Egan-Jones Examines French Proposal to Cancel Central Bank Debt Holdings

NEW YORK, Oct. 9, 2026 /PRNewswire/ -- Egan-Jones released an analysis examining a proposal that France cancel the government debt held by its central bank, and the credit consequences of doing so 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. The country is already among the most heavily taxed in the OECD, where a further increase risks reducing receipts rather than raising them. Reducing spending carries political cost, given an aging population, a rising dependency ratio, and the unrest that met the last major attempt. 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. The firm also notes that the European Central Bank treats such a step as prohibited monetary financing under Article 123 of the EU treaty, and that borrowing costs could rise 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. The ten-year government bond yield reached 4.117 percent on August 28, 2026.

Egan-Jones considers outright cancellation unlikely and observes that France is not alone, with debt to GDP rising across many developed economies. The firm expects 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.

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Egan-Jones, an NRSRO founded in 1995, offers timely and accurate credit ratings and proxy services.

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SOURCE Egan-Jones Ratings Co.