Jean-Luc Mélenchon’s proposal to cancel part of France’s national debt has been rejected by Germany’s central bank chief, who warned that the plan would breach European treaties and risk fuelling hyperinflation.
Joachim Nagel, president of the Bundesbank and a member of the European Central Bank’s governing council, said no central bank in the eurozone could write off government debt held on its balance sheet.
“No central bank in the Eurosystem nor the ECB is allowed to cancel national debt,” Mr Nagel told Le Monde. “This would constitute monetary financing of government, which is prohibited under the European treaties.”
The intervention strikes at a central economic pledge by Mr Mélenchon, the La France Insoumise leader campaigning for next year’s French presidential election. He wants the Banque de France’s holdings of French government debt — equivalent to about 18 per cent of the country’s total — to be erased, arguing that it would give the state more room to fund social programmes.
“All we have to do is take the 18% held by the Bank of France and chuck it in the fire,” Mr Mélenchon has said.
He argues that the measure would affect debt held by the public sector rather than private investors. But he has also suggested that a wider European agreement could eventually be possible, raising the prospect of debt cancellation involving the ECB and other national central banks.
“Why did we make a single currency and an ECB together? We can do it and I bet we’d find allies in Europe,” he said at a recent campaign event. “There is a debate — I’m not going after private creditors, not at this step in any case.”
French debt under pressure
The dispute comes as investors have become increasingly wary of France’s public finances. The country’s debt reached 117.5 per cent of GDP at the end of the first quarter of 2026, according to France’s national statistics office, while the public deficit stood at 5.1 per cent of GDP in 2025.
France remains well above the European Union’s target of a deficit below 3 per cent of GDP. Political divisions have made it difficult to assemble a parliamentary majority for spending cuts or measures aimed at reducing the shortfall.
The yield on French 10-year government bonds has risen to about 88 basis points above the equivalent German rate, close to the widest gap since the eurozone debt crisis in 2012. Analysts have identified 90 basis points as a significant threshold during periods of fiscal stress.
A decisive move above that level could indicate that investors regarded France’s budget difficulties as a long-term problem rather than a temporary deterioration, according to Kristian Kerr, head of macro strategy at LPL Financial.
She warned that a sustained loss of confidence in French debt could spread to other countries with weaker public finances because European sovereign bond markets are closely connected.
Mr Nagel said debt cancellation would also threaten the independence of the central bank by turning monetary policy into an extension of government finance. The European Central Bank has previously stated that cancelling sovereign debt held by the Eurosystem is not an option under the eurozone’s monetary financing rules.
France must raise more than $360 billion through the bond market this year, leaving the government exposed to any further rise in borrowing costs. The debate over Mr Mélenchon’s proposal is therefore unfolding against a backdrop of mounting pressure from investors and a presidential campaign in which public debt has become a defining economic issue.
