French far left sparks backlash with debt ‘fire’ plan

{"text":[[{"start":10.45,"text":"A radical proposal by the French far left to “cancel” a chunk of the country’s debt has become a prominent issue in the country’s nascent presidential race, despite being lambasted as illegal and a “waste of time” by policymakers including European Central Bank president Christine Lagarde."}],[{"start":27.65,"text":"French politicians and economists are fighting over the claim by far-left presidential hopeful Jean-Luc Mélenchon that France could simply “take” bonds accumulated by the Banque de France during years of ECB quantitative easing and “throw them into the fire”. "}],[{"start":42.65,"text":"“No one will ever notice that they’ve disappeared,” he said this summer, sparking weeks of debate. He also claims that doing so will not amount to a default — a contention loudly rejected by central bankers and economists."}],[{"start":56.3,"text":"Mélenchon’s La France Insoumise (LFI) party has batted the idea around for years, but he has now made it central to his presidential campaign as France’s high deficit is limiting the government’s ability to spend on priorities including climate change. "}],[{"start":73.35,"text":"The debate has ignited just as bond investors have targeted France for its deficit of more than 5 per cent of GDP and government debt that will be just shy of 120 per cent of GDP this year, both among the worst in the EU."}],[{"start":null,"text":"

"}],[{"start":87.55,"text":"France’s 10-year borrowing costs have risen above 4.6 per cent, their highest level since 2008, as an Iran war sell-off in global bonds is exacerbated by domestic concerns. "}],[{"start":100.6,"text":"The spread between France and Germany’s 10-year government bonds — a measure closely watched by investors — has reached above 1 percentage point for the first time since the Eurozone financial crisis. Government debt interest costs are to surpass spending on education or defence this year. "}],[{"start":117.39999999999999,"text":"Investor jitters have intensified because polls suggest Mélenchon may squeeze into the presidential run-off in May, setting up a match with far-right leader Marine Le Pen, whose big tax-and-spend proposals would also drive up debt. "}],[{"start":132.85,"text":"To seek to calm markets, the government has proposed a 2027 budget with a €54bn savings drive, which all the presidential candidates have lined up to attack. "}],[{"start":143.6,"text":"According to recent opinion polls, three quarters of voters say they are worried about the national debt."}],[{"start":149.95,"text":"Mélenchon’s proposal has already drawn a sharp rebuke from Lagarde among others, who argued that such a move would amount to a central bank in effect financing a government — something that would be in direct violation of the EU’s founding treaty."}],[{"start":163.89999999999998,"text":"“It’s not because you repeat something that doesn’t make any sense . . . that it becomes something valid,” Lagarde said this month. “So legally, technically, financially: really not a good idea. And a large waste of time.” "}],[{"start":null,"text":""}],[{"start":176.79999999999998,"text":"On paper, Mélenchon’s proposals might sound attractive to voters with little appetite for spending cuts — especially as other contenders call for belt-tightening and for the French to work longer for their pensions."}],[{"start":188.29999999999998,"text":"Mélenchon claims that the bonds, amounting to about €488bn or roughly 14 per cent of France’s total borrowings, could be cancelled because private creditors would not take losses. Removing the pressure to refinance the debt would lower the risk premium demanded by lenders, he suggested. "}],[{"start":205.54999999999998,"text":"In reality, economists argue that the proposal is technically problematic and could trigger a dramatic market sell-off that would push up French debt-servicing costs further and inflict losses on other big holders of government bonds."}],[{"start":218.99999999999997,"text":"“Borrowing money and deciding not to give it back — that’s called theft,” said French Prime Minister Sébastien Lecornu in response to the proposal on X."}],[{"start":227.84999999999997,"text":"The bonds held at the Banque de France stem from several quantitative easing programmes launched by the ECB via national central banks from 2014 to fight the risk of deflation and to prop up the Eurozone economy during the Covid-19 pandemic."}],[{"start":244.14999999999998,"text":"LFI has clarified more recently that it wanted to convert the sovereign debt into perpetual zero-coupon bonds. Mélenchon would not act unilaterally, said Éric Coquerel, an LFI MP on France’s parliamentary finance committee, but a Europe-wide solution was needed as financing and investment needs ballooned across the bloc."}],[{"start":264.7,"text":"“The idea of cancelling part of the debt held by the ECB, after the subprime crisis and Covid, would help alleviate some pressure, and that’s something to be discussed at European level,” Coquerel said."}],[{"start":276.9,"text":"That has done little to soothe nerves. Any attempt by the French government “to convince its European partners along these lines” would trigger market volatility and “would certainly create huge tensions with the fiscally disciplined countries” within the Eurozone, analysts at investment bank Natixis warned."}],[{"start":295,"text":"“Some of the measures proposed by presidential hopefuls are most likely to cause some global investors to raise one or two eyebrows,” said Kevin Thozet, a member of the investment committee at fund manager Carmignac. "}],[{"start":307.8,"text":"Many observers have chuckled that the debate has turned into a particularly French circus, a reflection of how disconnected from reality the campaign could get."}],[{"start":317.05,"text":"Former IMF chief economist Olivier Blanchard, another vocal opponent of Mélenchon’s plan, said securing the agreement of the ECB to default or restructure government bonds acquired from commercial banks during asset-purchasing programmes would be “manifestly impossible”."}],[{"start":333.25,"text":"“And doing it without its accord, that’s very certainly a euro crisis,” he added."}],[{"start":338.45,"text":"Blanchard has also argued that cancelling the bonds will simply shift the liability within the French state: while the Treasury’s debt would fall, an equivalent “hole” would open in the Banque de France’s balance sheet, which would have to be covered."}],[{"start":352.7,"text":"Allianz chief economist Ludovic Subran pointed out that, like Mélenchon, politicians in the US are making seductive pledges ahead of November’s midterm elections. "}],[{"start":363.84999999999997,"text":"“We’re in this impasse in which there are so many imperatives to spend on, no one wants to increase taxes . . . every politician is seeking a way to manoeuvre,” he said. “Donald Trump promises $5,000 cheques. In France we’re promising to cancel debt.”"}],[{"start":386.15,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1790248467_7647.mp3"}