ECB’s Villeroy: Not So Much That the Euro Is Weak, But Rather That the Dollar Is Strong

13 July 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Wednesday said that the euro’s foreign exchange weakness was positive for exporters but unhelpful with respect to inflation.

In an interview with French radio network France info, Villeroy, who heads Banque de France, said that it was ‘not so much the euro that’s weak, but the dollar that’s strong’ on account of the latter’s safe haven status.

The low exchange rate of the common currency versus the dollar is ‘good news for activity as it supports exporters, but unfortunately it raises inflation a bit’, he said, repeating the mantra that the ECB watches the euro exchange rate because of its relevance to inflation, but does not target it.

Inflation would remain high until early 2023, he said. ‘And then, unless there is a new energy shock ... it should start to fall, because energy prices are no longer rising...’

The Banque de France and the ECB were firmly committed to getting inflation back to 2%, he said.

‘The solution to inflation can't be budgetary, and it can't be a new "Whatever it takes", because we don't have the means to do that, and that's not at all effective in fighting inflation’, he said. ‘It keeps our energy consumption up. .... So, the solution to inflation is not fiscal, it's monetary. That is the responsibility of the central bank.’