Banque de France and ECB Reject Mélenchon Proposal to Cancel 500 Billion Euros of Debt

Central bank opposition to debt cancellation

Banque de France Governor Emmanuel Moulin and European Central Bank President Christine Lagarde rejected proposals by left-wing presidential candidate Jean-Luc Mélenchon to cancel roughly 500 billion euros in French public debt. Speaking on RTL radio on 11 September 2026, Moulin categorized the debt relief proposal as illegal, dangerous, and useless. Lagarde stated on 10 September 2026 that canceling government debt held by the central bank constitutes a pure violation of the Treaty on European Union. Moulin warned that unilateral debt repudiation would effectively push France out of the common currency bloc.

It is illegal because it is contrary to the treaties. The euro zone is a co-ownership. So if we do not pay the co-ownership charges, the other co-owners will tell us, friends, you are going to leave.

Market pressure and sovereign bond yields

The political dispute coincides with rising borrowing costs for the French government across sovereign bond markets. On the evening of 10 September 2026, the yield on French ten-year government bonds reached approximately 4.44%, standing at its highest level since the 2008 financial crisis. The German ten-year benchmark yield reached nearly 3.50%, the highest point recorded since 2011. The yield spread between French and German sovereign bonds widened to approximately 0.94 percentage points, reaching a level last seen in 2012. International investors, including foreign banks and pension funds, hold approximately 56% of French public debt. Moulin stated that wiping out sovereign debt would trigger domestic inflation, increase future borrowing costs, and weaken market access for French public finances.

The La France Insoumise proposal

Jean-Luc Mélenchon, candidate for the 2027 presidential election representing La France Insoumise, originally suggested throwing the debt held by the European Central Bank into the fire. Party officials subsequently adjusted the technical scope of the proposal. Val-de-Marne deputy Clémence Guetté explained the revised policy mechanism during an interview on Franceinfo on 11 September 2026. The party proposes converting the ECB-held debt into zero-interest perpetual debt so the French Treasury ceases interest payments without recording a formal nominal cancellation.

A fifth of the debt is held by the European Central Bank. We could transform it into zero-rate perpetual debt, which would immediately lower France's debt burden. We can have allies in Europe for this solution.

Balance sheet impacts and European legal debates

Moulin rejected the perpetual debt concept, stating that transferring or erasing debt yields zero net budgetary margin for public spending. Relieving the French state of 500 billion euros in liabilities creates an identical 500 billion euro deficit on the balance sheet of the Banque de France without reducing the underlying budget deficit. European legal scholars note that Article 123 of the Treaty on the Functioning of the European Union prohibits the monetary financing of member states. Supporters of the debt restructuring argue that the word cancellation does not appear strictly within the treaty text, suggesting a narrow legal ambiguity that would require adjudication by the Court of Justice of the European Union. Moulin emphasized that the initiative has received no diplomatic support from other European governments.