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Bundesbank President Joachim Nagel has publicly shut down a proposal by French far-left leader Jean-Luc Mélenchon to simply erase the portion of France’s public debt sitting on central bank balance sheets. Nagel’s verdict: it’s illegal under EU law, and it could trigger hyperinflation.
The target in question is roughly €636 billion worth of French sovereign bonds held by the Eurosystem, primarily through the Banque de France. That represents about 18% of France’s total public debt pile, which stood at €3.536 trillion as of the first quarter of 2026, or 117.5% of GDP.
The proposal and why it keeps coming back
Mélenchon has been pushing the debt cancellation idea since June 2026 as part of his campaign for the 2027 French presidential elections. The logic, at least on paper, sounds almost elegant: since central banks already hold a huge chunk of government bonds purchased during years of quantitative easing, why not just cancel those IOUs and lighten the load?
The idea isn’t new. It surfaced during the COVID-era debt surge when a group of European economists floated similar proposals. Back then, ECB President Christine Lagarde called it “unthinkable.” Mélenchon is now making it very thinkable, at least as a campaign plank.
French Prime Minister Sébastien Lecornu has condemned the proposal as reckless, warning it could shatter market confidence in France’s ability to manage its finances responsibly.
What Nagel actually said
Speaking on September 2, 2026, Nagel framed the issue in terms of the eurozone’s foundational legal architecture. EU treaties explicitly prohibit monetary financing of governments, which is precisely what debt cancellation by central banks would amount to. The central bank would be absorbing a loss to benefit the government’s balance sheet, effectively printing money to pay off sovereign obligations.
Nagel’s hyperinflation warning is the sharpest part of the critique. If central banks start canceling government debt, the reasoning goes, there’s nothing to stop governments from running even larger deficits with the expectation that future debts will also be forgiven. That dynamic erodes confidence in the currency itself.
France’s interest payments on public debt are projected to exceed €100 billion annually in the coming years. That’s a sum larger than the country’s defense budget, consuming an ever-growing share of government revenue.
Market implications and the fiscal tightrope
France’s debt-to-GDP ratio at 117.5% places it among the most indebted major economies in the eurozone. Analysts warn that any political movement that even flirts with undermining monetary law could push borrowing costs higher, and rating agencies would likely take a dim view as well, potentially putting France’s credit rating under additional pressure.
Mélenchon’s proposal also complicates the ECB’s ongoing efforts to unwind its balance sheet. The central bank has been gradually reducing its bond holdings, a process that becomes politically harder when populist movements frame those holdings as debts that should be forgiven rather than repaid.
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