Moody's: Forming new budgetary policies is the main challenge for French regions facing mergers.
Summary: Alsace and Languedoc-Roussillon will see their post-merger debt levels
-- The creation of new fiscal policy agendas is
the biggest challenge for the French regions that are set to merge from
January 2016, says Moody's Investors Service EMEA Limited in a report
Moody's report, entitled "Territorial reform poses policy challenge, but
regions' financial strength likely unaffected," is available on
www.moodys.com. Moody's subscribers can access this report via the link
provided at the end of this press release.
The French Territorial Reform project launched in January 2015 will merge
France's 22 metropolitan administrative regions into 13 enlarged
entities from January 2016 in an effort to cut local public spending and
improve its efficiency.
"As regional elections will be held in December this year, there is
little time for the newly-created regions to reach a consensus on new
policies that would allow them to maintain long-term financial
sustainability and regional competitiveness," says Daniel Marty, an
associate analyst at Moody's.
"The main challenge for the regions is to agree and implement new policy
agendas that efficiently respond to both the fiscal pressures and the
investment needs some newly-merged administrative entities may face. Any
prolonged failure to do so could affect regions' creditworthiness," says
Moody's notes that while the merger process will also lead to a
convergence of financial metrics, reducing the number of outliers, this
is not likely to fundamentally affect French regions' robust financial
The rating agency expects no immediate efficiency gains once the new
regional map takes effect as it is based on geographical and political
considerations rather than economic and budgetary synergies.
According to Moody's, the reform will cause a clearer geographical split
to emerge, with the North and North-East of France exhibiting balanced
accounts or surpluses, the West Coast reporting the largest deficits, and
the South-East and the Pyrenees ranking in between.
Alsace and Languedoc-Roussillon will see their post-merger debt levels
fall below 100% as they combine with less indebted regions, while
Picardie, as part of a newly-formed tie-up with Nord-Pas-de-Calais, will
see its leverage rise above the 100% threshold.
The rating agency's assumptions incorporate its expectation that in light
of the current policy debate, only a limited part of the lower-tier
departments' responsibilities will be transferred to regions, and as a
result is unlikely to materially change their financial profiles.
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|Publication:||EMBIN (Emerging Markets Business Information News)|
|Date:||Feb 17, 2015|
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