Jean-Luc Mélenchon told voters that the simplest way to ease France's soaring public debt is to have the Bank of France destroy the portion of bonds it holds, amounting to roughly 18% of the nation's liabilities.
Why the plan draws attention
France's public debt now exceeds 116% of gross domestic product, a level higher than the United States' roughly 100% ratio when measured by publicly held debt. The country has struggled with low growth for several years, while the eurozone's second-largest economy faces pressure from widening bond-yield spreads.
Under the European Union's fiscal framework, member states are expected to keep deficits below 3% of GDP. France's deficit sits near 5%, putting additional strain on investors who already demand a premium over German bonds. The yield spread on the 10-year French bond is hovering around 88 basis points above the German benchmark, close to the ceiling observed during the 2012 debt crisis.
"All we have to do is take the 18% held by the Bank of France and chuck it in the fire," Jean-Luc Mélenchon said.
Critics argue that cancelling debt held by the central bank would breach the European treaties that forbid monetary financing of governments. Joachim Nagel, chief of Germany's central bank and member of the European Central Bank Governing Council, warned that such a move would be prohibited and could trigger hyperinflation.
What could happen next
The proposal has resonated with a segment of the electorate, and recent polls suggest Jean-Luc Mélenchon could face far-right leader Marine Le Pen in a runoff next year. However, any attempt to erase debt would require parliamentary support that currently does not exist, as no majority backs the deep fiscal cuts needed to bring the deficit in line with EU rules.
Financial analysts note that a decisive breach of the 90-basis-point spread could signal a long-term loss of confidence in French sovereign debt, with repercussions for other eurozone countries that carry weaker fiscal positions. Kristian Kerr, head of macro strategy at LPL Financial, cautioned that a widening spread would affect European and global debt markets alike.
For now, the debate centres on whether the French government will pursue more conventional fiscal adjustments or attempt a radical reset that could reshape the relationship between national debt and the eurozone's monetary framework.