Indexed bonds: the state pays inflation to debt holders

According to Le Monde, a majority of MPs asked, on Wednesday 4 November, for an end to French state bonds indexed to inflation. The reason: with prices rising sharply, the state has to pay very high interest to holders of these bonds, and the mechanism risks costing it more than €10 billion in 2026. The details of the vote, its terms and the legislative follow-up are not in the material available to us; we will not invent them.

The principle is simple. A conventional bond pays an interest rate fixed in advance. An indexed bond, by contrast, guarantees the lender that both its capital and its income track prices: if living costs rise, the claim swells by the same amount. The holder is therefore insured against inflation. Someone pays for that insurance, and it is the state's budget, that is to say, ultimately, public revenue: taxes, levies, or services that will be trimmed elsewhere.

Here is our reading. Inflation is not the weather. Le Monde speaks of a "sharp rise in prices" as if it were a phenomenon that descends upon us; that is the usual reflex of commodity fetishism, where prices climb on their own and nobody sets them. Behind them are companies passing on costs, margins being defended, and states making trade-offs. And the useful question is always: who is protected when prices rise, and who is not?

The answer here is fairly clear. The employee whose pay is indexed, when it is at all, does so late and only partially, and absorbs inflation as lost purchasing power. The holder of indexed bonds, by contrast, is exempt by contract. Ten billion euros is a transfer from the community to those who own public debt, without any of them having had to produce anything more. The rentier is the only one who never sees the inflation coming.

The MPs' vote is therefore less a technical quarrel than an episode of class struggle in plain clothes: who should pay the bill for rising prices? We do not know, at this stage, who holds these securities in what proportion, nor whether the parliamentarians envisage a transition for bonds already issued. These details matter: ending future issuance does not erase past commitments.

Finally, there is an irony worth noting. The same circles who judge that indexing wages would fuel an inflationary spiral find the indexation of lent capital perfectly natural. Wages are a risk to stability; the coupon, a legitimate guarantee. If the deputies genuinely want to share the effort, logic would suggest that protection against inflation be debated for everyone, not just for creditors. Whether the parliamentary majority will go that far remains to be seen, or whether it will be content to close one tap so as to leave the others running.