France

Slowdown in activity, hit by political uncertainty

While the economy showed resilience in 2024, the trend was mainly due to public spending and the continued recovery of exports (aerospace, pharmaceuticals) against a backdrop of sluggish domestic demand. Activity will slow in 2025 as it did in the last quarter of 2024, being heavily penalised by political and, consequently, economic uncertainty. Domestic demand will remain sluggish at best. As in 2024, households could see slight gains in purchasing power, with wages outpacing inflation. However, uncertainty will continue to encourage precautionary saving, which is forecast to remain at historic levels, thereby preventing a significant rebound in consumption.

Political and fiscal uncertainty, against a backdrop of necessary budgetary adjustments, will also have an impact on corporate behaviour. Companies are likely to adopt a wait-and-see attitude to investment and hiring, despite the fall in interest rates. In a context of durably limited demand and continued repayment of government PGE loans, businesses will continue to face a difficult environment. Insolvencies are set to remain high, having passed the 64,000 mark in 2024, which is almost 30% more than before the pandemic. While the absence of a lasting majority makes it unlikely that significant budgetary measures – and ultimately spending cuts – will be passed, public spending should no longer be a driving force in 2025. Sluggish domestic demand will limit imports. However, foreign trade is unlikely to take up the slack to support activity due to a persistently unfavourable economic climate in Germany and likely trade tensions with China and the US.

Public finances still very much in the red

After the slippage of 2024, the budget deficit is likely to remain very wide in 2025. While the possibility of approving a 2025 budget is uncertain, the absence of a solid majority should prevent any significant spending cuts or tax increases. In the absence of a 2025 budget, the 2024 budget will be extended. At the same time, the interest burden will continue to grow in the wake of financing rates, which are currently among the highest of the major eurozone economies. Public debt will continue to balloon and its sustainability will be one of the main challenges facing the French economy amid an unfavourable context of political instability.

After narrowing in 2024, thanks to lower energy prices and, more generally, a decrease in imports, the current account deficit will remain stable in 2025. Gas prices could be higher due to lower storage levels at the start of the year, but oil prices are expected to fall provided that geopolitical conflicts do not escalate. The surplus on the services balance (1.6% of GDP) will not be enough to offset the deficit on the goods balance (-2.2% of GDP). The current account deficit is financed by debt issues and listed shares purchased by non-residents. At the end of June 2024, non-residents held more than half of the securities issued by general government bodies (53%), non-financial companies (58%) and French banks (70%).

Political instability due to a more fragmented-than-ever National Assembly

In power since 2017, President Emmanuel Macron, head of the centre-liberal Renaissance party, was re-elected for a second term in April 2022. Although he again beat Marine Le Pen of the far-right Rassemblement National (RN) in the second round, this time the score was closer (58.5%-41.5%, compared with 66%-34% in 2017). In the legislative elections that followed two months later, his party won a mere 170 of the 577 seats in the National Assembly. As its alliance with two other centre-right parties only enabled it to win 250 seats in total and, lacking a majority, the government was forced to pass budgets and reforms without a vote in the National Assembly, exposing itself to a possible vote of no confidence. In June 2024, following the RN's landslide victory in the European elections, President Macron decided to dissolve the National Assembly. The ensuing legislative elections resulted in a National Assembly that was more fragmented than ever, being divided into three blocs and making an absolute majority impossible. The left-wing alliance Nouveau Front populaire (NFP) secured 192 seats (including 72 for the far-left party La France insoumise - LFI), the centrist coalition Ensemble 164 and the RN 143. Faced with the impossibility of securing a majority and after two months of consultations, President Macron appointed Michel Barnier of the right-wing Les Républicains party (LR, 53 seats) as Prime Minister. All the members of the NFP immediately pledged to cast a vote of no confidence against him, making the survival of Michel Barnier's minority government, composed of Ensemble and LR ministers, solely dependent on support from the RN. The Barnier government finally fell at the beginning of December, following a vote of no confidence vote – the first since 1962 – in retaliation for the 2025 budget bill. On 13 December 2024, President Macron appointed the centrist François Bayrou as Prime Minister.

Despite the presence of former Socialists who were ministers under François Hollande (2012-2017), François Bayrou's government does not include any members of the NFP parties. Consequently, although, unlike LFI MPs, the Socialists, Ecologists and Communists did not immediately come out in favour of a no confidence motion against the incoming government, such a move can in no way be ruled out. In this context, approval of a 2025 budget is possible – albeit without a major reduction in the deficit due to the lack of a majority to pass major measures – but far from guaranteed.

Faced with this unprecedented fragmentation, which makes it impossible to achieve a lasting majority, the scenario of a dissolution of the National Assembly and the calling of new legislative elections seems unavoidable in the long term. The exact timing of such a decision, which cannot take place until at least July 2025, is unclear and will probably depend on the survival of the Bayrou government. Given the fragmented and polarised political landscape, however, it is highly unlikely that a majority will emerge if new legislative elections are called. The risk of political instability is therefore set to remain particularly high in the short term.

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.

Last updated: December 2024