ECB’s Villeroy: Will Hike as Needed to Restore Price Stability; Won’t Lead to Recession

23 January 2023

ECB’s Villeroy: Will Hike as Needed to Restore Price Stability; Won’t Lead to Recession
- Villeroy: Will continue to raise rates, perhaps at slightly slower pace than in recent months
- Villeroy: ‘Economic activity in Europe is rather resilient and better than expected’
- Villeroy: Expect inflation to be back down to 2% by the end of 2024 or 2025
- Villeroy: Hope inflation now at peak, but in any case will be there in 1H and then decline steadily

By Xavier D’Arcy – VERDUN, France (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Friday said that he hoped inflation in Europe was at its peak now and that with monetary policy taking all necessary steps, he anticipated the return of inflation to 2% by the end of 2024 or 2025.

Speaking on a panel to celebrate 60 years of Franco-German friendship, Villeroy, who heads Banque de France, backed up his German counterpart, German Bundesbank President Joachim Nagel, who also excluded recession.

‘We have started to raise interest rates, we will continue to do so, perhaps at a slightly slower pace than in recent months, but we will do so to the level necessary to keep inflation under control’, Villeroy said. ‘And this - I make this forecast along with you [Nagel] - will not lead to a recession in Europe this year. The news that we have on economic activity in Europe is rather resilient and better than expected.’

‘I hope that inflation is at its peak today in Europe, we think in any case that it’s going to be in this first half, that it will then come down steadily, and that – I say this as a forecast, but also as a commitment from both of us - we will bring inflation in Europe down to 2% by the end of 2024, end of 2025’, he said, including Nagel in his commitment to restore price stability.

Villeroy said he and Nagel saw eye to eye with respect to inflation and monetary policy, less so when it came to fiscal policy.

‘Fiscal support was probably necessary, but it cannot be the sustainable solution’ to the energy crisis, he said.

He warned against keeping expansionary fiscal policy, saying that that ‘especially in France, where our public finances are in a difficult situation, the government must reduce and eliminate all these subsidies.’

France needed to detach itself from the idea that ‘public spending will solve all our problems’, he said.

‘If public spending were the solution to our problems, in France we should be the world champions of growth, because we are the world champions in public spending’, he remarked.

Though in favour of lowering the public debt burden in France, which he described as a ‘rucksack we hand on to younger generations’, Villeroy said that he would ‘like to see more mutualisation of investment at European level’ and that he was ‘in favour of a larger European budget’.