“The arrival of the Trump program in the United States must be a real wake-up call for Europe”, declared Tuesday January 21 to franceinfo the governor of the Bank of France, François Villeroy de Galhau, on the sidelines of the Economic Forum in Davos, Switzerland, the day after the inauguration of the American president at the White House. The governor of the Bank of France calls for “to break down a certain number of internal obstacles” within the European market to respond to the measures of the Trump administration.
Franceinfo: President Donald Trump was inaugurated on Monday, with an extremely determined speech. What do you think of its return and its effect on American and global growth?
François Villeroy de Galhau: There were no surprises in yesterday’s speech because it corresponds to the intentions stated for several months. First of all, there are increased uncertainties about the global economy because it is a program that has contradictions, including for the American economy. What we can expect for the American economy is undoubtedly a little more growth in the short term, including with support for business, what we call deregulation, and undoubtedly more inflation, especially if it introduces tariffs that increase costs for American consumers. In any case, inflation, which was falling, could stop falling.
“On the European side, we will see. But there will probably be much less inflationary effects because I believe that the victory against inflation is firmly underway in France and in Europe.”
François Villeroy de Galhauat franceinfo
We must be vigilant, but the central bank should continue to lower its rates. On the other hand, on the growth side, it is a threat, because it is linked to uncertainty. We will see added the uncertainty of the war in Ukraine, the uncertainty of American policy and certain uncertainties about French budgetary policy. All this is not very good for the confidence of businesses, which delay their investments, or for the confidence of households who can delay their consumption.
You talked about growth, which will continue to slow down, knowing that it is already sluggish: we expect growth below 1% in France in 2025.
-Yes, but it’s not so bad because, remember, two or three years ago, we feared that to fight inflation, we would have to pay for it with a recession. However, in France, we have growth of around 1%. It’s not enough, but it’s not that bad. This growth should be hampered a little by the Trump measures, but be helped in the opposite direction by the fall in inflation, because that means more purchasing power. We expect a gradual recovery from next year. But in any case, whether we are at 1% or 1.5%, that is not enough. Europe needs to wake up, that’s what the Draghi report said, that’s also what the President of the European Commission Ursula von der Leyen said in a strong speech this Tuesday morning in Davos . The times contain worry and uncertainty, but the times call for determination. I find it very good that European leaders are more determined. Perhaps we had dozed off a little in a more peaceful world and strengthened by past European successes. The idea that Europe must now rely on its own forces and not just on Russian gas and American security seems obvious to me. The arrival of the Trump program in the United States must be a real wake-up call for Europe. The last time we did it, we succeeded in the single currency and the single market, so we know how to do it, but we need to wake up.
Exactly, what should the European response go through? What measures should be taken?
We have three assets, none of which cost public money: we have a large market, which is a legacy of Jacques Delors, but it must also serve us in the 21st century. The European market weighs as much as the American market, but it is much less attractive because it is much more compartmentalized and divided. Let’s break down a number of internal obstacles. Second, we have a lot of private savings. The President of the Commission cited this figure on Tuesday: 300 billion euros each year of European savings which will be invested outside Europe, including in the United States. Let’s use this to finance our climate and digital investments. The third asset is innovation.
“Europe has a lot of talent, we now know how to create start-ups but we have to make them grow in Europe, and for that we probably need to have a slightly simpler environment for businesses.”
François Villeroy de Galhau, governor of the Bank of Franceat franceinfo
I deeply believe in the rules on climate change, all the objectives that we give to our European society, but we do not need to have such an accumulation of complex regulations. Our fellow citizens or the owners of SMEs want simplifications, it must be done very seriously.
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