[Chart of France’s national debt. Source: France’s National Institute of Statistics and Economic Studies (INSEE)
Cutting France’s national debt of 3.5 trillion euros (about 6,000 trillion won) is emerging as a central issue in the country’s presidential race, after a hard-left politician seen as a leading contender proposed writing off part of the burden by burning government bonds held by the central bank. The ruling camp and the right have attacked the plan as a scam and are pushing deep spending cuts instead.
Jean-Luc Melenchon, leader of the hard-left La France Insoumise (LFI), said at a recent campaign event that the French economy was at risk of complete collapse and that what the country should do was throw the government bonds held by the central bank into the fire, according to Reuters and other outlets on the 27th. Matthieu Pigasse, a progressive investment banker, backed the idea at the same event, saying the debt could be written off without major fallout.
France’s national debt has long been seen as a chronic drag on the country. According to the national statistics agency INSEE, the debt stood at about 3.5 trillion euros at the end of the first quarter, or 117.5% of gross domestic product. Some warn that without extraordinary measures the ratio could climb to 200% of GDP around 2050.
As concerns spread about the limits of public finances, the political fight over deficit reduction has intensified. Disputes over austerity have brought a run of prime ministers in and out of office over the past two years. Against that backdrop, the left is calling for the roughly 600 billion euros (about 960 trillion won) of French government bonds held by the Bank of France to be destroyed, freeing up room for government spending.
The proposal has upended French politics. Prime Minister Sebastien Lecornu wrote on X that France must raise 310 billion euros in the market this year alone, and asked who would lend money to a country that abandoned its own commitments to repay debt, calling the idea a complete scam. Jordan Bardella, leader of the hard-right National Rally (RN), dismissed it as nonsense.
The controversy carried into the first presidential debate held the same day. Marine Le Pen of the RN, who leads in opinion polls, said the rise in national debt was deeply worrying and that government spending had to be cut sharply. She pointed to lower spending on immigration and a smaller contribution to the European Union as solutions.
Economists have also voiced concern about the bond-burning idea. Olivier Blanchard, a leading macroeconomist and former chief economist at the International Monetary Fund, called it foolish. Burning the bonds would cut the government’s interest costs, critics say, but it would also erase the profits the central bank transfers to the government, leaving the net effect at zero.
Amid the dispute over French public finances, the country’s government bonds have fallen out of favor in financial markets. The 10-year French yield stood at about 4.107% as of the same day, above Italy’s 4.073%, according to MarketWatch. That means investors are demanding more to hold French debt than Italian debt, even though Italy was once the euro zone’s problem child during the southern European fiscal crisis.
The Financial Times noted that Italy had staged a rebound in financial markets on the back of fiscal tightening and political stability, and that there were signs of money shifting out of French bonds and into Italian ones. Because a large share of French government bonds is held by overseas investors, including those in Japan, yields could rise further if they turn away.