Egan-Jones released an analysis examining a proposal that France cancel the government debt held by its central bank, weighing the credit consequences for a sovereign whose obligations already exceed 116 percent of GDP. The commentary sets out the conventional remedies available to France and finds each one constrained, noting the country is already among the most heavily taxed in the OECD, that reducing spending carries political cost given an aging population and a rising dependency ratio, and that issuing currency is not a national decision because France belongs to the euro monetary system. Against that background, Egan-Jones examines a proposal from Jean-Luc Mélenchon that the central bank cancel the bonds it acquired under eurozone-wide quantitative easing, extinguishing the obligation without a formal default. Cancelling the bonds removes an asset from the central bank while the currency issued against it remains outstanding, a configuration Egan-Jones compares to the currency expansion of the Weimar Republic, and the firm notes the European Central Bank treats such a step as prohibited monetary financing under Article 123 of the EU treaty, with borrowing costs potentially rising if investors question the arrangement. Egan-Jones carries a senior rating of A+ on the French Republic, issued on a non-NRSRO basis, with debt at 116.2 percent of GDP in 2025 and projected near 120 percent in 2026, and the ten-year government bond yield reached 4.117 percent on August 28, 2026. The firm considers outright cancellation unlikely and observes that France is not alone, with debt to GDP rising across many developed economies, expecting governments to act only when circumstances force them, with higher yields or difficulty funding existing programs as the probable catalyst, and sees quantitative easing supplemented by IMF Special Drawing Rights or similar tools as the more likely course for addressing sovereign credit quality concerns over the short and medium term.
Proposal to cancel central-bank-held debt is seen as prohibited monetary financing that could push French borrowing costs and the 10Y yield higher.
Egan-Jones issues an analysis weighing credit consequences of the French debt-cancellation proposal while affirming its A+ rating on France.
