Villeroy de Galhau: Inflation controlled, warns on debt, digital euro

Banque de France Governor François Villeroy de Galhau announced a significant victory against inflation, with French headline inflation falling to 1.1 percent in February 2026 and euro area inflation reaching 1.9 percent.

This disinflation allowed for four additional rate cuts in 2025, totaling 100 basis points, bringing the main key rate to 2 percent.

The Governor noted that monetary policy remains more accommodative than the Fed's, with lower rates and a larger securities portfolio.

However, he cautioned that the 'Iran shock' introduces new challenges, implying slightly higher inflation and reduced growth.

The report highlights that the return of inflation to target was achieved without triggering a recession, despite high uncertainty, thanks to credible monetary policy and clear communication from Eurosystem central banks.

Beyond inflation, the Banque de France identifies critical structural challenges for the French economy.

Public debt remains a major concern, with an additional €70 billion in annual interest payments projected after ten years, stifling both the budget and economic financing.

France's potential growth has significantly declined, from 2 percent in 2000 to 1.1 percent today, lagging behind the United States' 2.2 percent.

The report advocates for solutions outlined in the Draghi and Letta reports, emphasizing deeper single market integration, improved investment through a Savings and Investment Union, and faster innovation via domestic simplification.

This simplification aims to foster effective innovation without resorting to deregulation.