Bank of France Governor Warns About Government Spending

(Bloomberg) — Bank of France Governor and European Central Bank policy maker Francois Villeroy de Galhau said the French government must be more careful about spending and debt that’s not linked to the novel coronavirus health-care crisis.



a person standing in front of a store: PARIS, FRANCE - SEPTEMBER 28: A worker at a Paris bar sweeps up after closing early to comply with new Covid-19 restrictions forcing bars and cafes in the French capital to close at 10pm on September 28, 2020 in Paris, France. The French capital has seen a surge in Covid-19 cases and was recently designated a "red zone," which imposes set of restrictions on public gatherings and the sale of alcohol. From today bars are required to remain closed between 10PM and 6AM. (Photo by Kiran Ridley/Getty Images)


© Photographer: Kiran Ridley/Getty Images Europe
PARIS, FRANCE – SEPTEMBER 28: A worker at a Paris bar sweeps up after closing early to comply with new Covid-19 restrictions forcing bars and cafes in the French capital to close at 10pm on September 28, 2020 in Paris, France. The French capital has seen a surge in Covid-19 cases and was recently designated a “red zone,” which imposes set of restrictions on public gatherings and the sale of alcohol. From today bars are required to remain closed between 10PM and 6AM. (Photo by Kiran Ridley/Getty Images)

The government must become more efficient as the pace of spending, stripping off Covid-19 measures, is accelerating “even more quickly” than before the virus crisis, the Bank of France governor said in an interview on France Inter radio on Saturday.

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When the government locked down France’s economy in the spring in an effort to contain the virus spread, President Emmanuel Macron pledged to support firms and workers “whatever the cost.”

Sticking to that promise has meant a surge in spending at the same time as the economy collapsed. According to the government’s latest projections, public debt will jump to more than 117% of economic output this year from 98% in 2019.

“As things improve, ‘whatever it costs’ should turn into when it’s worth it, if it’s worth it,” Villeroy said during today’s interview. The government has to become more selective on spending. “There’s still progress to make on this front.”

How to deliver a boost to the French economy without adding to the country’s debt burden has been a central problem for Macron since his election in May 2017. The 42-year-old president never managed to reduce France’s public borrowing before the Covid-19 crisis, leaving him at a disadvantage compared with Germany and other countries in northern Europe.



a person standing in front of a store: PARIS, FRANCE - SEPTEMBER 28: A worker at a Paris bar sweeps up after closing early to comply with new Covid-19 restrictions forcing bars and cafes in the French capital to close at 10pm on September 28, 2020 in Paris, France. The French capital has seen a surge in Covid-19 cases and was recently designated a "red zone," which imposes set of restrictions on public gatherings and the sale of alcohol. From today bars are required to remain closed between 10PM and 6AM. (Photo by Kiran Ridley/Getty Images)


© Photographer: Kiran Ridley/Getty Images Europe
PARIS, FRANCE – SEPTEMBER 28: A worker at a Paris bar sweeps up after closing early to comply with new Covid-19 restrictions forcing bars and cafes in the French capital to close at 10pm on September 28, 2020 in Paris, France. The French capital has seen a surge in Covid-19 cases and was recently designated a “red zone,” which imposes set of restrictions on public gatherings and the sale of alcohol. From today bars are required to remain closed between 10PM and 6AM. (Photo by Kiran Ridley/Getty Images)

“It’s crucial to maintain the confidence in our ability to pay back debt,” Villeroy said on France Inter Saturday. If investors were to lose such confidence, it would mean higher interest rates, he added.

Dangerous Debt

“I say very clearly, we are not there on controlling spending,” Villeroy said. “We can’t offer ourselves everything all the time.”

“There’s debt that’s justified, and this is Covid-19 debt, and there’s debt that’s dangerous,” the Bank of France governor said. “That’s where we need to pay attention.”

Speaking earlier this week on France Inter, Finance Minister Bruno Le Maire said the government’s priority is employment, investment and economic recovery.

“All the debt linked to this crisis is investment. It will have to be repaid, I’ve always said that. But this reimbursement will come when we have got growth back,” Le Maire said.

Since the end of lockdown, the French economic recovery has been “rather stronger than expected” Villeroy de Galhau also said Saturday, adding that he sees no reason to change the country’s 2020 growth forecast.

(Updates with additional Villeroy comments from fifth paragraph.)

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