Within hours of Detroit filing the biggest municipal bankruptcy in U.S. history on July 18, French TV and other media followed up with the reassuring message that, in France at least, such a turn of events would be impossible. Under French law, municipalities are required to balance their budgets, and the national government can — and occasionally does — intervene to force them to comply.
But take a closer a look at what’s been happening since the 2007 financial crisis, and a rather more nuanced, and surprising, picture emerges. For more than a dozen sizable towns and districts across France have been caught in a vicious debt trap that has seriously imperiled their financial well-being. In turn, they have mounted a furious counterattack that involves suing the banks that financed their credits. At the same time, they have launched an intense lobbying of national government for substantive help to shore up their finances.
On both counts they’re winning, in a way that would turn Detroit green with envy.
The national government has thrown a lifeline to the troubled communities, unveiling an arsenal of new measures — including about $4 billion in extra cash — to help assuage the crisis. And, to their delight, the local authorities have won landmark judgments against the banks that call into question the very validity of the loans they took out.
Similar initiatives have been launched by municipalities in other European nations, including Germany and Italy, with more mixed results.