Lagarde rejects far-left Mélenchon’s debt-cancellation plan

European Central Bank Chief Christine Lagarde rejected French far-left presidential candidate Jean-Luc Mélenchon's proposal to cancel government debt, branding it both illegal and perilous. Speaking at a press conference following the central bank's decision to hike its key deposit rate to 2.5 percent, Lagarde emphasized the proposal's lack of legal, technical, and financial merit.

She cited Article 123 of the Treaty on the Functioning of the European Union, which forbids both the ECB and national central banks from financing governments. Lagarde also dismissed the idea on economic grounds, citing "very, very solid economists," including former International Monetary Fund chief economist Olivier Blanchard, who could easily prove its financial danger.

Mélenchon reissued his call in August for the ECB to halt pandemic-era government debt, arguing it would generate more fiscal space for France. With public debt exceeding €3.5 trillion, or 117.5 percent of French GDP, the issue has become a major voter concern. Before today's rate decision, Mélenchon also criticized the ECB's anticipated increase, warning on X that "the ECB is leading us straight into the wall."

Lagarde's press conference also saw her reject renewed speculation about her potential early departure from the ECB. Rumors of her possible exit have been circulating for months, after she had previously left open the possibility of participating in the French presidential campaign.