Mélenchon proposes canceling part of France’s public debt — Fortune
In France, far-left presidential candidate Jean-Luc Mélenchon is proposing, as part of his election campaign, to cancel part of the public debt held on the central bank’s balance sheet. In his view, this would allow the government to spend more on social programs.
As Fortune reports, the politician proposes canceling 18% of France’s debt, which he says is held by the Bank of France. The publication also notes that polls indicate Mélenchon could reach the second round of next year’s presidential election alongside far-right leader Marine Le Pen.
The candidate’s proposal
Mélenchon insists that his plan concerns debt held by the central bank rather than private investors. At one campaign event, he suggested that the discussion of debt cancellation might not be limited to the Bank of France and said it could be possible to find allies in Europe.
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The politician also said that, at least at this stage, he does not intend to turn to private creditors. France’s prime minister, for his part, warned that failing to meet public debt obligations would force the country to borrow at extremely high interest rates. This year, the French government must raise more than $360 billion on the bond market.
Reaction and the bond market
Bundesbank President Joachim Nagel, who sits on the ECB Governing Council, told Le Monde that no central bank in the Eurosystem or the ECB itself can cancel national debt. In his assessment, this would constitute monetary financing of the government, prohibited by European treaties, and could lead to hyperinflation.
France’s public debt exceeds 116% of GDP, while its budget deficit stands at about 5% of GDP, above the EU’s 3% target. The yield on 10-year French bonds was about 88 basis points higher than that on comparable German securities, approaching the widest gap since the 2012 European debt crisis. LPL Financial Chief Macro Strategist Kristina Hooper said that exceeding 90 basis points could mean investors view France’s fiscal problems as long-term.
