Does the ECB hold 25% of the French debt, as Mélenchon states?

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Quentin S. question of 05/05/2019

Are you referring to the intervention of Jean-Luc Mélenchon, on May 5, at 20 hours of TF1. He has declared: "We French, who knows? 25% of the French debt, of the French state, was bought by the ECB. And you, I, when we pay our taxes, we pay a part of the debt to the Central Bank. 39; technical, but it is a crazy story. "

According to the leader of the insubordinate France, the European Central Bank (ECB) would hold a quarter of French public debt. A situation that dates back a few years, a consequence of an ECB policy aimed at reviving the continent's economy. And that made it possible to lighten the rates paid by the French State.

Small step backwards: towards the middle of 2010, when the risk of deflation threatens the continent, the European Central Bank decides to implement a policy called "unconventional" – the quantitative easing – which consists of massively repurchasing the secondary , sovereign debt securities of euro area countries. In other words, the ECB does not buy the securities at the time of their issuance by the states – which the EU treaties prohibit – but on the market of "opportunities", ie commercial banks when they resell these securities in a second time.

This practice, which lasted from March 2015 to December 2018, consisted of reinvesting money in the European economy – from 80 to 15 billion a month depending on the period – in order to restart inflation and stimulate the 39; economy. .

In total, this program involved 417 billion euros of French government bonds and French public agencies. This is 18% of the approximately 2,300 billion French public debt. A figure not very distant (25%) from the one mentioned by Mélenchon.

On the other hand, contrary to the insubordinate French leader's claims, it is not the European Central Bank as such that buys and holds these securities, but the Banque de France. Together with the ECB and the central banks of the other euro area countries, the latter is the so-called Eurosystem, with the Bank of France holding 20% ​​of the ECB's capital. And it is in the Banque de France balance sheet that these securities are housed.

So, when Mélenchon is protesting to pay the ECB's interest, it is actually the Banque de France that pays the French state. Furthermore, a (large) part of the profits realized by the Bank of France is then returned … to the French State. In 2018, the Bank of France sold 5.6 billion euros to the state, on its 7 billion "ordinary result".

This policy has reduced the lending rates for the French state (as for most other European countries). Indeed, the massive repurchase of sovereign bonds has led, thanks to the principle of supply and demand, to reduce the pressure on interest rates. And therefore significantly reduce the cost of debt for France.

"This system has really helped us to borrow for less, and to use the money saved to finance something other than borrowing interest, recalls the economist Emmanuel Carré, University of Brittany-South. For loans over a short period, the rates have even become negative, which is to say that creditors pay the French State to lend them … "

Asked by CheckNews, Jean-Luc Mélenchon's entourage recognizes its imprecision on the true holder of securities (Banque de France instead of the ECB), even considering that, in any case, it is the Eurosystem. The movement mainly defends the organization of a debt conference in Europe, aimed at canceling or transforming into "perpetual debt" (ie freezing them), bonds held by the ECB. LFI even wants to question the independence of the ECB, in order to allow it to buy, as soon as issued, sovereign debt securities in the euro zone.

In summary, Mélenchon is not far from the truth when it states that the ECB holds 25% of the French public debt, even if in reality it is the Banque de France. The fact that the Frankfurt bank holds – through the Banque de France and the policy of quantitative easing – almost 20% of French debt has helped to significantly reduce the cost of public debt for the community. At the same time, the profits in this market for commercial banks are reduced, only to be able to buy securities on their issue. Mélenchon's entourage wants to go further, canceling the debts held by the ECB and questioning its independence, to allow it to lend directly to the states.

Luc Peillon

(tagToTranslate) European Central Bank (t) Banque de France (t) Public debt (t) State (t) Billion (t) State (t)

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