ECB’s Villeroy: Premature to Think U.S. Economy Nearing Overheating

19 February, 2021



By David Barwick – FRANKFURT (Econostream) – It is quite premature to conclude from rising long-term interest rates in the U.S. that the American economy is close to overheating and that inflation has sustainably recovered, European Central Bank Governing Council member François Villeroy de Galhau said Friday.

In an interview with French daily Les Echos, a text of which was posted to the website of the Bank of France, which he heads, Villeroy said that the ECB would continue to act as long as inflation remained low.

In the U.S., he said, ‘[l]ong-term rates seem to be on the rise mainly due to the announcement of the $1.9 trillion Biden recovery plan. To speak today of overheating and a lasting recovery in inflation in the United States seems premature to say the least; and there is no such risk in Europe.’

As for the ECB, ‘as long as the low inflation situation persists, we must act without hesitation’, he said.

Asked why the euro had not become as powerful as the dollar, Villeroy responded that ‘[t]he international role of the euro was not a priority until now; it must become one. … The euro is a superb success for Europeans; let us go to the end of its potential, without complexes.’

As before, he dismissed the notion that the ECB might cancel the sovereign debt it holds as inconsistent with the Treaty.

French national economic support introduced to mitigate the fallout from the pandemic could be withdrawn ‘[i]n the wake of the lifting of health restrictions, and thus gradually over the coming year’, he said. ‘This will have to be done without haste, but without fear either.’