Le Pen and Mélenchon's Inflationary Debt Solution

Bardella and Mélenchon: Inflating Away French Debt

How long does it take for public debt to disappear? Much less than the creditor thinks, if the central bank starts printing money. In France, two opposing political figures who refuse to sit together have arrived at the same prescription for their national debt. Economist Luis Garicano recently pointed out in a publication that the European Central Bank has been dismantling market discipline, and populism of all stripes has taken note. Jordan Bardella, Marine Le Pen's right-hand man, is calling for the ECB to buy French debt. Jean-Luc Mélenchon, leader of La France Insoumise, has been demanding something even more drastic for longer: directly cancelling French debt held by the euro system, which in practice amounts to the Banque de France. Hyperinflation emerges here not as an accident, but as the instrument.

What Monetizing a Country's Debt Means

The mechanism is straightforward, even if it's marketed as magic. If the central bank buys public debt by creating new money, the state finances itself without going through the market and without anyone demanding a punitive interest rate. The downside lands in everyone's pocket: more money chasing the same goods, rising prices, and a currency that is worth less. With soaring inflation, the real value of what is owed shrinks on its own. Those who had euros saved see them shrink along with it.

This is why talk turns to shifting the bill from debtors to creditors and savers. A loaf of bread doesn't go up by 5%: in the scenario described, it reaches 20 euros, and in the worst-case calculation, it hits 50. The recurring comparison is with Argentina or Turkey, economies where a day's wages stopped covering a day's groceries.

Who Pays the Piper Within the Euro

The Eurozone is not a homogeneous club, and therein lies the problem. Of the major players, only four truly matter: Germany, France, Italy, and Spain. Of these four, Spain has the second-lowest debt relative to its GDP. A generalized debt write-down would reward the most indebted and penalize those who owe the least. The result would not be a rescue with a flag and commissioners, but something more discreet and harder to explain during a campaign: a silent transfer from frugal countries to those dragging the burden, without any minister signing a check.

Spanish Debt and Its Discrepant Figures

Quantifying Spanish debt appears to be an exercise in faith. Some analyses suggest the official figure falls short, and that the real debt is already around 160% of GDP. Another school of thought places it directly above 180%. In between lies the memory of the housing bubble: public debt exceeded 100%, but private debt, held by households and businesses, soared to 300% or 400%. That private mountain has been gradually reduced since then, though it remains above the European average. The figures don't align; what they do share is the suspicion that the official picture is overly favorable.

Hyperinflation or Growing Faster Than Debt?

The most serious criticism is not that the idea is immoral, but that it's being misrepresented. Some argue that the proposal isn't to skyrocket prices, but to inject liquidity to foster growth: if you have a debt of 100% of GDP and manage to double GDP, that debt halves without affecting anyone's pocket. On paper, impeccable. The uncomfortable detail is that doubling GDP doesn't happen in a reasonable timeframe. And there lies the line separating nuance from fantasy: high inflation with high growth could work; high inflation with low growth leads to tragedy, which is precisely the Argentine or Turkish scenario.

The Austerity No One Wants to Sign

If the inflationary route is discarded, the other option remains, the one no politician will put in writing: cutbacks. Halve public spending, halve pensions, and retire at 70 years old. The figure is stated bluntly and responds well to the diagnosis. The problem arises the next minute. In France and Spain, pensions and public salaries are the backbone of private consumption. If business revenue is halved as a result, who pays the subsidies for the hundreds of thousands of unemployed generated by such cuts? No one has answered this, because there is no fitting response.

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With these elements, gold is once again viewed favorably, and even the local jewelry store becomes an emergency refuge. The only question that remains unanswered is who pushes the print button. And for that, as always, elections are needed.