The report came the same day that the mayors of the towns of Saint-Etienne and Saint-Maur-des-Fosses were due to testify before parliament as part of an inquiry into so-called “toxic loans” granted in France by a number of banks.
Citing confidential documents from Dexia, Liberation said the bank’s municipal financing arm, Dexia Credit Local (DCL), had distributed loans to 5,500 local authorities and public bodies with adjustable rates often indexed to forex rates.
Liberation said local authorities may have to cut public services or raise taxes as they battle to pay their debts.
In a report in July, the government’s audit office also said many local authorities had been left paying double-digit interest rates on loans set to variable rates, indexed to parameters such as exchange rates.
The Cour des Comptes said there were 30 to 35 million euros worth of these loans outstanding, and described 10 to 12 million euros of them as “very high risk.”
Reuters Breakingviews service reported this month that Dexia is being sued by six local authorities in France over loans that have become prohibitively expensive to service.
For example, the interest one small town on the Brittany coast is paying on a 3.5 million euro loan has jumped from 3.99 percent to more than 15 percent after the Swiss franc soared past a set threshold.
In its report, Liberation said loans totalling some 25 billion euros to towns, villages, regional authorities and public bodies like hospitals have become prohibitively expensive to service, leaving borrowers stretched to the limit.
Dexia declined to comment on the report. But it said when posting its interim results on Aug. 4 that six clients had filed claims against DCL and that it was not able to predict the financial repercussions from the actions.
Its shares rose as much as 2.7 percent in early trading on Wednesday, among the top performers on the European banking index. The stock was 0.3 percent higher at 1.464 euros at 0714 GMT.
Earlier this month, another French newspaper, Le Parisien, reported that 60 regional government authorities had formed an association to lobby against toxic loans which have become more costly since the financial crisis.
