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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

published today.

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

Marty.

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

profile.

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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