25 Apr 2023
The French government needs to end its generous spending policy since the pandemic to lower inflation and boost economic growth.
This is according to the governor of the central bank, François Villeroy de Galhau, in a letter to President Emmanuel Macron published on Monday.
The governor said all efforts must go towards reducing inflation, which he referred to as a “social and economic disease” that is spreading to goods and services, not just energy and food costs.
He added that structural reforms and an ambitious monetary policy are required to get inflation down to “under 2%”, which the central bank hopes to reach between the “end of 2024 and end of 2025,” Euractiv reports.
Villeroy de Galhau is urging the government to end its “whatever it takes” spending policy to counter the worst economic impact of the Covid crisis. Over three years, spending hit €240 billion, equating to 10% of the country’s GDP.
In addition, the €24 billion so-called ‘price shield’ implemented after Russia’s invasion of Ukraine last year to support households in France was a success in keeping inflation low within the eurozone.
Yet it is now no longer considered essential, as debt and deficit levels are soaring.
The central bank governor added that such measures need to focus on France’s lowest income brackets in society.
“Our yearly deficit is due to be one of the highest in the EU”, the letter stated. As it stands, government debt is at 111.6% of GDP, say the Economy Ministry’s latest estimates, far exceeding the 90% average in the Euro area.
The French Economy Minister, Bruno Le Maire, said last week that the government would enter an “accelerated” debt-reduction programme to lower public debt from 111.6% to 108.3% of GDP by 2027. However, opposition parties cautioned this signalled the beginning of a new wave of austerity.