François Villeroy de Galhau: Monetary and fiscal policy-mix addressing the disease of inflation

Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Eurofi, Santiago de Compostela, 15 September 2023.

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

Central bank speech  | 
18 September 2023

Slides accompanying the speech 

Ladies and Gentlemen,

It is a great pleasure to be here for this final day of the traditional September Eurofi meeting, and I extend my warmest thanks to Didier Cahen and David Wright for organising this event, this time in the holy city of Santiago de Compostela. Let me start with good news about a favourite Eurofi topic: banking regulation and Basel 3. I say it as BIS Chair and former chair of GHOS: we had in Monday an important GHOS meeting in Basel, and we unanimously welcomed the decisive progress made this year in the implementation of Basel 3. By 2025, all jurisdictions – including Europe and – yes – the US – should have implemented it in a broad compliance with the standards. I know each banking industry, on both sides of the Atlantic, tends to consider that the other side has undue advantages. It's simply not right, and our motto is now straightforward: let us now close this page, and implement the European compromise, no less and no more. No less as some banks would perhaps still dream of, and no more as some theoreticians of regulation would perhaps imagine. And we should now turn to the priority learned from the banking turmoil: "strengthening supervisory effectiveness"i rather than focusing on further regulation. Let me now turn to my theme which is the policy mix to fight our main economic disease: inflation.

Well, Santiago has not yet produced a miracle for inflation, but there is indeed some encouraging news: headline inflation has passed its peak since the beginning of 2023, and it seems that core inflation is following suit. Indeed, the latter started to recede, to stand at 5.3% in August (down from 5.5% in July and 5.7% in March) in the euro area. Obviously, these inflation rates remain too high: we must and we will bring inflation back towards our 2% target by 2025. I reiterate this morning this clear commitment which is fully consistent with our latest ECB forecasts. Monetary policy is the first line of defence, and the main remedy for this disease. I won't make comments about yesterday's Governing Council and monetary decision. But our collective fight against inflation calls for a more appropriate policy mix: the revision of the European economic governance framework provides a major window of opportunity to realign fiscal and monetary policy.