French towns owe €18 billion in toxic loans

A French parliamentary enquiry has revealed that close to 2,000 towns are struggling to pay off loans that have become toxic in the wake of the 2008 financial crisis.

French towns owe €18 billion in toxic loans
Saint-Tropez by Matrin Putz

Luxury resort Saint-Tropez and poor Paris surburb Seine-Saint-Denis are among the towns and departments hit.

The inquiry says French towns have borrowed close to €18 billion in toxic loans. Hospitals and council estates have borrowed an extra €4 billion, according to Le Parisien. Local representatives are worried they will be unable to repay their loans as interest rates rise.

In 2003, many local authorities bought complex loans that had very low interest rates during the first couple of years. But since the 2008 crisis, interest rates have soared leaving small towns struggling to reduce their debts.

The report points the finger at Dexia, a French-Belgian bank which specialised in loans to local authorities. Investigators say Dexia pushed small towns, which were not aware of the risks they were taking, into buying toxic loans.

Dexia has been bailed out and is currently being dismantled.

Resort Saint-Tropez is struggling with a close to €7 million loan pegged to the Swiss franc, and could see its interest rates rise to 30% next year, according to the UK daily The Guardian.

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IMF urges France to step up spending reforms to rein in debt

The International Monetary Fund on Monday warned France that its public debt is "too high for comfort", calling on the nation to tackle the issue by stepping up spending reforms.

IMF urges France to step up spending reforms to rein in debt
'Yellow vests' protest in front of the stock exchange in Paris in opposition to Macron's policies. Photo: AFP
In a report outlining preliminary findings of its 2019 mission, the IMF said tax and labour market reforms had helped keep the economy resilient despite slowing growth.
But it urged the government of President Emmanuel Macron to find further ways to curb spending and to ensure the measures have public support, in a nation rocked by weekly anti-government “yellow vest” protests. 
“France's public debt is too high for comfort,” said the IMF mission's concluding statement.
“While there is no immediate risk, as the currently low interest rates suggest that higher debt can be sustained at this juncture, the elevated debt level provides little comfort from a medium and long-term perspective.”
French public debt rises above €2,000,000,000,000 Photo: AFP
The IMF noted that public debt has risen from around 20 percent of gross domestic product in the 1980s to close to 100 percent. 
“Additional spending reforms are needed to ensure that the ongoing tax-burden reduction can be sustained and public debt placed on a firm downward path,” the statement said. 
The IMF maintained its growth forecast for France at 1.3 percent this year, predicting it would “stabilise at around 1.5 percent in the medium term, predicated on a recovery of domestic and external demand and on gains from recent reforms”.
It added that while the current outlook is positive, “risks have risen”, citing global trade tensions, the uncertainty over Britain's exit from the European Union and “in France, erosion of support for necessary economic reforms among the general public”.
On coming to power in 2017, Macron immediately set about trimming the deficit to bring it in line with an EU limit of three percent of GDP, which the eurozone's second-biggest economy had persistently flouted for a decade.
In March the national statistics agency Insee said France's budget deficit fell to a 12-year low of 2.5 percent of GDP in 2018, a greater-than-expected decline achieved despite falling growth and purchasing power.
But the announcement came after months of yellow vest protests, sparked last November over plans to increase diesel prices and raise taxes on pensions. 
Macron announced a package of tax cuts and income top-ups worth 10 billion euros in December, following the first month of the protests.
And in April, the government announced new plans for fresh tax cuts, to be funded by axing corporate tax breaks, reducing public spending and introducing longer working hours.