ECB President Christine Lagarde has criticized a proposal by French politician Jean-Luc Mélenchon to cancel €600–636 billion of French sovereign debt held by the Eurosystem. Lagarde stated that such a move is incompatible with EU treaties, specifically Article 123, which prohibits monetary financing of governments.
The proposed cancellation concerns approximately 18% of France's total debt stock, which currently stands at €3.536 trillion, or 117.5% of GDP. Bundesbank President Joachim Nagel supported Lagarde’s position, warning that such actions could threaten central bank independence and risk hyperinflation.
France intends to issue a record €310 billion in medium- and long-term debt during 2026. Currently, the spread between French OATs and German bunds is widening, reflecting increased credit risk. Analysts suggest that political support for debt cancellation could further raise borrowing costs.
The initiative, proposed by the La France Insoumise party, aims to lower the debt-to-GDP ratio and increase public spending capacity. However, experts warn that market expectations of debt cancellation could force the ECB to maintain higher interest rates, ultimately tightening monetary conditions across the Eurozone.
