Villeroy de Galhau urges fiscal strength and European economic unity
Banque de France Governor François Villeroy de Galhau delivered his New Year address, outlining economic wishes for 2026. He emphasized perseverance in monetary policy, ending France's fiscal denial, and accelerating European economic and financial integration, including digital currency initiatives.
Inflation victory secured, rates to hold steady
Banque de France Governor Villeroy de Galhau affirmed that the battle against inflation has been won, with euro area inflation at 2 percent and French inflation at 0.7 percent in December 2025. He highlighted the ECB's success in returning to target without recession or significant unemployment, contrary to past oil shocks.
Villeroy de Galhau noted that the ECB's monetary policy is already more accommodative than the Federal Reserve's, with the deposit facility rate at 2 percent compared to 3.62 percent for US rates.
He dismissed the idea of rate hikes in 2026 as 'fanciful' barring an unlikely shock, citing falling underlying inflation, wage moderation, and low-cost Chinese imports.
The Governor also praised Fed Chair Jay Powell for his integrity and commitment to public interest.
Ending France's fiscal denial
Villeroy de Galhau called for an end to France's 'fiscal denial', emphasizing the indispensable need to reduce the public deficit to a maximum of 5 percent of GDP in 2026, with a target of 3 percent by 2029. Failure to do so risks 'triple suffocation': rising debt interest payments, higher financing costs affecting investment, and a 'gerontocratic social budget' burdening future generations.
He urged for rapid compromise and greater unity, advocating for a stabilization of France's public spending and more stable, equitable taxation.
The Governor also stressed the need to rebuild confidence in Europe's economic strengths, despite the euro's success and Bulgaria's recent integration.
Europe's digital leap: A critical juncture
Europe stands at a critical juncture, needing to translate monetary sovereignty into genuine economic and financial leadership.
The push for a more integrated single market, enhanced investment in European equity, and bold innovation, including in digital currencies, is long overdue.
Success hinges on overcoming internal divisions and embracing simplification, rather than succumbing to complacency or external protectionism.