(Bloomberg) -- Bank of France Governor Francois Villeroy de Galhau sketched out a road map for repairing the country’s finances and urged quick action to restore credibility as President Emmanuel Macron continues to hesitate over appointing a new prime minister.
The central banker said the euro area’s second-biggest economy must respect its European Union commitments and called for efforts to cut spending as well as “overcoming the taboo” on raising taxes.
“It’s essential to provide clarity and credibility quickly,” Villeroy said in an interview with Le Point magazine. “Credibility supposes truth and a certain number of compromises, which aren’t facile solutions.”
France’s borrowing costs compared with other European countries have surged since Macron dissolved parliament in June and called snap elections. Uncertainty over the budget has risen as no single party won a majority capable of governing alone, and Macron is yet to appoint a new prime minister and government.
Even before the elections, France was facing mounting fiscal challenges as disappointing tax revenues derailed efforts to close the budget deficit. Earlier this week, the outgoing government warned that fiscal slippage could be even larger if no action is taken to control spending.
According to Villeroy, new EU rules will require an adjustment of around €20 billion ($22.1 billion) a year. He said that would gradually bring the deficit below the European limit of 3% of economic output, although not necessarily by 2027 as the current government has pledged.
“There will need to be a realistic compromise on the calendar that is compatible with the new European pact,” he said, referring to reformed fiscal rules agreed by EU member states last year.
Enforcing budgetary discipline in France will be a challenge as parties across the spectrum campaigned on pledges for more spending. The leftist New Popular Front alliance, which won the largest share of seats, is demanding significant increases in outlays and taxation on the wealthy as a condition not to censure any new government.
Telling the Truth
Villeroy, who served as an adviser to finance chiefs in the left-wing government of Prime Minister Lionel Jospin in the late 1990s, said the results of the elections are a call for “a form of republican unity, including to take action.”
“Dialog on fundamentals, compromise to get concrete results can work in France,” Villeroy said. “Respecting French people is also a question of telling them the truth and reminding people of the demands of reality.”
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