Mélenchon advisers soften French sovereign debt cancellation pitch
- Economic advisers to French presidential candidate Jean-Luc Mélenchon are attempting to reframe a controversial proposal to write off parts of France's sovereign debt.
- Economists affiliated with Mélenchon's France Unbowed party, such as Eric Berr of Institut La Boétie, are seeking to shift the debate toward reducing the influence of financial markets...
- The proposed "freeze" echoes ideas from Mélenchon's previous campaigns, intended to convert debts into perpetual zero-interest loans that carry no repayment date.
Economic advisers to French presidential candidate Jean-Luc Mélenchon are attempting to reframe a controversial proposal to write off parts of France’s sovereign debt. They are now emphasizing a “freeze” of debt held by the central bank instead of outright cancellation. Mélenchon has previously used strong language regarding the sovereign debt, including wanting to set France’s debt “on fire”. That rhetoric drew sharp criticism from political opponents and central bankers.
Mélenchon’s Camp Softens Debt Cancellation Pitch
Shifting Focus From Cancellation to Vaults
Economists affiliated with Mélenchon’s France Unbowed party, such as Eric Berr of Institut La Boétie, are seeking to shift the debate toward reducing the influence of financial markets on sovereign debt. Rather than a total cancellation, the revised proposal involves placing securities held by the Bank of France into its vaults at a zero interest rate. This measure aims to shield the debt from speculative attacks. It also seeks to prevent private investors from driving up interest rates by selling off the assets.
https://x.com/JLMelenchon/status/2098835044689170879
Echoes of Past Bids Meet Legal Walls
The proposed “freeze” echoes ideas from Mélenchon’s previous campaigns, intended to convert debts into perpetual zero-interest loans that carry no repayment date. However, the plan faces severe legal and structural hurdles. European Central Bank President Christine Lagarde, alongside the governors of Germany’s Bundesbank and the Bank of France, has stated that such a measure would violate European Union treaties. These rules prohibit the direct financing of member states by the ECB.
Market Realities and Shrinking Portfolios
The Bank of France currently holds approximately €488 billion of French debt, which amounts to less than one-sixth of the total. As the ECB discontinues the debt-purchasing policies implemented during the sovereign debt crises of the 2010s and the Covid-19 pandemic, national central banks are gradually redeeming these securities. The Bank of France’s stock of securities is projected to drop by €80.6 billion. This reduction will lower its share of French debt to between 11% and 12%, leaving significantly less debt available for the proposed conversion.
https://x.com/JLMelenchon/status/2096108698347172061