ECB Brief: Villeroy Comments on Monetary Policy Support and the French Economic Recovery

14 June, 2021

By David Barwick – FRANKFURT (Econostream) – This is a quick take on the comments made Monday by European Central Bank Governing Council member François Villeroy de Galhau, Governor of Banque de France, in French daily Le Figaro:

  • Supports persistent monetary accommodation on account of Europe not having achieved price stability ‘sustainably and collectively’, despite ‘some countries’ exceeding 2% ‘from time to time’. Villeroy is close to the dovish end of the spectrum and this is consistent with his previously expressed views.
  • Says that the ECB can be patient ‘at least as long as the US Fed’ and that ‘our choices will be determined by economic reality’ and ‘never automatic’. He said last week that the ECB could at least match the Fed’s patience, and he said on April 13 that ‘[o]ur decisions will therefore be taken on an informed basis rather than by applying pre-determined rules’, so nothing new here.
  • Says French economic recovery gathering steam and that this is visible in services.
  • Predicts the French economy to expand by 5.75% this year and be back at pre-Covid levels ‘a little earlier than expected, from the beginning of 2022’, on the back of household consumption and business investment.
  • Says additional household saving during the pandemic could contribute as much as 7 points to GDP; ‘it is a reserve of growth for the future if French confidence proves strong enough.’
  • Says that although there are ‘a lot of’ inflation-related questions in industry and construction related to delivery times and input prices, ‘these tensions could be temporary’. He has been on record for many months arguing that inflation does not constitute a problem in Europe; this sounds perhaps a little less sanguine than in the past.
  • Repeats ECB euro area inflation projections and says that although inflation in the US is much higher, he does ‘not believe in the risk of transatlantic contagion on inflation.’
  • Calls difficulties finding workers ‘the most serious economic concern’, but disputes that this is causing wage tensions.
  • Expresses doubts about ‘scenarios of massive bankruptcies’. In early May, Villeroy said of the risk that insolvencies would do more than simply catch up to the more normal level that might have been expected absent the pandemic: ‘Nothing can be ruled out, but there is no reason to anticipate this today.'
  • Says ‘it is clearly time to get out of the whatever it takes’ mode, but this refers to French fiscal support.