French presidential candidate Mélenchon renews call to cancel central bank-held debt
MacroGeopolitics Impact 4
Jean-Luc Mélenchon, the radical left candidate from France Unbowed (LFI) for next year's presidential election, is again calling for the cancellation of government bonds held by the country's central bank. Prime Minister François Bayrou criticized the proposal as an act that would undermine investor confidence and be self-defeating. France, burdened with massive debt and fiscal deficits, is seeing political tensions arise over how to address these challenges. During his campaign, Mélenchon argued that "we only need to take the 18% of government bonds held by the Bank of France and throw them into the fire," which he claims would reduce the nominal public debt ratio, currently above 116% of GDP, and create room for increased public spending. Prime Minister Bayrou described the idea as "pure fraud," warning that if France, which needs to raise 310 billion euros (361 billion dollars) in 2026, reneges on its debt payment commitments, no one would provide funding and would demand exorbitant interest rates. The Bank of France declined to comment, but former Governor François Villeroy de Galhau has previously stated that canceling government bonds on its books would make it impossible for France to remain in the eurozone, and the central bank would incur huge losses, shifting the burden onto taxpayers. Meanwhile, left-leaning investment banker Mathieu Pigasse supports Mélenchon, saying the bonds held by the Bank of France could be canceled "without any economic or financial impact," but Olivier Blanchard, former chief economist of the IMF, countered that it is "absurd," adding that proposing wrong solutions and creating false expectations is irresponsible.
