The Governor of the Banque de France invites France and Europe to reconnect with ambition

The governor of the Bank of France invites France and Europe “to reconnect with longer-term ambition”, now that the recent crises have practically passed.

The letter that Franois Villeroy de Galhau addresses each year to the President of the Republic and to the Presidents of the Senate and the National Assembly, published Sunday evening, this time coincides with the 25th anniversary of Monetary Union and the European elections in June.

If the two previous editions were devoted to inflation, this one is entitled: France and Europe: from crisis management to longer-term ambition.

While the cumulative growth of GDP per capita in the euro zone has been 25% since 1999, compared to 38% in the United States, the governor believes that, to make up for this delay, we must now succeed in the transformations of the future, in matters of employment and digital and climate transitions.

To do this, it is necessary to control deficits and public debt, which is essential first of all for France, he emphasizes, which is one of the EU’s bad students with a deep deficit 5.5 % of GDP last year.

But it is all of Europe that must recreate margins to finance additional spending linked to transformations, or defense, according to the governor.

On this condition, the creation of a common budgetary capacity would be an additional asset for Europeans, he argues.

For the governor, we must also deepen the single market to aim to make it as attractive as the American market.

In this regard, he welcomes the report submitted last week to the European summit by former Italian Prime Minister Enrico Letta, which could help Europe gain several growth points, in particular through its recommendation to mobilize the 300 billion annual surpluses of the European private savings to finance green and digital investments.

France and Europe today doubt their economic future, but self-flagellation and every man for himself are in no way a vector of economic dynamism, warns the governor.

Especially since the credible action of central banks during the inflationary crisis favored a soft landing for the economy, soon to be comforted, he has been emphasizing for several weeks, by a first rate cut from the ECB in June. Barring new political shocks, 2025 should see the return of inflation to 2% and mark the resumption of growth, in France as in Europe, he estimates.

In an interview with Les Echos published on Sunday evening, Mr. Villeroy de Galhau remarks that France’s specific problem is that the same social model – in which I believe – costs us significantly more than other European countries.

The objective, according to him, should be to finally stabilize public spending in volume, an effort which could be favored by the monetary easing which is coming.

He is waiting to see the composition of the savings plans announced by the government for 2024 and 2025. Good qualitative choices can limit the restrictive effect on activity, he believes.

While the government refuses general tax increases to make up the deficit, the governor believes that in fact, taxation is not a central element of the solution, but (that) it should not be excluded as a complementary measure target tax measures.

France does not have the means to make further unfinanced tax cuts, he declares, considering it possible to broaden the base of certain taxes on households and businesses, and to review certain taxes without taboo. niches.

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