by

Robert Cauneau

6 September 2025

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Abstract

This article dismantles a central fiction of public debate : the idea that the French state, like a household, must « find money » to finance its spending. It answers the question « How does a Eurozone member state actually spend? » by proving that the obligation to borrow on the markets is not an economic necessity, but a political artifice.

Using institutional analysis and stylized accounting models (T-accounts), the article breaks down, step by step, the transactions between the Treasury, the Banque de France, and commercial banks. This demonstration reveals that while European rules (particularly Article 123 TFEU) are strictly adhered to, they are emptied of substance by a veritable institutionalized « shell game. » Far from being a simple technical circumvention, this mechanism is an institutional mystification : it masks the fact that the money required for spending is always of public origin and made available on demand by the central bank.

In practice, it is the state that initiates the spending sequence, even if the accounting chronology is reversed to simulate a constraint. Ultimately, the article argues that the real limits to state action are not financial, but relate, on the one hand, to the availability of real resources, and on the other, to the European rules that organize the artificial dependence of states on financial markets. This analysis calls for a radical reconsideration of public debt, revealing that the so-called financial constraints are in reality political choices disguised as technical necessities.

Introduction

How does the French state actually spend? In other words: where does the money come from that allows a Eurozone member state to pay its civil servants, build infrastructure, and meet all its other expenses?

At first glance, the answer seems obvious: the state raises taxes, then supplements its resources by borrowing on the financial markets, in compliance with European rules prohibiting any direct monetary financing by the central bank. This narrative, widely repeated by public officials, the media, and economics textbooks, gives the illusion of a state dependent on taxpayers and investors for its actions.

However, this representation is misleading. It inverts the reality of modern monetary functioning. What is presented as a budgetary constraint is in reality an institutional artifice, intended to mask a fundamental fact: all public spending involves publicly generated monetary creation, made possible by coordination between the Treasury and the central bank. The issuance of bonds is not an act of financing, but an accounting sham, a « shell game, » designed to make people believe that the state does not have the money it puts into circulation itself.

From this perspective, our approach builds on Dirk Ehnts’s (2020) work on the German case, while clearly distinguishing itself from it. Whereas Ehnts emphasizes that the state spends first despite the rules, we go further: we show that the issuance of debt bonds is a performative fiction, intended to simulate financing that does not exist. This issuance has no real economic or monetary function: it serves solely to maintain the idea that the state is constrained, and therefore reasonable, because it depends on a scarce external resource.

Our demonstration is based on an analysis of the French institutional framework and two stylized transaction tables that trace the actual accounting sequences of public spending. These elements highlight that neither commercial banks nor financial markets « supply » the money allowing the state to spend. They intervene solely as technical intermediaries in a process whose origin is public. This reversal of perspective allows us to deconstruct a dominant narrative that equates the state with a household, obliged to gather resources before acting. In reality, it is the act of public spending that initiates monetary circulation, and not the other way around.

To demonstrate this, the article is structured in four parts. The first part establishes the theoretical and conceptual framework of the fiscal-monetary nexus. The second part presents the institutional actors involved as well as the legal and operational constraints that govern their relationships. The third part, the core of the analysis, breaks down in detail the sequences of expenditure, revenue, and debt issuance. Finally, the fourth part discusses the implications of these mechanisms, highlighting their ideological and political role and opening up perspectives on the true capacities of the state in the current European framework.

Part 1: Theoretical and Conceptual Framework of the Fiscal-Monetary Nexus

1.1 The Fractured Monopoly: National Fiscal Sovereignty and Supranational Monetary Sovereignty

To analyze the French case, we must start from a single institutional architecture: a fractured monopoly on currency. Sovereignty, which in a traditional state unites budgetary and monetary power, is here split in two:

1. Budgetary and legal sovereignty remain national. It is the French Parliament that votes on the budget and decides on taxes and spending. The State retains the monopoly on legal constraints and taxation within its territory.
2. Monetary sovereignty, however, has become supranational. The monopoly on the creation of the base currency, the euro, and the control of settlement operations belong to the Eurosystem, led by the European Central Bank (ECB).

This institutional divide has far-reaching consequences. It invalidates the idea that Member States are mere « users » of the euro, just like a local authority. In reality, the Member State is not a mere passive user; it is the obligatory initiator of monetary creation linked to public spending. It does not control the tap of base money, but its spending decisions force this tap to open, provided, however, that the ECB authorizes it.

It is to manage this paradoxical situation – an initiator of spending who does not directly control the creation of the settlement currency – that a set of procedures and conventions has been put in place.

This « shell game » in France is therefore not a simple operational choice. This is the circumvention mechanism made necessary by a contradictory institutional architecture, a bridge built to bridge the political divide between national fiscal sovereignty and supranational monetary sovereignty, while giving the appearance of market financing, when in fact it is a matter of institutional coordination in which the central bank plays a central, but indirect, role. Understanding this mechanism is the key to revealing how, despite this divide, the state manages to operate.

And this dissociation between fiscal and monetary power is not an accident, but a structuring ideological choice: that of forcing states to discipline their fiscal policy not through democratic debate, but through fear of the financial markets.

1.2 The « Government Spends First » Principle

The orthodox paradigm posits that the government, like a household, must first collect revenue (taxes and borrowing) before it can spend. Modern Monetary Theory (MMT) reverses this logic, asserting that for the sovereign creator of money, spending is the first and founding act. Understanding this principle is essential to deciphering the fictions of public debate, as Warren Mosler (2019), the first pioneer of MMT, points out.

1.21 Public Spending Creates Money

In all monetary regimes, public spending involves, in one way or another, putting money into circulation. But the nature and extent of this money creation depend on the institutional framework and the convertibility rules in force.

In a convertible currency regime (backed by gold or a foreign currency, as under the gold standard or Bretton Woods), the government can create money by spending, but this creation is structurally limited: it must preserve convertibility by maintaining a sufficient quantity of real reserves. In this context, money creation is subject to an external constraint, which imposes permanent fiscal and monetary discipline.

In a fiat currency regime, on the other hand—that is, an inconvertible currency, whose value is based on the law and its mandatory acceptance for the payment of taxes—the government, in conjunction with its own central bank, can create the money needed for its spending without encountering a convertibility limit. The only real limit then becomes the existence of available real resources (labor, goods, productive capacity), otherwise excessive money creation risks generating inflation.

In this context, when the government spends, for example, to pay a civil servant’s salary, the Treasury issues a payment order that is executed by the central bank. The central bank credits the reserve account of the civil servant’s bank, which in turn credits their deposit account. The amounts involved—deposits and reserves—are created ex nihilo at the time of payment.
The government does not withdraw a pre-existing resource: it creates money by spending.

1.22. The role of taxes: a monetary withdrawal, not financing

If spending creates money, what is the purpose of taxes? Their role is fundamental, but different from what is usually attributed to them:

• Creating demand for money: The obligation to pay taxes in the currency issued by the government forces economic agents to seek it. This gives value to a fiat currency that is not backed by anything physical. This is the « taxes-drive-money » principle.
• Withdrawing money and regulating inflation: Paying taxes is the opposite of spending. It destroys taxpayer deposits and bank reserves. It is the government’s main tool for removing purchasing power from the economy and thus combating inflationary pressures.
• Influencing behavior: Taxes are also a tool for redistributing wealth and encouraging or discouraging certain activities (e.g., carbon taxes).

1.23. The role of government bond issuance: a monetary instrument, not a vital debt

If the government doesn’t need to borrow to spend, why does it issue bonds? For a sovereign state, issuing bonds is not a financing operation, but a monetary policy and financial stability operation:

• Liquidity management (historical role): By selling bonds, the central bank « drains » excess reserves created by public spending, allowing it to better control the interbank interest rate. That said, this role of regulating the interbank rate becomes secondary when the central bank chooses to remunerate excess reserves, which sets a floor for money market rates.
• Provision of a safe asset: Government bonds are the safest financial asset for the private sector (households, pension funds, insurers). They represent a form of interest-bearing and risk-free savings.
• Collateral support: They serve as primary security in countless financial transactions.
• Compliance with conventions: In many countries, it is a self-imposed rule that deficits must be covered by issuing securities.

In short, in a pure sovereign system, Spending is the act of creation, Taxing is an act of destruction (regulation), and Borrowing is an act of exchanging assets (reserves for securities). It is this clear logic that is obscured and constrained by the institutional framework of the Eurozone, transforming what should be simple technical operations into an ongoing political ritual.

1.24 At this point, an important clarification is necessary

In MMT analysis, « public debt » is not limited to government bonds. It refers to all of the government’s financial liabilities to the non-government sector—in other words, the money created by public spending and not yet withdrawn through taxes.

This means that the issuance of bonds does not create any new money. It simply changes the form of existing money, transforming bank reserves into government bonds. And when these bonds mature, the process is reversed: they become reserves again.

Public debt is therefore the accounting record of past deficits and constitutes the net financial wealth of the private sector. If the government spends more than it taxes, it automatically increases the net financial savings of households, businesses, and banks. A sector’s public deficit is always, by accounting identity, the private sector’s financial surplus.

This reality, although trivial in accounting terms, remains largely absent from public debate, where debt is perceived as a threat.

To conclude this section, this simple logic, according to which the state spends first, taxes next, and « borrows » to manage the accounting effects of its decisions, clearly describes the functioning of a sovereign state under a fiat currency regime.

But what about the specific case of France, a member of the Eurozone, which no longer directly controls its central bank and cannot legally be financed by it?

At first glance, this institutional architecture seems to invalidate the previous demonstration: the Treasury can only spend if its account at the Banque de France is sufficiently funded, which gives the impression that the state must « find » the necessary currency before acting.

Yet, as we will show, the currency used to enable the spending did not exist before the sequence it makes possible: the banks that purchase government securities use reserves created by the central bank. The process is therefore equivalent, in its real monetary effects, to a logic where the state spends first.

The difference lies in the institutional and accounting staging of this sequence, which gives the illusion of a prior financing constraint. This staging is what we call the « shell game, » and we will dismantle the mechanisms of this sequence in the following sections.

1.3 Treasury/Central Bank Consolidation as an Analytical Tool

To illustrate the « government spends first » logic, MMT economists use an analytical tool called Treasury and Central Bank balance sheet consolidation. This approach involves treating the government (the Treasury) and its central bank as a single entity: the « consolidated public sector. »

The Educational Use of Consolidation

The appeal of this method lies in its pedagogical clarity. By consolidating the two balance sheets, the internal transactions between the Treasury and the Central Bank cancel each other out, revealing the fundamental nature of the interactions between the public and private sectors.

Consolidation reveals that, from the perspective of the non-government sector, government deficit spending always results in an increase in its net financial assets. One government’s deficit is the other’s savings. This is the very essence of the sectoral balances approach.

Criticisms of Consolidation and How to Overcome Them

However, this approach is subject to legitimate criticism, especially when applied to non-sovereign systems like the eurozone:

• Legal and Institutional Criticism: The most obvious criticism is that, legally, the Treasury and the Central Bank are separate entities, with different mandates and operating rules. The European treaties were specifically designed to erect a « Chinese Wall » between the two. Consolidating their balance sheets amounts to ignoring this fundamental institutional reality.
• Criticism of Operational Relevance: Economic actors (banks, investors) do not react to the consolidated balance sheet (which is an analyst’s construct), but to actual transactions and the rules governing separate balance sheets. The constraints weighing on the Treasury (such as the overdraft ban) are real and influence its day-to-day behavior.

Faced with these criticisms, a rigorous analysis cannot be satisfied with consolidation alone. This is why this article, while keeping in mind the fundamental logic revealed by consolidation, will focus on an institutional analysis without consolidation. As advocated by authors such as Cesaratto (2016), it is necessary to « deconsolidate » and follow the real flows between actors step by step, respecting their institutional separation.

It is precisely by analyzing the transactions between the separate balance sheets of the French Treasury, the Banque de France, the ECB, and the commercial banks that we can reveal the circumvention mechanisms and the « shell game » that allow the system to function.

While consolidation is a useful guide for understanding the overall logic and the final destination, only a detailed, step-by-step institutional analysis can shed light on the actual process, with its political, legal, and technical constraints.

What consolidation reveals, therefore, is the accounting truth of the system: a public deficit spending always results in a net enrichment of the non-governmental sector. What it masks are the institutional and political rules that govern its progress. This is why, for our demonstration, we will now do what the system’s players do every day: we will scrupulously respect the separation of balance sheets and « deconsolidate » our analysis to follow the real path of the euro. This is the only way to highlight the complexity of the « shell game » designed precisely to obscure this simple accounting truth.

1.4 The « Shell Game »: Definition and Relevance for Systems with Self-Imposed or Supranational Constraints

The concept of  » Shell Game » is a metaphor we use to describe a set of coordinated financial practices and mechanisms that allow compliance with the letter of legal or regulatory constraints while circumventing their spirit or original objective. This is not fraud or illegality, but rather a clever use of institutional architecture to reconcile conflicting imperatives.

Definition of the Concept in Our Context

In the context of the fiscal-monetary nexus, the « shell game » game refers specifically to the sequence of operations involving the Treasury, intermediary commercial banks (primary dealers or SVTs in France), and the central bank, designed to give the appearance that the government is « financing itself on the markets » when, in reality, the central bank guarantees the process from start to finish.

The characteristics of this « game » are as follows:

• A formal constraint: There is a clear rule prohibiting direct action (e.g., « The central bank cannot lend directly to the government »).
• A mandatory intermediary: The system requires the transaction to be carried out through one or more private actors (banks).
• Upstream and downstream support from the central bank: The central bank ensures that the intermediary always has the necessary liquidity to carry out its part of the transaction (upstream support) and often intervenes subsequently to take over the assets initially acquired by the intermediary (downstream support).
• A final outcome identical to the prohibited action: At the end of the sequence, the economic outcome is virtually identical to what would have been obtained if direct action had been authorized.

Relevance to the Eurozone

This concept is particularly relevant for analyzing monetary systems like the Eurozone, where the rigidity of supranational constraints makes the « shell game » not just an operational choice, but a systemic necessity.

• The prohibition on direct monetary financing, enshrined in Article 123 of the TFEU, is the ultimate formal constraint. To comply with it, the system has institutionalized a precise choreography:
• The government issues its debt on the primary market, where only a few authorized banks can purchase it.
• The ECB, through its monetary policy operations, ensures that these banks never lack the liquidity to participate in auctions.

In addition, it can buy back part of this debt on the secondary market (QE, PEPP, APP). This step is not essential: before 2015, the system already functioned without QE, thanks to the refinancing of primary dealers by the Banque de France. QE simply reinforced a pre-existing mechanism by stabilizing interest rates and ensuring constant demand.

The primary market approach is therefore merely a formal detour, intended to assert that « the State finances itself from the markets » and that the prohibition of Article 123 is respected. In reality, the entire process is orchestrated and secured by the central bank.

The analysis of this « shell game » is therefore not a technical curiosity, but an essential tool for understanding the true nature of the fiscal-monetary nexus in the eurozone: a system that organizes the apparent dependence of states on markets whose functioning is permanently guaranteed by the central bank.

Part 2: Institutions and the Regulatory Framework of the Fiscal-Monetary Nexus in France

Before analyzing the various financial transactions, it is essential to present the key actors whose interaction constitutes the heart of the French fiscal-monetary system, as well as the regulatory framework that governs their actions.

2.1 Key Actors

Each institution plays a specific and defined role in the grand choreography of public finance.

Commercial banks and the non-bank private sector: They are the final recipients of public spending and the payers of taxes. Commercial banks manage the public’s deposit accounts and their own reserve accounts at the Banque de France, thus ensuring the interface between central bank money and the currency used by all.

The French Public Treasury (DG Trésor & DGFiP): This is the fiscal and budgetary « brain » of the State. The Directorate General of the Treasury (DG Trésor) participates in the development of economic policy, while the Directorate General of Public Finance (DGFiP) is the operational arm responsible for tax collection and the execution of public expenditure payments. The DGFiP manages the daily flows that credit and debit the State’s account.

Agence France Trésor (AFT): Created in 2001, the AFT is the department responsible for managing the State’s debt and treasury. Its role is twofold:

• Debt Management: It organizes auctions of State debt securities (OAT, BTF) on the primary market. Its objective is to place the debt under the best possible cost and security conditions.
• Treasury Management: It is responsible for the day-to-day management of the Single Treasury Account at the Banque de France. It is the bank responsible for ensuring that the balance of this account is always in credit at the end of the day, by balancing revenue and expenditure flows and using debt issuance to cover deficits.

The Banque de France (BdF): As the national central bank and member of the Eurosystem, the BdF plays a pivotal and ambivalent role:

• State Banker: It maintains the Treasury’s Single Account. It executes the government’s payment orders (expenditures) and receives funds from taxes and borrowings. It is the guardian of the no-overdraft rule.
• Eurosystem Operator: It is the ECB’s strong arm in France. It provides liquidity (reserves) to French commercial banks, implements monetary policy operations within its territory, and purchases French debt on behalf of the ECB as part of QE programs.

The European Central Bank (ECB): This is the architect of the eurozone’s monetary policy. Its Governing Council sets key interest rates, launches major monetary policy programs (such as LTROs or QE), and defines the regulatory framework within which all national central banks and commercial banks must operate. Its decisions are the cornerstone of the entire system.

Primary Dealers (SVT): These are a group of about fifteen financial institutions (major French and international banks) approved by the AFT. They have the privilege and obligation to participate in debt auctions on the primary market. They act as obligatory intermediaries between the government and the broader financial market. They are the key players in the « shell game. » This SVT status is not only a privilege (exclusive access to the primary market), but also a firm obligation: they undertake to submit competitive bids at each auction and thus guarantee that the State always places all of its securities. It is a true public-private partnership at the heart of State « financing ».

2.2 The French and European Legal and Regulatory Framework

The interactions between the actors described above are not left to chance; they are governed by a set of legal texts and operational rules that form the institutional architecture of the system.

At the European level (the supranational framework):

• The Treaty on the Functioning of the European Union (TFEU): This is the fundamental text. Its Article 123 is the cornerstone of our entire discussion: it formally prohibits the ECB and national central banks from granting overdrafts or any other type of credit to public institutions and from directly acquiring their debt instruments. Its Article 127 defines the main objective of the Eurosystem: price stability.
• The Stability and Growth Pact (SGP): This set of rules aims to coordinate national fiscal policies. It sets theoretical limits for the public deficit (3% of GDP) and public debt (60% of GDP). Although its rules have often been relaxed or suspended (notably via its general escape clause activated during the pandemic), it represents the « political constraint » weighing on states and can serve as a justification for ECB action (or inaction).
• The Eurosystem Monetary Policy Operational Framework: This is a set of highly detailed rules that define how the ECB and the NCBs interact with commercial banks. It specifies the conditions for refinancing operations (MRO, LTRO), the eligibility criteria for assets that can be provided as collateral, and the terms of asset purchase programs. It is this framework that makes the « shell game » technically possible.

At the French level (national transposition):

• The Monetary and Financial Code (CMF): This transposes European rules into French law. Its Article L. 141-3 is the national mirror of Article 123 of the TFEU, explicitly prohibiting the Banque de France from authorizing overdrafts or granting credits to the Public Treasury.
• The Organic Law on Finance Laws (LOLF): This 2001 framework law modernizes the management of the French State budget by establishing a performance and transparency framework. It governs the process by which expenditures are authorized by Parliament.
• The Agreement between the State and the Banque de France: This document specifies the technical arrangements for maintaining the Single Treasury Account. As shown in the document « The Banque de France, Banker of the State » (Flahaut & Dalibot, 2018), these agreements detail the banking services provided by the BdF and the conditions for their remuneration, scrupulously respecting the European framework.

This tangle of rules creates a two-tiered system. The European level imposes the major political and monetary constraints, while the national level organizes their operational implementation. It is in the interaction between these two levels that the subtleties that enable the system to function on a daily basis lie.

⤵️ The stage is now set. We have the theoretical concepts, we have identified the players—from the Treasury to the primary dealer banks—and we know the rules of the game, including the famous Article 123 of the TFEU, as well as the players themselves. Now it’s time to raise the curtain and watch the play unfold. This third part constitutes the heart of our demonstration: we will dive into the « engine room » and follow, with accounting entries to support it, the real circuit of the euro. This is where we will demonstrate, step by step, how the « shell game » allows the State to spend, by organizing the fiction of its own financing through the markets.

Part 3: Detailed Analysis of Budgetary and Monetary Operations in France

3.1 The French Public Spending Cycle: A Constrained Mechanism

The French public spending cycle, although initiated by a political decision of the State, is bound by a strict European legal framework that determines its operational implementation. Analysis of this cycle reveals a fundamental tension between the logic of creative spending and the self-imposed rules of the Eurozone.

The process begins with a budgetary authorization (LOLF) and is materialized by a payment order issued by the Public Treasury. This payment order is intended to credit the bank account of a private agent (household or business) and, in return, to debit the State’s account. The central operation takes place within the Banque de France, where the Single Treasury Account is held.

This is where the French and European specificity emerges. Unlike a monetarily autonomous state, which can have its central bank credit its accounts without regard to the prior balance of its own account, France is subject to the rules of the Treaty on the Functioning of the European Union (TFEU). As confirmed by a report by the Banque de France itself (Flahaut & Dalibot, 2018), Article 123 of the TFEU, transposed into French law, formally prohibits any overdraft or credit facility from the central bank to the State. The operational consequence, explicitly stated, is that « the Treasury account must therefore show a credit balance at the end of the day. »

This constraint is the linchpin of the entire system. While overdrafts during the day are technically possible, the Treasury has an absolute obligation to cover them before the accounts are closed. In practice, this means that in order to honor all of its net expenditures for the day, the Treasury must ensure that its account will be sufficiently funded at the time of final validation.

The crucial question therefore becomes: how is this account funded? The answer lies in a mandatory sequencing of operations: the State must first raise funds (via taxes or, for the remainder, via the issuance of securities on the financial markets) before it can spend. It is this mechanism that gives the illusion that the State is « financed » by taxes and the markets, like a household.

Figure 1: Public spending (purchase of a Rafale aircraft for €100 million)

Context: The State spends €100 million to purchase an aircraft from Dassault.

1. Before the spending

Public Treasury		Banque de France		Commercial Bank (Dassault)		Private Sector (Dassault)
Assets	Liabilities	Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
Treasury Single Account: €0		Reserves (Commercial Bank): X	Debt: …	Reserves	Deposits (Dassault): €0	Plane : 100M€

2. After the expenditure (the Treasury credits Dassault’s account)

Public Treasury		Banque de France		Commercial Bank (Dassault)		Private Sector (Dassault)
Assets	Liabilities	Assets	Liabilities	Assets	Liabilities	Assets
Treasury Single Account: -100M€	Debt (OAT): 0€	Reserves (Commercial Bank): 100M€	Debt: …	Reserves: +100M€	Deposits (Dassault): +100M€	Aircraft (sold): 0€

3.2 Tax Revenue Collection: The Flow of Money Back to the State

The collection of taxes and duties is the primary means by which the Single Treasury Account is funded. From the perspective of MMT, taxation is not a priori « financing » but a monetary withdrawal. It is an operation that destroys the private sector’s net money (by reducing bank deposits and reserves) while crediting the State’s account.

The operational mechanism is the inverse of public spending.

• Payment Order: A private agent (household or business) must pay their tax. They issue a payment order (by direct debit, transfer, etc.) to their commercial bank in favor of the Public Treasury.
• Interbank Transaction: The taxpayer’s commercial bank debits its client’s deposit account. To finalize the transaction, it must transfer funds to the government’s « banker, » i.e., the Banque de France.
• Settlement in Central Bank Money: The transaction is settled via the interbank payment system (TARGET2 in Europe). The commercial bank’s own reserve account at the Banque de France is debited with the tax amount. Simultaneously, the Banque de France credits the Single Treasury Account with the same amount.

Figure 2: Tax Revenue (Payment of a €100M Tax)

Context: A taxpayer pays €100M in tax.

1. Before the tax payment

Public Treasury		Banque de France		Commercial Bank		Taxpayer (Private Sector)
Assets	Liabilities	Assets	Liabilities	Assets	Liabilities	Assets
Treasury Single Account: 0€		Reserves (Commercial Bank)	Debt: …	Reserves	Deposits (Taxpayer): 100M€	Bank Deposits: 100M€

2. After paying the tax

Public Treasury		Banque de France		Commercial Bank		Taxpayer (Private Sector)
Assets	Liabilities	Assets	Liabilities	Assets	Liabilities	Assets
Treasury Single Account: +100M€		Reserves: -100M€	Debt: …	Reserves: -100M€	Deposits (Taxpayer): 0€	Bank Deposits: 0€

The net result is clear:

• For the private sector, money has been « destroyed. » Taxpayers have fewer deposits, and the banking system has fewer reserves.
• For the government, its account at the central bank (the Single Treasury Account) is now credited. It has positive balances that it can use for future spending.

This tax collection operation perfectly illustrates the dual role of taxes. On the one hand, it acts as a macroeconomic lever by removing purchasing power from the private sector, which is essential for regulating inflation and giving value to money (by creating an obligation to obtain it in order to pay taxes). On the other hand, within the restrictive framework of the eurozone, it fulfills an accounting provisioning function. By crediting the Single Treasury Account, it allows the government to comply with the non-negative balance rule and « recharge » its spending capacity.

However, tax revenues are rarely sufficient and synchronized to cover all public spending. This is the budget deficit, which must also be covered by a prior credit from the Single Treasury Account. This inevitably brings us to the mechanism of issuing public debt.

3.3 Issuing Government Securities: The Institutionalized « Shell Game »

When tax revenues are insufficient to cover planned expenditures, the French government must cover the difference—the deficit—to maintain the balance of its Single Treasury Account. In accordance with the European framework, it does this by issuing debt securities (OATs, BTFs) on the so-called « primary » market. This process, presented as « financing » the government through the markets, is in reality a sophisticated « shell game, » a perfectly coordinated choreography between the Treasury, the banks, and the Central Bank.

Step 1: The Auction

Agence France Trésor (AFT) announces a securities auction. A select group of financial institutions, the Primary Dealers (SVTs), are the only ones authorized to purchase these securities directly from the government. They commit to purchasing a certain volume of securities.

Step 2: The False Problem of Bank « Funding »

To purchase these securities, primary dealers must pay the government. This means they must transfer central bank reserves to the Treasury’s Single Account. The orthodox question would be: « Where do banks find this money? » The answer reveals the nature of the game:

• Past government spending: The primary source of reserves in the system is government spending itself. Past deficits have injected a stock of reserves into the banking system. Issuing bonds therefore acts largely as an operation to absorb these excess reserves, « draining » them from the system in exchange for an interest-bearing asset (the bond).
• Monetary policy operations and the closed collateral loop: If the existing stock of reserves is insufficient, a primary dealer bank can very easily obtain the necessary funds from the Banque de France, via the Eurosystem’s weekly refinancing operations (MRO). This is not a simple loan, but a repo transaction, in which the bank provides assets as collateral to obtain liquidity.

The process is all the more closed and self-fulfilling since the government securities (OATs) that the primary dealers already own constitute the prime collateral that the Banque de France accepts as security to create the new reserves. In other words, the government’s past debt serves as collateral to create the money that can be used to purchase the new government debt. This mechanism ensures that there is never any risk of the primary dealers running out of money to purchase the debt. Liquidity is endogenous to the system, provided on demand by the central bank against high-quality collateral, of which French government securities are the archetype.

Step 3: Settlement of the Transaction and Crediting of the Treasury Single Account

On the day of settlement:

1. The primary dealer banks have their reserve accounts at the Banque de France debited.
2. The Treasury Single Account is credited with the same amount.

Figure 3: Issuance of OATs on the primary market (€100 million)

Context: The Treasury issues €100 million in OATs, purchased by a primary dealer (SVT) (authorized commercial bank).

1. Before the issue

Public Treasury		Banque de France		Primary Dealer (Commercial Bank)
Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
Treasury Single Account: 0€	Government Bonds(OAT): 0€	Reserves (SVT)	Debt: …	Reserves at Banque de France: …	Customer Deposits: …

2. The Bank of France lends reserves to the SVT (€100M)

Public Treasury		Banque de France		Primary Dealer (Commercial Bank)
Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
Treasury Single Account: 0€	Government Bonds (OAT): 0€	Loans to Primary Dealer: +100M€	Debt: …	Reserves:+100M€	Customer Deposits: …

3. SVT buys OATs (€100M)

Public Treasury		Banque de France		Primary Dealer (Commercial Bank)
Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
Treasury Single Account: +100M€	Government Bonds (OAT): +100M€	Loans to Primary Dealer: +100M€	Debt: …	OAT: +100M€	Reserves

The Single Treasury Account is now funded with the proceeds of the loan. The State has complied with the letter of Article 123: it did not obtain financing directly from the BdF, but from « the markets. » It can now proceed with its expenditures by debiting this credit balance.

3.4 Interaction in the Secondary Market: Between Bank Refinancing and Secondary Market Support

The « shell game » is not limited to primary market operations; the ECB’s role as the ultimate guarantor of liquidity and stability in the sovereign debt market is also manifest, and dramatically, in the secondary market. Although the fundamental mechanism of this process can operate without massive ECB intervention in this market, asset purchase programs (Quantitative Easing, QE) have explicitly and massively accentuated this support role. This is where the fiction of « market financing » is revealed in its most transparent light, exposing the fundamental supporting role of the Eurosystem.

Article 123 of the TFEU prohibits the purchase of debt directly from the government (primary market). However, it is silent on the purchase of this same debt a few days, weeks, or months later from the banks that originally acquired it (secondary market). It is this crucial legal distinction that is exploited on a large scale through asset purchase programs.

The Purchase Program Mechanism (APP, PEPP, etc.)

1. Sale on the Secondary Market: A primary dealer bank, which has purchased OATs at an auction, can resell them on the market at any time.
2. Central Buyer: The ECB, acting through the Banque de France for French debt, acquires these OATs on the secondary market.
3. The Regulation: To pay for these securities, the Banque de France credits the reserve account of the selling primary dealer bank. This creation of reserves is done ex nihilo, through a simple series of entries.

The impact on the balance sheets is revealing:

Figure 4: QE (Security Repurchases by the ECB on the Secondary Market)

Context: The ECB (via the Banque de France) repurchases €100 million of OATs from a primary dealer bank.

1. Before the Repurchase

Banque de France (for ECB)		Primary Dealer (Commercial Bank)
Assets	Liabilities	Assets	Liabilities
Reserves (Primary Dealer): X	Debt: …	OAT: 100M€	Reserves

2. After the buyout

Banque de France (for ECB)		Primary Dealer (Commercial Bank)
Assets	Liabilities	Assets	Liabilities
OAT: +100M€	Reserves (SVT): +100M€	OAT: 0€	Reserves at Banque de France: +100M€

The consequences of this transaction are fundamental:

• De facto « monetization« : The French government’s debt, initially held by a private bank, becomes an asset of the central bank. Central bank money (reserves) was created to finalize this transaction. This is an indirect « monetization » of the public debt, perfectly legal under the treaties.
• Abolition of « Market Discipline »: The argument that markets impose high interest rates on an overspending government loses all relevance. By acting as a massive, price-insensitive buyer, the ECB guarantees that there will always be demand for French debt, thus keeping interest rates at very low levels. Primary dealers buy on the primary market without risk, knowing that they will be able to resell to the central bank on the secondary market.
• Closing the Liquidity Loop: The reserves that banks used to purchase debt on the primary market are returned to them (and even beyond) when the central bank repurchases these securities. Liquidity never truly leaves the banking system; it is simply temporarily transformed.

In conclusion, the coordinated interaction between the AFT (which issues the debt), the primary dealers (which buy it knowing they can resell it), and the ECB/BdF (which repurchases it by creating reserves) forms a closed and self-validating loop. The Banque de France, as the operator of ECB policy, plays a key role in this choreography.

The real limit to the « financing » of the French state is therefore not technical or financial, but purely political: it lies in the ECB Governing Council’s determination to continue or not these purchase programs.

However, it is important to clarify that while ECB interventions in the secondary market (such as asset purchase programs) play a role in stabilizing interest rates, they are not necessary for the initial financing of public spending. As Tables 1 and 2 illustrate, the Banque de France already provides the required reserves to primary dealers through refinancing operations, which is sufficient to ensure that the state can always meet its payments. The secondary market is therefore only a complementary mechanism, which strengthens the liquidity of the system without being its foundation.

3.5 Practical Case: The Complete Procurement Cycle of a Rafale (€100M)

Having detailed the mechanisms of the fiscal-monetary nexus separately, it is now crucial to bring them together to reveal the full extent of the institutionalized « shell game. » To do this, and drawing inspiration from the methodology of Sergio Cesaratto (2016) and Dirk Ehnts (2021), we will use stylized accounting diagrams, or « T-accounts. » This visual tool will allow us to trace step by step the complete financial cycle of public spending, from the issuance of the currency to final payment.

We will illustrate this process concretely with a practical case: the purchase by the French government of a Rafale aircraft, for a hypothetical value of €100 million. This demonstration will be conducted in two stages:

1. First, a « consolidated » version of the public sector (Treasury and Banque de France considered as a single entity) to highlight the fundamental economic logic, i.e., the net effect of spending on the entire economy.
2. Second, a « non-consolidated » version that scrupulously respects the institutional separation between the Treasury and the Banque de France, thus revealing the complex intermediate steps and the circumvention mechanisms at work.

The objective will be to prove that, despite the apparent complexity of the « shell game » and the institutional detours, the final economic result of the two approaches is identical, confirming the nature of public spending as the primary act of money creation.

Table 1 : Consolidated Version (Public Sector = Treasury + Banque de France)

Table 2: Non-Consolidated Version (Treasury and Bank of France separate)

A cross-examination of these two tables is essential: it deconstructs the myth of « financing » by revealing the true nature of public spending in the eurozone and shedding light on the real function of the « shell game. » It highlights two fundamental conclusions:

1. The « shell game » is a functionally useless institutional detour, but it does not change the net economic outcome of public spending. As Cesaratto (2016) and Ehnts (2021) point out for similar contexts, the state functionally spends first, even under the constraints of the eurozone. To be convinced of this, simply analyze the « Final Position » lines of each external public sector actor in the two tables. Despite the complexity of the intermediary transactions and the formal separation of the balance sheets of the Treasury and the Banque de France (Table 2)—necessary to comply with the letter of Article 123 of the TFEU—the net financial position of the private sector (Dassault) is strictly identical to that observed in the consolidated version (Table 1). The State acquired an aircraft, the counterpart being a €100 million debt; the private sector (Dassault) exchanged its asset for €100 million in net financial assets (the OATs). This detour via the banks in no way alters the underlying reality: the State deficit mechanically generated the net financial savings of the private sector. The « mistakes » (Ehnts, 2021) should therefore not distract us from this fundamental observation.
2. It is the Banque de France, as operator of the Eurosystem, that makes State spending possible in the eurozone. Focusing on Table 2, which respects the institutional separation, we identify the trigger: Operation A. This involves the loan of reserves from the Banque de France to the SVT bank1. Without this ex nihilo monetary creation by the central bank, none of the following steps would be possible: the SVT bank would not have the funds to acquire the bonds, the State’s account would not be credited, and the expenditure would be blocked. It is therefore the central bank, as a monopoly on the creation of central money and the operational component of the Eurosystem, which provides the initial liquidity essential to the triggering and proper functioning of this circuit, it being specified that it should not be forgotten that the reserves also come, more fundamentally, from public expenditure itself, which constitutes its primary source. The obligation for the Single Treasury Account to have a positive balance at the end of each day is therefore not a technical constraint, but a political and conventional constraint (Ehnts, 2021), which the system itself is organized to fulfill.

The reader might wonder why, at the end of the process, the private sector holds a claim on the state, which is akin to a « loan. » However, the « film » of the transactions shows that the private sector was only able to acquire this claim with the currency that the state’s spending process itself initiated and injected into the economy. It did not « lent » its pre-existing savings to the state; rather, it converted the currency it received from the state into a form of interest-bearing savings. The « constraint » weighing on the state is therefore not a financial impossibility, but a simple accounting procedure that must be followed, a procedure that the system itself is intrinsically organized to enable and facilitate.

Ultimately, Tables 1 and 2 reveal a simple truth: in the eurozone, the state does not need to « find money » to spend. It creates it, and the markets merely play supporting roles in a play written by the central bank.

⤵️ The technical and accounting demonstration is complete. We have seen how money is created on demand by the central bank, how it passes through obligatory intermediaries, and how public spending can thus take place. The « shell game » is no longer a mere metaphor, but a proven operational reality. But this dive into the system’s plumbing is not an end in itself. On the contrary, it opens the door to fundamental questions. If financing constraints are a fiction, what are the true limits of state action? Where is the real lock on the system? And what are the profound implications of such an observation for our understanding of debt and democracy? This fourth part aims to draw the analytical and political conclusions from our analysis.

Part 4: Discussion: The French Fiscal-Monetary Nexus in Light of Facts and Theory

After detailing the technical and operational functioning of the French fiscal-monetary system in the previous section, this fourth section now sets out to draw analytical conclusions and discuss their implications. The aim is no longer to describe the ‘how’, but to interpret these facts in light of our initial research in order to answer the major questions about the nature of public spending, the reality of financing constraints, and the myths surrounding debt in France.

4.1 France: A State That Spends First, Even in the Eurozone?

The detailed institutional analysis of the French fiscal-monetary system leads us to a nuanced but clear conclusion. To the question « Does the French State spend first? », the answer is not a simple « yes » as for a fully sovereign state, but a « functionally yes, » through coordination mechanisms that make the « Expenditure THEN Financing » sequence possible, although the accounting chronology is reversed.

The facts are as follows:

1. A formal balance constraint: The French State is legally required to present a credit balance on its Single Treasury Account at the end of the day. It therefore cannot, technically, spend by simply debiting its account at the Banque de France. The formal chronology is therefore « Revenue (tax or loan) THEN Expenditure. »
2. A system designed to never fail: However, the system is entirely structured to ensure that the Single Treasury Account is always replenished upstream. The liquidity required for the purchase of public debt by Primary Dealers (SVT) is ensured either by past public spending or by the unlimited provision of reserves by the Banque de France against the very collateral issued by the government.
3. Ultimate support in the secondary market: As a last resort, the ECB’s asset purchase programs (via the BdF) guarantee near-infinite demand for public debt, which keeps rates low and ensures the success of auctions. The central bank acts de facto as a « dealer of last resort, » guaranteeing liquidity in the sovereign debt market.

The credit balance constraint is therefore not a fundamental limit on spending capacity, but an operational convention. The government does not technically spend first, but it has the absolute certainty of being able to obtain the funds to do so. The sequence is a choreography where spending is the primary intention that sets in motion the entire « financing » process intended to validate it in the accounts.

In this sense, the French state, supported by the Eurosystem, initiates the economic sequence, even if it must comply with a reverse accounting sequence. « Creative spending » does indeed take place, but it is mediated by the « shell game » of bond issuance. The state’s spending capacity is not constrained by the will of the « markets, » but by the political will of the ECB to keep this system functional.

4.2 The « Fiction » of Financing Constraints for France

The preceding institutional analysis demonstrates that the public and political discourse on the « financing » of the French state is based on a carefully cultivated fiction. The constraints presented as insurmountable barriers—the prohibition of direct financing and the obligation to « seek money on the markets »—are in reality operational conventions that are apparently respected, but rendered meaningless by the system’s own circumvention mechanisms.

1. The prohibition of direct financing: a constraint of form, not substance. Article 123 of the TFEU is scrupulously respected in its letter: the Banque de France does not purchase government debt on the primary market. However, this rule is functionally nullified by the same central bank’s ability to repurchase this debt a few moments later on the secondary market. The end result is identical to direct financing: the public debt ends up on the central bank’s balance sheet, and central bank money is created in return. The transition through the primary market is merely a formal detour, a « legal veil » that preserves appearances without changing the economic reality.
2. The positive balance requirement: a sequencing rule, not a capacity limit. The need for the Treasury to fund its account before spending is not a limit on its spending capacity. It is a simple accounting sequencing rule. The monetary and financial system is organized in such a way that this provision is always available, because the central bank, as a monopoly on reserve issuance, ensures that intermediaries (primary dealers) always have the necessary liquidity. The « market » does not finance the government; it serves as an intermediary in an operation whose beginning and end are controlled by the central bank.

The « shell game » is therefore not cheating or a flaw in the system. It is the system itself. It is designed to reconcile two contradictory imperatives: on the one hand, the ideology enshrined in the treaties of a state disciplined by the markets; on the other, the practical necessity for a modern state to always be able to honor its payments and stabilize the economy.

In conclusion, the notion of a France constrained by a « wall of money » or at the mercy of « market whims » is a fiction. As long as the ECB commits, even indirectly, to guaranteeing the liquidity of the sovereign debt market, the only real financing constraint is political: the ECB’s decision to continue playing its role. Technical and financial constraints are, for the most part, an illusion.

4.3 Identifying the Real Block on the System

Having demonstrated that the commonly cited financing constraints are an operational fiction, a crucial question remains: is the system truly limitless? If the ‘wall of money’ does not exist, where is the real potential breaking point, the ‘blockage’ that could transform conventions into real constraints? This section aims to identify the nature of the real blockages weighing on the French state, examining successively the role of the markets, fiscal rules, and, ultimately, the European Central Bank.

1. Where is the potential « blockage »? Is it the ECB?

Yes, unequivocally. The potential blockage for France lies neither at the technical level nor at the primary market level, but lies entirely in the political will of the ECB Governing Council. The analysis demonstrates that the entire edifice of the French state’s « financing » relies on the implicit and explicit support of the Eurosystem. This support manifests itself at three levels:

• The provision of liquidity to primary dealers for auctions.
• The acceptance of government securities as prime collateral.
• And above all, secondary market purchase programs (QE) and anti-fragmentation instruments (such as the Transmission Protection Instrument (TPI).

If the ECB decided, for political reasons (for example, to put pressure on a government deemed lax), to withdraw this support, the « shell game » would collapse. The markets, deprived of their buyer of last resort, would demand much higher interest rates, transforming the fiction of market discipline into a harsh reality. The sovereign debt crisis of 2011-2012, before Mario Draghi’s « whatever it takes » approach, is the perfect illustration of this scenario. The blockage is therefore political, not economic.

2. Does the blockage come from fiscal rules?

Partially, and indirectly. European fiscal rules (Stability and Growth Pact) do not directly block the spending mechanism. The French government can technically still issue debt to finance a deficit, even if it violates the rules. However, these rules constitute the political leverage that could justify a decision by the ECB to withdraw its support. A blatant and prolonged non-compliance with the fiscal framework could serve as a pretext for the Governing Council to reduce or halt its purchase programs for French debt, thus triggering the « blockage » described above. Fiscal rules are therefore less a technical constraint than a political sword of Damocles hanging over the ECB.

3. Does the blockage come from the markets (if the ECB does not intervene)?

Yes, but it is a consequence, not a primary cause. If the ECB ceases to intervene, the financial markets effectively become the blocking point. Without the ECB’s guarantee, private investors would reassess the risk of French debt, not based on France’s economic capacity to repay, but on the liquidity and refinancing risk within a monetary union without an explicit lender of last resort. The market then acts as a simple transmission mechanism for the ECB’s political decision (or indecision).

In summary, in the French case, the ultimate « blockage » is singular and clearly identified: it is the ECB’s discretionary decision. France’s monetary sovereignty is, ultimately, dependent on the political goodwill of the Frankfurt-based institution.

4.4 Implications for Understanding Public Debt and the Capacities of the French State

A detailed analysis of the fiscal-monetary nexus in France is not a mere technical exercise; it has profound implications for how we should think about public debt, the role of the state, and the true limits of its action.

1. Refuting Common Myths:

Our demonstration invalidates the most common analogies and narratives that pollute public debate:

• The « household » myth: The state is not a household that must first earn money in order to spend it. Although it is subject to an accounting sequencing constraint, it is at the heart of a system that guarantees its ability to finance itself, because it operates with the support of the creator of money.
• The « burden on future generations » myth: Public debt is not a « burden » in the sense of private debt. It is, to the nearest cent, a financial asset (wealth) for those who hold it (the domestic and foreign private sectors). The real issue is not the amount of the debt, but its distribution and the interest flows it generates.
• The myth of « bankruptcy »: A state like France, supported by its central bank (via the Eurosystem), cannot go bankrupt on debt issued in the currency that this same central bank can create without limit. The risk is not solvency, but the ECB’s political will to prevent a liquidity crisis.

2. Redefining the true limits of government action:

While financial constraints are largely a fiction, this does not mean that the government’s capacity is unlimited. This requires us to shift the debate from abstract financial figures to real and relevant limits:

• Real resources: The true limit to public spending is the economy’s capacity to produce goods and services. Excessive public spending in the face of constrained productive capacity (shortages of skilled labor, raw materials, industrial capacity) will not create more wealth, but will only create inflation. This is the fundamental economic constraint. Full employment?
• Political and institutional constraints: As we have seen, the most immediate and severe limit for France is the European political and regulatory framework. The ECB’s will and compliance with (or reform of) treaties and fiscal pacts are the real obstacles that curb the autonomy of French fiscal policy.

In conclusion, understanding how the fiscal-monetary nexus truly works is an act of intellectual emancipation. It allows us to discard false problems (e.g., how to « finance » the ecological transition?) and focus on the real issues (e.g., how to organize our productive capacity to achieve the ecological transition without generating excessive inflation, and how to evolve the European political framework to enable this mobilization?). The discussion should not focus on the sustainability of debt, but on the sustainability of our production and consumption model.

4.5 Comparison with Other Countries

To fully understand the nature of the French fiscal-monetary nexus, a brief comparison with other major countries is illuminating. It allows us to situate France on a spectrum ranging from full monetary sovereignty to integration into a supranational system.

• The United States: The Model of Monetary Sovereignty The US Treasury maintains its main account (the Treasury General Account) at the Federal Reserve (the Fed). Unlike in the Eurozone, there is no equivalent to Article 123 of the TFEU prohibiting direct financing. Although the US Treasury operates, by convention, through an auction system with primary dealers, this procedure is an operational choice rather than a legal constraint. As MMT emphasizes, rules such as the debt ceiling or the Fed’s prohibition on directly purchasing Treasury debt are self-imposed constraints, inherited from the gold standard era. They no longer have any technical justification in a fiat currency system, but persist for ideological reasons. The Fed’s support is explicit and politically uncontested: no one doubts that it will always ensure that the Treasury can honor its payments. The massive use of Quantitative Easing (QE) after 2008 has also demonstrated that the Fed can, in practice, « monetize » public debt by purchasing securities on the secondary market, which amounts to indirect financing. Thus, the American « shell game, » while still present, remains a political choice and not a legal necessity.
• The United Kingdom: Sovereignty with its own tools. The United Kingdom, with its own currency and Bank of England, is also monetarily sovereign. Its distinctive feature is the existence of a historic facility, the Ways and Means Facility, which functions as an overdraft line for the government with its central bank. Although its use is regulated and politically sensitive, it has been activated during crises (such as in 2008 or during the COVID-19 pandemic), proving that « direct financing, » taboo in the eurozone, is a tool available to sovereign states. The United Kingdom thus illustrates that a state can equip itself with more direct tools than « shell game » to manage its cash flow, as long as it retains control of its currency.
• Germany: The Institutional Twin. Perhaps the most relevant comparison is with Germany. As a member of the eurozone, Germany is subject to exactly the same rules and mechanisms as France: its Treasury has an account at the Bundesbank, it cannot be overdrawn, and it must issue its debt (Bunds) through auctions. The Bundesbank acts as the ECB’s operator for secondary market purchase programs. Yet the dramatic differences between France and Germany in terms of debt levels, market perceptions, and political discourse do not stem from a difference in « monetary plumbing, » but from political and strategic choices made over several decades (wage moderation, trade surpluses, a culture of ordoliberalism). Germany thus benefits from a confidence premium in the markets, largely due to its reputation for fiscal orthodoxy. This asymmetry shows that the « constraints » of the eurozone are less linked to monetary mechanics than to political perceptions and the will of the ECB. In other words, the monetary sovereignty delegated to the ECB is exercised in a discretionary manner, which creates inequalities between member states.

This brief comparison reinforces our analysis: the French system is a hybrid. It lacks the flexibility of a fully sovereign state like the United States or the United Kingdom, but it benefits, like Germany, from central bank support that protects it from pure financing constraints. Its situation is that of all members of the Eurozone, where monetary sovereignty has been delegated to a political entity, the ECB, which uses it at its discretion. Ultimately, international comparison confirms that the constraints weighing on France are not technical, but stem from a political choice: that of maintaining an institutional framework that limits the monetary sovereignty of Member States in favor of supranational governance. Whether in the United States, the United Kingdom, or the Eurozone, the State’s capacity to spend is always guaranteed by its central bank, but the terms of this guarantee vary according to the degree of monetary sovereignty and the ideological choices in force.

Conclusion

Analysis of the fiscal-monetary nexus in France reveals a truth that is difficult to ignore: the issuance of securities is not a financing mechanism, but a device of deception. It gives the appearance of a financial constraint weighing on the State, when in reality, all public spending relies on publicly generated monetary creation, made possible by coordination between the Treasury and the central bank.

Institutional operations, far from being neutral, are carefully organized to simulate the need for prior market financing, while commercial banks operate only with reserves provided by the public authorities themselves. The reality is therefore reversed: it is not the issuance of securities that allows the State to spend; it is State spending that, in practice, triggers the monetary mechanisms necessary for their purchase.

What we have described as a « shell game » must now be called what it is: an institutionalized mystification, a staged game designed to convince citizens that their government is constrained, that it must « find money » before acting, that it is at the mercy of the markets.

By concealing the fact that the state is always the source of the money it spends, this system undermines the very foundations of democracy. It prevents a clear-eyed debate on collective choices, diverts criticism toward supposedly uncontrollable « excessive spending, » and justifies austerity policies in the name of a purely fictitious monetary scarcity.

Restoring the truth about how the fiscal-monetary nexus works means restoring democracy to its true purpose: deliberation on the use of resources that the state can always mobilize, as long as it so decides. It means breaking free from the voluntary servitude imposed by an ideological architecture disguised as technology. And, above all, it means rearming public power in the face of the social, ecological and democratic challenges of our time.

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References

Articles and Academic Works

• Cesaratto, S. (2016). The state spends first: Logic, facts, fictions. The Levy Economics Institute, Working Paper No. 871.
• Ehnts, Dirk H., 2020. « The fiscal-monetary nexus in Germany, » IPE Working Papers 138/2020, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
• Mosler, W. (1996). Soft currency economics ; https://mmt-france.org/2021/10/17/soft-currency-economics-preface-il-y-a-vingt-ans-une-epiphanie-italienne/
• Mosler, W. (2010). Seven Deadly Innocent Frauds of Economic Policy. Valance Co., Inc. https://mmt-france.org/2021/07/31/les-7-escroqueries-innocentes-et-mortelles-de-politique-economique-avant-propos/
• Mosler, W. (2019). La monnaie en tant que monopole public
• Tymoigne, É., & Wray, L. R. (2013). Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems. The Levy Economics Institute of Bard College.
• Wray, L. R. (2015). Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems (Second Edition). Palgrave Macmillan.

Institutional Publications and Reports

• Armstrong, P. (2019) : Une perspective MMT sur l’espace de politique macroéconomique
• Bessette, F. (2011, 3 mars). Le Compte Unique du Trésor: une idée révolutionnaire… en 1806 ! Public financial management blog.
• Dalibot, V., & Flahaut, L. (2018). La Banque de France, banquier de l’État. Gestion & Finances Publiques, N°4-2018, 5-12.
• MMT France. Les soldes financiers sectoriels. Consulté sur https://mmt-france.org/les-soldes-financiers-sectoriels/

Legal and Regulatory Texts

• Treaty on the Functioning of the European Union (TFEU), Consolidated version, Official Journal of the European Union C 326/47, in particular Articles 123 and 127.
• Code Monétaire et Financier, notably the article L. 141-3.
• Loi Organique n° 2001-692 du 1er août 2001 relative aux lois de finances (LOLF).
• Stability and Growth Pact (SGP), Council of the European Union, 1997.

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Notes

1. Sources Banque de France :

• https://www.banque-france.fr/fr/strategie-monetaire/cadre-operationnel/programmes-achat-actifs
• https://finance-heros.fr/collateral/
• https://publications.banque-france.fr/la-strategie-de-collateral-de-politique-monetaire-lepreuve-de-la-crise-covid-19

2. Some might argue that primary dealers rely on reserves created by the ECB’s Quantitative Easing (QE) to purchase OATs. However, as Table 2 shows, the Banque de France directly lends them the necessary reserves through refinancing operations. While QE facilitates the process by maintaining a high stock of liquidity, it is not essential: the central bank can always create reserves ex nihilo to enable the purchase of OATs, as it did before 2015 (via LTROs) or as it would in the event of a crisis. The real constraint is therefore not technical, but political: everything depends on the ECB’s willingness to maintain its support for primary dealers.

3. Warren Mosler : https://moslereconomics.com/wp-content/uploads/2020/11/Seven-Deadly-Innocent-Frauds-of-Warren-Mosler.pdf

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Illustration : https://www.paperblog.fr/1561441/le-joueur-de-bonneteau/