CHÂTEAUNEUF-SUR-ISÈRE, France — Jean-Luc Mélenchon has a radical idea to help solve France’s financial challenges: “set fire” to a large chunk of its public debt.
The far-left presidential contender would essentially have the European Central Bank agree to waive interest payments on a massive tranche of French bonds.
Coming from a top presidential hopeful, it has triggered a flurry of criticism from leading economists and politicians, who have denounced it as irresponsible and dangerous for the economic stability of the country and the entire European Union.
Prime Minister Sébastien Lecornu called it a “scam in its purest form.” Jordan Bardella, president of the far-right National Rally, slammed the proposal as “nonsense.” Former European Commissioner Thierry Breton penned an op-ed against it.
Mélenchon’s rivals can hardly dispute the subject’s importance: With public debt amounting to more than €3.5 trillion, or 117.5 percent of GDP, the issue has become a top concern for voters.
The country’s indebtedness is already threatening to derail Lecornu’s efforts to rein in its deficit. France is among the countries hardest hit by a global surge in borrowing costs. A loss of confidence in the government’s ability, or willingness, to repay its bonds could make investors shun them, making it impossible for Paris to raise the cash needed to run the country.
As the race for next year’s presidential election heats up, Mélenchon’s debt proposal has driven the country’s political conversation. It has also underscored something his rivals are painfully aware of: The leftist veteran is ready for battle, when most of them are still trying to gather their armies.
The leader of the far-left France Unbowed party launched his presidential bid months before his rivals. He’s now surging at 17 percent in a Toluna Harris Interactive poll published on Monday. That puts him neck and neck for second place with the top centrist contender, former Prime Minister Edouard Philippe, and in a strong position to make it to the second round of voting, where he would presumably face off against the far-right leader Marine Le Pen.
A Mélenchon-Le Pen runoff would guarantee that the next president of France would be elected on a platform openly hostile to the economic orthodoxy that has shaped Europe’s currency union for the last 27 years.
On Thursday, Mélenchon and Le Pen will be grilled alongside five other leading presidential candidates at a highly anticipated debate organized by France’s leading business lobby Medef.
Public finances — including Mélenchon’s proposal — are likely to come up.
“The subject is here to stay,” said Aurore Lalucq, a member of the European Parliament and a top ally of Mélenchon’s leading center-left rival, fellow MEP Raphaël Glucksmann. But, she added, “the issue of debt, like everything else, calls for a nuanced approach.”
Driving the debate
During a fiery speech on Sunday morning, Mélenchon slammed the “incompetents” in government who he said led the country to “ruin and chaos.”
Speaking on a stage set above water at a lakeside conference center in Châteauneuf-sur-Isère, on the outskirts of the city of Valence, the France Unbowed leader struck a prophetic tone as he fired up thousands of his supporters with a subject more often associated with grey suits and glass corridors than tub-thumping rallies: the European Central Bank and its holdings of France’s public debt.
“The French economy was teetering on the brink of recession; now it is about to plunge,” Mélenchon said.
“The European Central Bank can and must freeze [European] governments’ debt, starting with the debt incurred during the Covid-19 pandemic,” he added, doubling down on an idea he first floated earlier this summer with another temperature-themed metaphor, when he promised to “set fire” to debt held by the Eurosystem — the overwhelming majority of which sits with the Bank of France.
The Eurosystem, which comprises the ECB and the currency area’s national central banks, owns around one-sixth of French debt, totaling some €600 billion.
The leftist leader was addressing a 10,000-strong crowd gathered at a rally meant to set the tone for the months-long marathon of the 2027 election campaign. By contrast, the center-right and the center-left have yet to decide who is best placed to represent them, with a dozen contenders in the running.
Still, Mélenchon’s rivals all seem to agree on one thing: His proposal would only aggravate France’s fiscal woes.
“This is absolutely not the right time, from both a macroeconomic and a political standpoint,” to discuss canceling public debt, said Lalucq, an economist by training, who highlighted the same criticism many of her peers have raised.
While she, along with leading economists, advocated for such a measure at the end of the Covid crisis, circumstances have radically changed, she said. Inflation is now a key concern, and such a measure would worsen the problem.
Going rogue
Then there is the legal issue. The EU treaties forbid the ECB from bailing out eurozone countries — even if the bank has found ways to intervene at the height of the eurozone crisis, when its then-President Mario Draghi pledged to do “whatever it takes” to preserve the euro, and again during the Covid crisis.
A unilateral move by France — “disobedience” was how Mélenchon’s top lieutenant Manuel Bompard put it during an hour-long conference on the subject on Saturday — would not only freak out investors, critics argue, but call into question the fundamentals of the eurozone.
“He does it brilliantly, but he’s talking nonsense,” Economy Minister Roland Lescure said on the France television channel BFM TV. Tampering with the Bank of France’s balance sheet, he argued, would amount to “leaving the euro because you’re saying you no longer respect the rules of the common home.”
Not everyone agrees. Among the participants at the France Unbowed gathering over the weekend was Matthieu Pigasse, a star banker who advised the Greek government during the financial crisis and recently landed a much-coveted contract to restructure Venezuela’s debt.
Pigasse endorsed the proposal during an hour-long video conference on the subject, throwing his business credentials behind the unorthodox idea. He has been sparring over the subject with former IMF Chief Economist Olivier Blanchard on the social media platform X ever since.
“Proposing false solutions, raising false hopes, is, I believe, irresponsible,” Blanchard posted on Tuesday.
According to German economist Carsten Brzeski, ING’s global head of macro research, the problem is that Mélenchon wants the perks of the eurozone without the hard work.
France has breached the EU’s deficit rules in almost every year over the past two decades, shown little appetite for structural reforms such as pension reform, and often ignored the European Commission’s fiscal recommendations, Brzeski said.
“Whatever you want to call it, Mélenchon’s comments suggest that he would like the ECB to restate its ‘whatever-it-takes’ position and actually bail out governments that are unable and unwilling to bring their public finances onto a sustainable footing.”
For Mélenchon and his allies, whether or not his proposal flies is perhaps not the main issue. He has succeeded in putting fiscal orthodoxy itself up for debate.
“We are very happy there is a controversy on debt,” said Antoine Léaument, a member of France’s National Assembly with France Unbowed, on the sidelines of the rally.
“Debt is the excuse used to roll back social rights,” he added. “We’ll take whatever comes our way. We’re game.”
Mélenchon tosses a debt bomb into France’s presidential debate
Source: Viral Showbiz Pinay
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