Francois Villeroy de Galhau

French Central Banker Pushes Reforms

Francois Villeroy de Galhau Sipa romuald meigneux
Francois Villeroy de Galhau served under two socialist finance ministers.
  • Why it matters

    Why it matters

    If France and Germany agree on economic and political reform at a European level, the union could grow closer together.

  • Facts


    • Francois Villeroy de Galhau was involved in the negotiations to establish the currency union.
    • Issues under debate in Europe include shared deposit guarantees.
    • Mr. de Galhau, chairman of France’s central bank, grew up in Saarland and speaks German.
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In his first interview with a non-French newspaper, Francois Villeroy de Galhau, heir to the porcelain dynasty and governor of France’s central bank, defended eurozone monetary policy and told Handelsblatt how France must hit its budget targets.


Handelsblatt: Your predecessors Jean-Claude Trichet and Christian Noyer drove down inflation in France’s economy and forced through banking union in the E.U. What is your big project?

Francois Villeroy de Galhau: You’ll be able to see that at the end of six years, not in the first few days. I see things as a European who has been active in supporting the euro right from the start. I hope I can make my contribution to strengthening the euro zone so we return to strong, sustainable growth. And I want to continue the changes at the Banque de France.

The euro zone is looking better – does it still need such a loose monetary policy?

We will adjust our forecasts for growth and inflation at the start of December. This year growth should reach 1.5 percent in the euro zone. The inflation rate is still very low, it was zero in October. If you remove energy and raw materials, then it’s around 1 percent. The European Central Bank’s active monetary policy is succeeding. We have avoided deflation, which people were worried about in early 2014. And we see a positive trend in terms of lending, an increase of 0.4 percent.

But the outlook for inflation is still very low.

It’s risen since July, then there was the shock from China that interrupted the third quarter improvement. Expectations are still too low and since the summer, uncertain.

What does that mean for the ECB council’s debate in December?

So far there’s the clear willingness to pursue active monetary policy so we reach our inflation targets of below but close to 2 percent. First we look at the analyses of the economy and then check where we are with our inflation and growth targets. Only then do we select the tools, if there’s a need for action.

Hasn’t monetary policy achieved all that’s possible? Isn’t it now time for economic policy?

Let me be more precise: monetary policy has achieved a lot. It will also do a lot in the future but it can’t do everything. There are margins in monetary policy that can make it more effective, if need be – the instruments are available. But it’s important that we make reforms nationally and on a European level in order to strengthen growth.

In his last interview, your predecessor said the ECB’S buying program would have to be proving to be effective before it would be extended. The ECB council hasn’t yet agreed on that though, he said.

Christian Noyer wasn’t talking about a disagreement and I will present my analysis to the council. Don’t think I’m going to let myself be put into these media categories where people are for or against particular people. I’ve promised to carry out my job in an independent manner and as a free person. But there’s one point where I agree with Christian Noyer, which is also fairly obvious: We will have to judge this monetary policy in terms of its lasting effect, not in the light of a passing moment.

Germany isn’t interested in a shared deposit guarantee. Do you think the whole of the banking union will be in danger if there isn’t a deposit guarantee on a European level?

Banking union is made up of different parts, there’s supervision – we’re celebrating its first birthday now. Then there’s the execution that prevents banks from getting into financial difficulties. That protects taxpayers and strengthens a bank in terms of capital where necessary. Then there’s the shared deposit guarantee. That’s to be desired because it makes it clear to each and every European that they can trust in the banking system.

In Germany, it’s the other way round: security on a European level doesn’t lead to greater trust. German savers worry that they’ll have to cover for others’ savings.

No – because supervision and process guarantee that all banks have the same level of credibility. Deposit guarantees don’t create advantages for particular countries or the south rather than the north.

Are the euro zone’s political institutions working?

The economic and currency union will only thrive under strong economic governance. Some of this can be achieved without changing the contracts. I see improving the mobility of savings for investment in Europe as a first step. In order to do that, we need to create synergies between the capital market union – there are proposals from the European Commission for that, banking union and Juncker’s investment plan. I’ve made a proposal for a “financing and investment union.“ Then there’s the question of economic governance.

Germany and France don’t agree on that.

The two countries worked well together during the crisis. We shouldn’t neglect that now the Greece crisis has been overcome. There’s a risk of thinking that designing better architecture for our shared house isn’t a priority anymore.

How could that be improved?

The European Commission proposed a budget committee that evaluates shared financial policy. Mario Draghi and others are calling for the contracts to be changed: a finance minister for the euro zone, a treasury and a parliament for the euro zone. Either way, maintaining the status quo shouldn’t be an option.

The two governments don’t seem to be talking about the same things even if they’re using the same words.

Germany, and also Wolfgang Schäuble, rightly remind us of the importance of political progress in integration. France is also right in underlining the importance of making progress in terms of economic coordination. We should bring the two together!

France is calling for solidarity.

Solidarity is also important. I know Germany well, I understand the fears but you can’t view coordination as an excuse for avoiding reforms.

You mentioned reform – where do you think the most important changes are needed in France?

The costs of labor are rising more slowly in France than in Germany right now. But in general I think all reforms are important that help the employment market work better. Decentralizing decision-making would also be interesting, to improve dialogue about social impact of decisions at individual company level. There again, Germany’s example shows that improvements that are carefully considered can mean improvements for companies and also for employees.

The European Commission is worried that France will have a deficit of more than 3 percent of its economic performance in 2017.

There isn’t any uncertainty about 2016 but there is for 2017. Now though there’s an independent council in France that’s making sure the country balances its finances and meets its requirements. The goal has to be to achieve below 3 percent in 2017, as the government promised.


This interview was conducted by Thomas HankeHandelsblatt’s correspondent in Paris. To contact the author:

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