François Villeroy de Galhau: What fiscal policies beyond monetary policy support?

Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Eurofi High Level Seminar, Lisbon, 16 April 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Ladies and Gentlemen, I am very happy to join you today. I would like to extend my warmest thanks to Didier Cahen and David Wright for fostering the fruitful European spirit that we all cherish, despite the difficulties of the moment. As you know, the ECB silent period has already started, so I won't say a word on monetary policy. However, this will give me the opportunity to tackle a core issue of our incomplete Economic Union besides our successful Monetary Union: fiscal policy. Monetary policy cannot be – and fortunately no longer is – the only countercyclical tool available in the euro area. There are two other links between monetary and fiscal policy to which I would like to draw attention: an accommodative monetary policy, as we have today, supports an active fiscal policy. The second is the risk of a bank-sovereign loop, which as supervisors we are keen to avoid. Let me nevertheless stress that I have no such fear for the country I know best: French banks since 2014 have decreased their exposures vis-à-vis public debt in absolute terms and have done so dramatically as a proportion of their balance sheet.

I will first talk about the "fiscal" lessons we can draw from the Covid crisis for Europe (I). I will then turn to the national level and illustrate these principles with reference to the French situation (II).