Egan-Jones Analyzes French Proposal to Cancel Central Bank Debt Holdings
Egan-Jones has analyzed a proposal by France to cancel government debt held by its central bank, assessing the credit implications for a country with public debt exceeding 116% of GDP. The firm outlines conventional fiscal remedies—such as increasing taxes or reducing spending—but notes these are constrained due to high taxation levels and political challenges from an aging population. As part of the eurozone, France cannot independently issue currency. Egan-Jones also examines a proposal by Jean-Luc Mélenchon suggesting that central banks cancel bonds acquired during quantitative easing programs, which could remove assets without triggering formal default. The firm warns such actions resemble historical monetary expansions and are prohibited under EU law (Article 123), potentially leading to higher borrowing costs if investors lose confidence. Egan-Jones maintains a senior rating of A+ for France but notes rising debt levels across developed economies, expecting governments will act only when forced by high yields or funding difficulties. The firm anticipates quantitative easing and IMF tools like Special Drawing Rights as more likely solutions in the short to medium term.
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Topics: central bank France government debt quantitative easing sovereign credit rating