An increase of one percentage point in interest rates would cost “after ten years 39 billion euros per year” to French public finances, warned Tuesday the governor of the Banque de France (BdF), François Villeroy de Galhau.
However, such an increase, which represents the equivalent of the Defense budget “is not an extreme scenario, on the contrary”, according to the governor who has not set a time horizon for an increase in the rent of the silver. Last month, the President of the European Central Bank (ECB) Christine Lagarde assured that a rate hike was “very unlikely in 2022”, but in the United States, the Fed should start in March to raise its rates. key rates to try to curb inflation, which reached 7% in the United States in 2021.
In the euro zone, the rise in consumer prices rose to 5% over one year in December. This rate should, according to the Banque de France, come down by the end of 2022, to less than 2% for France, but “if inflation were to prove more persistent, have no doubt that we, Eurosystem and ECB Governing Council will have the will and the ability to adapt our monetary policy more quickly,” declared François Villeroy de Galhau to students at the University of Paris-Dauphine.
A “simple stabilization” of the debt “is not sustainable”
In view of a rate hike, the governor asserts that a “simple stabilization” of the public debt “is not sustainable” in France, “because it would be irresponsible to bet on the maintenance of the extremely favorable level interest rates today. But “public debate today sees an increase in proposals for new spending or additional tax cuts,” he added.
To reduce the level of public debt to below 100% of GDP in ten years, against around 115% today, the governor is counting on growth and on “better efficiency and control of our public expenditure”. François Villeroy de Galhau says he is convinced that the modernization of the public service “is not incompatible with its capacity for performance and innovation”. He assures that it “is therefore not a question of reducing public expenditure overall, but of tending towards their stabilization” by limiting their growth in volume to 0.5% per year “at constant rates of compulsory levies”.
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According to the specialized site Fipeco, the average annual growth of public expenditure, excluding debt interest, fell from more than 2% in the 2000s to 1.1% between 2011 and 2019, before rising to 5.5% in 2020 due to the health crisis.
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