By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Emmanuel Moulin on Friday described the ECB's recent interest rate increases as “very moderate,” arguing that real rates remained low, while warning that France needed to address its fiscal problems rather than look to the ECB for a solution.

“We have taken very moderate decisions. We have gone from a 2% policy rate to 2.5%. That is very moderate, especially with inflation above 2%,” Moulin, who is governor of the Banque de France, told French broadcaster Public Sénat. “In these conditions, real interest rates remain very low.”

Moulin said France's weaker growth and lower inflation did not mean the country was being penalized by monetary policy designed for the euro area as a whole, arguing that France typically sits close to the euro-area average.

French inflation was expected to remain around 3% at the end of 2026 before declining to 2% in 2027, Moulin said.

He noted that the recent rise in long-term interest rates was a global phenomenon, partly reflecting higher inflation expectations and increased debt supply, but acknowledged an additional French premium stemming from political uncertainty and the country's fiscal position.

France's 10-year borrowing cost was around 4.5%, while its spread over Germany stood just below 110bp, he said, describing a 100bp spread as “much too high” and attributing it primarily to France's public finances.

Still, Moulin said there was no concern over France's ability to finance itself, with government bond auctions continuing to attract demand. The risk instead was a progressive increase in debt-servicing costs if the deficit was not addressed, weighing on growth and squeezing other spending.

Asked whether the ECB could intervene if France encountered financing difficulties, Moulin said it was wrong to look to the central bank for a “miracle solution.”

“The essential instruments are in our hands to deal with the situation we face, not necessarily in the hands of the ECB,” he said, pointing to the need for the government and parliament to reduce spending and the deficit.

Moulin acknowledged that the ECB had mechanisms for “very critical” market situations that impair the transmission of monetary policy, but stressed that such instruments could only be used if measures were also taken at the national level.