Lagarde Rejects Mélenchon Proposal to Cancel French Debt

ECB President Lagarde has rejected a proposal by French presidential candidate Jean-Luc Mélenchon to cancel part of France's public debt held by the Banque de France. The proposal would reduce the burden on the state and create additional room for social spending, but Lagarde argues that creditors would not treat such a cancellation as a bookkeeping exercise.

The ECB president cited Article 123 of the Treaty on the Functioning of the European Union, which prohibits the ECB and national central banks from providing credit directly to governments. Mélenchon's proposal would circumvent this prohibition and could lead to higher borrowing costs for France.

Banque de France governor Emmanuel Moulin also rejected the proposal, describing it as incompatible with France's obligations. The proposal has now moved beyond Lagarde and is a central question facing the next French government.