Luxury resort Saint-Tropez and poor Paris surburb Seine-Saint-Denis are among the towns and departments hit.
The inquiry says French towns have borrowed close to €18 billion in toxic loans. Hospitals and council estates have borrowed an extra €4 billion, according to Le Parisien. Local representatives are worried they will be unable to repay their loans as interest rates rise.
In 2003, many local authorities bought complex loans that had very low interest rates during the first couple of years. But since the 2008 crisis, interest rates have soared leaving small towns struggling to reduce their debts.
The report points the finger at Dexia, a French-Belgian bank which specialised in loans to local authorities. Investigators say Dexia pushed small towns, which were not aware of the risks they were taking, into buying toxic loans.
Dexia has been bailed out and is currently being dismantled.
Resort Saint-Tropez is struggling with a close to €7 million loan pegged to the Swiss franc, and could see its interest rates rise to 30% next year, according to the UK daily The Guardian.
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