PARIS (Reuters) – Overly flexible budgetary policies risk fueling inflation and undermining the European Central Bank’s (ECB) fight against rising prices, Bank of France Governor François Villeroy warned on Friday from Galhau.
The ECB raised its main interest rate to a record 4% on Thursday while signaling the likely end of its monetary tightening cycle as inflation slows with economic activity deteriorating.
Speaking at a conference in Spain, François Villeroy de Galhau declined to comment on the ECB’s decision while urging governments not to complicate the central bank’s task of bringing inflation back to normal. its objective of 2% by 2025.
“Governments must avoid overly expansionary policy that would further fuel inflationary pressures. We therefore need a better coordinated and realigned fiscal and monetary stance,” he said.
A reform of the Stability and Growth Pact, which sets budgetary rules for European Union countries but is considered too complex and is poorly respected, would be a welcome step in this direction, added François Villeroy de Galhau.
A review of EU budgetary rules is underway and an agreement is expected by the end of the year, but Germany is reluctant over demands from other member countries to implement greater flexibility in the material.
(Reporting by Leigh Thomas; Blandine Hénault for the French version, edited by Jean-Stéphane Brosse)
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