Mélenchon proposes burning French public debt: provocation or plan?

Burning public debt: Mélenchon's all-in gamble against the markets

Jean-Luc Mélenchon has done it again. The leader of La France Insoumise has proposed, without mincing words, setting fire to France's public debt. The idea, thrown out like a firecracker in the middle of the pre-campaign period, has been met with a mix of disbelief and concern: markets are not exactly known for their sense of humor.

The proposed mechanism, if it can even be called that, clashes head-on with the European legal and financial framework. A unilateral haircut that does not go through an orderly restructuring would be, quite simply, a default. And a French default is no ordinary default: France is the country that, according to some calculations circulating in heterodox circles, is approaching 200% debt-to-GDP. With that burden on its back, any inflammatory statement becomes fuel for the risk premium.

The investors' reaction was not long in coming. Some argue that this is merely a gimmick to please his electorate, with no real substance. But there is also the argument that, in a rising interest rate environment, the mere mention of burning debt adds pressure on French borrowing costs. Confidence, once eroded, is hard to win back.

Among the more colorful responses, some have compared the idea to the 9/11 conspiracy theories, when it was even claimed that US debt vanished in WTC7. An analogy bordering on the absurd, but it illustrates just how deep the skepticism runs.

The truth is that the proposal, taken literally, does not stand up to analysis. But the discussion is not only economic: it is political. Every time a prominent leader toys with the idea of not paying, the markets take note. And this time, the note is more expensive than it looks.