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Unformatted text preview: cal authorities,
i.e. 160 billion of roughly 250 billion francs, would increase between 1996 and 1998 at the same pace as inflation in
order to maintain the purchasing power of the allocations and thus avoid destabilizing local budgets. This stability pact
expired in 1998.
A growth and solidarity contract replaced the pact for the years 1999 to 2001. In addition to the indexing based on
inflation found in the pact, the contract added gradual indexation based on growth in GDP (0.15%, then 0.25%, and
0.33% in 2001). Behind their apparently favourable appearance the two pacts reveal a formidable mechanism for
adjusting the State’s grants (see Section IV). Nearly 110 billion of the “budgeted” 160 billion francs concern overall
operation aid (DGF), which, as we have seen, increases in relation to inflation plus 50% of growth in GDP, while the
budget allowance increases by the inflation rate alone. In order to simultaneously respect both conditions, it is necessary
for (and sufficient that) another form of budgeted aid be used as an adjustment variable, which is true of the business tax
compensation aid, which has thus declined markedly each year since 1996. 3.7. Legislative framework governing debt and borrowing
Since the adoption in 1982 of legislation governing decentralization, French territorial authorities, i.e. communes,
departments and regions, have enjoyed almost total freedom of access to capital markets, at least to finance their capital
investments. The possibility of borrowing, subject to the allocation of the funds, requires neither prior approval nor a
priori control by national authorities. The authorities responsible are free to choose the amount, rate, duration and
lending agency. Comprehensive loan applications are submitted to banks for the investment program overall, not on a
project-by-project basis. Consequently, borrowing represents a temporary, global, non-specific resource. 233 Commission on Fiscal Imbalance The banking sector accounts for virtually all of the credit available, i.e. approximately 70 billion francs in 1997, outside of
national planning. However, bond issues on the financial market are scarcely developed, i.e. on the order of 5 billion
francs in 1997. The dominant position of intermediated credit stems from the keen competition between offerers from the
standpoint of rates and management facilities. In comparison, debt issues seem more costly, overall (with the attendant
fringe expenses) and, above all, more rigid. The Crédit Local de France controls roughly 40% of the market, followed by
the Crédit Agricole and the savings banks, which are the main lenders.
The freedom to borrow accorded the territorial authorities is, however, accompanied by a corollary in the form of an
obligation to achieve a balanced budget, a constraint aimed at guaranteeing the timely repayment of debt and protecting
the lenders’ interests, but also of protecting local authorities from the risk of debt overload. Moreover, the lo...
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