Mélenchon Is Right About France’s Debt

When, in the name of moderation, centrists brand every sensible alternative to severe austerity as “nonsense,” they leave voters only one electable rebellion on offer, and the far right is happy to supply it. That is what is happening in France today. ATHENS—The sorry state of France’s public schools, which sparked angry demonstrations across the country, was a symptom of chronic austerity. But that did not stop the sirens of deeper austerity from rehearsing their song. Emmanuel Moulin, the governor of France’s central bank, is calling for large budget cuts to avert the “risk of being gradually strangled by rising interest rates.” If that happens, social tensions will be further inflamed and desperately needed investment will vanish. With Germany already confronting deindustrialization and surging support for far-right forces, France’s public debt is shaping up as Europe’s next fault line. Against this backdrop, Jean-Luc Mélenchon, leader of La France Insoumise and a presidential contender, has put forward a proposal involving around €600 billion ($673 billion), or 18% of France’s aggregate public debt. These are French government bonds that France’s central bank owns and will hold to maturity, at which point taxpayers will have to pay more taxes, or borrow more, to repay their own central bank. Mélenchon’s point is that it is absurd for one arm of the French state to borrow €600 billion to pay another arm of the state. His alternative is a debt swap between the Treasury and the central bank that, in practice, retires that debt to create fiscal space for desperately needed investment. In the interest of full disclosure, I am not a mere commentator in this debate. Mélenchon’s debt plan is based on my debt-swap proposals in 2015, when I was briefly Greece’s finance minister. The idea was to short-circuit the madness that the European Commission, the European Central Bank, and the International Monetary Fund were trying to impose. Continue Reading