France to double fund to help local authorities with Swiss franc surge

Paris

FRANCE will double a fund designed to help local authorities deal with structured loans, raising it to three billion euros (S$4.6 billion) following a surge in value by the Swiss franc, the Budget Ministry said on Tuesday.

Half of the additional 1.5 billion euros in the fund will be provided by banks and the other half by the state, an official at the ministry said. The funds will be available for 15 years.

Another 300 million euros will help hospitals with such loans.

The cost for French local authorities of billions of euros in loans linked to the Swiss franc have climbed dangerously higher since the Swiss National Bank scrapped its cap on the value of the franc in January, prompting the state to help.

"The brutal and unexpected surge in the Swiss franc confirms the necessity, as soon as conditions are met, (for hospitals and local authorities) to definitively exit those contracts and refinance them so that they are not submitted to disproportionate risks," Budget Minister Christian Eckert and Health Minister Marisol Touraine said in a joint statement.

Up to the 2008-09 financial crisis, many municipalities and local governments in France took out long-term loans linked to foreign currencies, which offered low interest rates in the initial years and floating rates thereafter.

Some 10 billion euros of that debt is still outstanding and nearly half of it is tied to the Swiss franc, according to Christophe Greffet, a politician in north-eastern France who leads an association defending borrowers saddled with the loans.

The exchange rate spike is all the more unwelcome because local governments are seeing their budgets increasingly squeezed, with the central state government planning to cut funding to them by 3.7 billion euros annually through 2017.

The government's willingness to help local authorities cope with surging costs comes as the ruling Socialist Party faces the prospect of heavy losses in local elections in March. REUTERS