even if the debtor issues an appeal.

If a claim proves to be litigious, the judge ruled competent to preside (juge des référés) over urgent matters evaluates whether the claim is well-founded. If appropriate, the judge can subsequently decide to declare himself incompetent to rule on the case. Based on his assessment of whether the case is valid, he can then invite the plaintiff to seek a ruling through formal court procedures.

Ordinary proceedings

Formal procedures of this kind enable the validity of a claim to be recognised by the court. This is a relatively lengthy process which can last a year or more, due to the emphasis placed on the adversarial nature of proceedings and the numerous phases involved. These phases include the submission of supporting documents, written submissions from the litigants, the examination of evidence, various recesses for deliberations and, finally, the hearing for oral pleadings (audience de plaidoirie).

Proceedings are issued through a Writ of Summons (Assignation) which is served on the debtor 15 days before the first procedural hearing. During this hearing, the court sets a time period for the exchange of pleadings and discovery. Decisions rendered do not necessarily have the possibility of immediate execution. In order to be executed, they must first be served on the debtor. They are also subject to appeal.

Enforcement of a legal decision

Unless the court decision is temporarily enforceable, enforcement can only commence if no appeal is lodged within one month and must occur within ten years of notification of the court’s decision. Compulsory enforcement can be requested if the debtor does not comply with the judgment. Obligations to pay can be enforced through attachment (of bank accounts or assets) or through a third party which owes money to the debtor (garnishment).

France has adopted enforcement mechanisms for decisions rendered by other EU member countries. These mechanisms include the Payment Order under the European Enforcement Order. Decisions rendered by non-EU members can be recognised and enforced, provided that the issuing country is party to a bilateral or multilateral agreement with France. In the absence of an agreement, claimants are obliged to use the French exequatur procedure.

Insolvency proceedings

French insolvency law provides for six procedures to undertake restructuring or avoid insolvency. These are either assisted proceedings or proceedings controlled by the court.

Assisted proceedings

These can be either mandated ad hoc or via conciliation proceedings. Both are informal, amicable proceedings, where creditors cannot be forced into a restructuring agreement and the company’s management continues to run the business. These negotiations are governed by contractual law throughout their duration. The proceedings are conducted under the supervision of a court-appointed practitioner (a mandataire ad hoc, or a conciliator) in order to help the debtor reach an agreement with its creditors. Both of these types of proceedings are confidential but conciliation can eventually be made public if the debtor has the approval of the commercial court. Nevertheless, the terms and conditions of agreements remain confidential and can only be disclosed to signatory parties.

Court-Controlled proceedings

The four types of court-controlled proceedings are judicial reorganisation, judicial liquidation, sauvegarde, and Accelerated Financial Sauvegarde proceedings (AFS).

In all four proceedings, any pre-filed claims are automatically stayed. Creditors must file proof of their claims within two months of publication of the opening judgment, or four months for creditors located outside France. Debts which arise after proceedings commence are given priority over debts incurred beforehand. Certain types of transactions can be set aside by the court, if they were entered into by the debtor during a hardening period (before a judgment opening a judicial reorganisation or a judicial liquidation).

With Court-Controlled proceedings there can be variations in the extent of involvement of the court-appointed conciliator. The sauvegarde and AFS procedures are debtor-in-possession proceedings, but with judicial reorganisation, the court can decide whether to set aside the company’s managers. The role of management is particularly reduced in cases of judicial liquidation, as the debtor company usually ceases to conduct business. Nevertheless, the court can decide for a business to continue operating under a court-appointed liquidator.