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France—Selected Issues ©1997 International Monetary Fund March 1997 IMF Staff Country Report No. 97/19 France—Selected Issues This selected issues report on France was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with this member country. As such, the views expressed in this document are those of the staff team and do not necessarily reflect the views of the Government of France or the Executive Board of the IMF. Copies of this report are available to the public from International Monetary Fund • Publication Services 700 19th Street, N.W. • Washington, D.C. 20431 Telephone: (202) 623-7430 • Telefax: (202) 623-7201 Telex (RCA): 248331 IMF UR Internet: [email protected] Price: $15.00 a copy International Monetary Fund Washington, D.C. ©International Monetary Fund. Not for Redistribution This page intentionally left blank ©International Monetary Fund. Not for Redistribution INTERNATIONAL MONETARY FUND FRANCE Selected Issues Prepared by a staff team headed by J. R. Artus and C. M. Watson, with K. Habermeier (all EU1), and including O. Dore (EU1), C. Dziobek (MAE), I. Halikias and J. Levy (EU1), and C. Van Rijckeghem (RES) Approved by the European I Department February 4, 1997 Contents Page Basic Data 5 L Health Expenditure 8 A. Introduction 8 B. Institutional Setting 8 C. Health Expenditure Trends 9 D. Factors Underlying Past and Future Spending Pressures 10 E. Past Reforms in France and Elsewhere: Some Comparisons 14 F The Current Reform in France: The "Juppe Plan" 19 G. Concluding Remarks 24 Text Table Financial Position of the Health Care Branch 24 Tables 1 Total Expenditure on Health Care 26 2 Public Share in Total Spending on Health 27 3 Growth in Per Capita Health Spending, 1980-92 28 4 Volume Growth of Health Outlays in France 29 5 Price Increases of Health Services in France 30 6 Breakdown of Health Expenditure 31 7 Health Status and Outcome Indicators, 1992 32 8 Studies of the Association Between National Income and Health Care Spending 33 9 Effect on Health Spending of Changes in Age Structure 34 ©International Monetary Fund. Not for Redistribution -2- 10. Public Expenditure on Health 35 11. Hospital Care Statistics, 1990 36 Boxes 1. Global Hospital Budgets 15 2. Controlling Physician Spending 17 3. Efficiency in Health Care 19 References 37 EL Social Security, Tax Reform, and Unemployment: A General Equilibrium Analysis 39 Executive Summary 39 A. Introduction 41 B. The Model 43 C. Simulation Results 45 D. Alternative General Equilibrium Results 50 E. Conclusion 51 Tables 1. Response to Employer Social Security Tax Reduction Without Offsetting Tax Increases 53 2. Response to Employee Social Security Tax Reduction 54 3. Response to Employer Social Security Tax Reduction with Offsetting Tax Increases 55 4 Sensitivity Analysis: Effect of a 1 Point Increase in Employer Social Security Tax 56 5 Long-Run Effect of Employer Social Security Tax Reductions in Various Models 57 Appendix I The Simulation Model 58 References 64 IIL Monetary Transmission 67 A Introduction and Overview 67 B Survey of the Literature and Topics on Transmission Channels 68 C The Impact of Interest Rates on the Economy 71 D The Role of the Credit Channel 77 E Conclusions . 81 ©International Monetary Fund. Not for Redistribution -3 - Charts 1. Cumulative Output Loss from a Half Percent Increase in Interest Rates 76 2. Effect of an Increase in the German Interest Rate on Output 80 Appendix I Impulse Responses 82 Appendix I Charts Al. Impulse Responses 83 Al. Impulse Responses (continuation) 84 A2. Results of a "Structural" VAR 85 References 86 FV. Recent Problems and Current Policy Issues in the Banking Sector 89 Executive Summary 89 A. Introduction 92 B. Structure, Performance, and Regulation of the Banking Sector 92 C. Recent Banking Problems 95 D. Response of the Authorities 109 E. Current Policy Issues 144 Appendix I Structure of the Banking Sector 123 Appendix II Medium-Term Issues in the Banking Sector 126 Tables 1 Credit Institutions by Type and Class of Ownership 130 2 Concentration in the Banking Sector 131 3 The Largest Banks, 1994 132 4 Net Foreign Direct Investment in the Banking Sector 133 5 Profitability of Major International Banks in 1994 and 1995 134 6 Selected Indicators of Performance of Banks 135 7 Bank Restructuring: Employment and Staff Costs 136 8 Branch Networks and Workforce of Banks 137 9 Performance of French Banks 138 10 Purchase Price of Offices 139 11 Costs of Public Rescue Operations Relating to Financial Institutions 140 12 Real Estate Loans (at end-1995), Nonperforming Loans (NPL), and Banks1 Assets 141 13 Selected Performance Indicators of Financial Institutions 142 14 Performance Indicators by Type of Bank 143 15 Funding and Lending Indicators 144 16 Bank Restructurings (1993-96) 145 ©International Monetary Fund. Not for Redistribution -4- 17. Ownership Structure and Cross-Shareholdings of Selected Financial Institutions 146 Charts 1. Employment in the Banking Sector (AFB Banks) 94 2. Growth and Real Interest Rates in Europe 99 3. Selected Economic Indicators 100 4. Short-Term Interest Rates and Lending Margins 108 Boxes 1. Key Features of Liberalization of the Banking Sector in France 97 2. Lending to Small Enterprises 98 3. Savings Instruments: General Features and Collection Privileges 102 4. The Credit Lyonnais Restructuring Ill 5. Cross-Shareholdings and Other Aspects of Capital Structure in the Banking Sector 118 References 147 ©International Monetary Fund. Not for Redistribution - 5 - France - Basic Data Area 549,200 square kilometers Total population (1994): 57.2 million GDP per capita (1994): US$23,236 1992 1993 1994 1995 1996 :/ 1997 I/ (Volume changes: in percent) Demand and supply Household consumption 1.4 0 .2 1.4 1..8 2. 4 2. 1 Public consumption 3 . 4 3 . A 1.1 0.,9 1. 3 0. 9 Gross fixed investment -2 .6 -6 .7 1.3 2.,7 -0.2 3. 1 Public 3 .9 -0 . 4 -0 .4 -1..1 -0. 6 1. 5 Residential construction -4 .5 -7 .8 2 .0 3..0 2. 0 2. 5 Other private -4 .0 -8 .2 1.5 3..8 4 . 8 6. 4 Stockbuilding 2/ -o .6 -1.5 1.7 0..2 -0. 4 0. 3 Total domestic demand 0 .2 -2 .2 3 .0 2.,0 1. 2 2. 3 Exports of goods and services 4 .9 -0 .4, 6 .C 6..1 1. 8 5. 0 Imports of goods and services 1.2 -3 .5 6 .7 5..4 1. 7 4. 5 Gross Domestic Product 1.2 -1.3 2 .8 2.,2 1. 3 2. 4 (Contribution to growth of GDP: in percent) 2/ Household consumption 0. 6 0..1 0..8 1.1 1.4 1.3 Public consumption 0. 6 0..6 0..2 0 .2 C .3 0 .2 Gross fixed investment •0. 6 -1..5 0..3 0 .5 -0 .1 0 .6 Exports of goods and services 1.3 -0 .1 1,.6 *^ .7 0 .5 1.4 Imports of goods and services C. 3 -1,.0 1..6 1.5 0 .5 1.3 foreign balance 0. 9 0..9 -0 .2 0 .2 0 .0 0 .1 (Annual averages) Employment and unemployment Labor force (Bullions) 24.9 25.0 25.2 25.5 25.7 25.8 Unemployed 2.6 2.9 3.2 3.2 3.2 3.2 (In percent of total labor force) 10.3 11. 4 12.3 11.6 12.4 12.1 Employment (Change in percent) -0.6 -1.1 -0.2 1.4 0.5 0.9 ©International Monetary Fund. Not for Redistribution - 6 - 1992 1993 1994 1995 1996 I/ 1997 I/ (Annual changes in percent) Prices and incomes GDP deflator 2.1 2.5 3.5 1.6 1.7 1.7 Consumer price index 2.4 2.1 1.7 1.8 2.1 1.6 Import unit values -3.2 -3.9 1.3 2.3 2.1 1.9 Average hourly compensation (manufacturing) 4.6 3.5 3.5 2.4 2.0 3.4 Unit labor costs (in manufacturing) 0.3 3.6 -4.8 -0.3 0.0 0.6 Real disposable income of households 1.9 0.9 1.2 2.5 0.5 2.0 Household saving ratio (in percent) 13.6 14.1 13.6 14.3 12.7 12.6 (Ir. percent of GDP) Public finances 3/ General Government Expenditure S2.1 54.6 54.3 53.8 54.1 53.4 Revenue 48.1 48.8 48.5 48.8 50.1 50.3 Balance -4.0 -5.8 -5.8 -5.0 -4.0 -3.0 General Government Debt (gross) 4/ 39.7 45.7 46.6 52.9 56.2 ,57.3 (In billions of francs) 2.781 3.236 3.591 4.064 4.446 4.718 (In billions of francs) Balance of payments Trade balance 12.7 43.0 44.2 63.9 88.5 97.7 Other 7.5 9.0 0.3 27.1 25.8 26.1 Current account 20.2 52.0 44.5 91.1 114.3 125.8 (In percent of GDP) 0.3 0.7 0.6 1.2 1.4 1 5 Long-term capital 117.9 -23.7 -256.0 -39.0 Capital transfers 2.1 -0.4 -25.6 -1.1 ... Short-term capital -1S1.5 -43.2 212.8 -51.6 Net change in official reserves ( - - increase) 5.3 30.9 -13.9 -3.7 ©International Monetary Fund. Not for Redistribution - 7 - 1992 1993 1994 1995 1996 (Annual changes in percent) Exchange -rates (averages) U.S.
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