RMC and BFM TV. Hello François Villeroy de Galhau.
François Villeroy de Galhau
0:03 ↗
Hello Apolline de Malherbe. Thank you for being in this studio to answer my questions and especially to tell us how France is doing. You are the governor of the Bank of France. France, which still doesn't have a budget. Discussions are stalled; we're still not sure. Maybe 493, maybe a vote. They are currently discussing it in the assembly. You even talked about a kind of way of playing games with taxes. You said we need to stop playing around with taxes. I'm going to ask you about this budget, but basically I want to ask you a very broad question, like a doctor. How is France faring in this context?
So France is our country that we all love and it is all of us. If I were to use your image, first of all, I think our morale isn't very good. We see it in the political instability, in all the quarrels and so on. Our bodies are doing rather better when we look at our economic health. We have just published our economic survey, which shows the resilience of the French economy. So, to extend the analogy, I would say that our body is doing better than our head. And then there's our wallet. So that's the question of budget. I'm not talking about the financial situation of each individual, but the financial situation of the country. There is too much deficit, too much debt, and we absolutely must deal with it. We also have the means to take care of it.
So, we have the means to take care of it. We'll go into the details of what's going well because, as you say, things might not be so bad after all, especially on the business side. But what do you say to the members of parliament who are currently in the Assembly, once again discussing, starting almost from scratch, this never-ending budget? What's the priority here?
François Villeroy de Galhau
1:33 ↗
I cannot tell the deputies what to do, their role is the debate of democracy, but I believe that we must do things so that France is better off with the independence of the Bank of France, what is desirable is to continue to reduce the deficits. We might say a very brief word about the figures in the health report. Our deficit in 2025 is probably 5.4% of GDP relative to the size of the economy. We need to reach 3% by 2029. Why 3%? Our European commitments, but it is above all Apolline de Malherbe that provides the threshold which finally allows us to stabilize the debt burden. So, if we are to go in this direction by 2029, we need a further reduction in 2026, this year. However, we don't have a budget yet, and as long as we don't have a budget, we can't reduce the deficit. What seems to me both essential and achievable is that the 2026 budget, the 2026 deficit, should be at most 5%. So, if we see a further reduction beyond that, I am obliged to say with some gravity that with a deficit exceeding 5%, France would put itself in the red zone, in the danger zone with respect to international lenders and financial markets.
What does the danger zone mean? What could the consequences be?
François Villeroy de Galhau
2:48 ↗
So, we obviously monitor the financial markets, the confidence that international investors have in us, unfortunately, this confidence has decreased since the dissolution of June 2024. We don't talk about it anymore because we say well it's holding up. So.
No, but you're right. I think we shouldn't assume that today's calm will last forever because markets can turn around abruptly and there could be, obviously not, but beyond a 5% deficit there could be a negative chain reaction. Europe is resuming sanction procedures against France because we allegedly failed to uphold the commitments we made. Rating agencies, as you were saying, are downgrading us again and as a result international investors are very volatile, as they say, meaning they can leave quickly. In particular, there are very short-term investors, what are known as hedge funds. So we are in a global situation of great instability. We will probably be discussing American policies in this situation. Let's not take the risk of a reversal of lenders to France, which could have fairly rapid consequences and a chain reaction. That's what you're raising the alarm about.
François Villeroy de Galhau
3:59 ↗
So this will obviously have consequences for the budget because if France always finds lenders, France will not fail. But the problem is exactly at what price. That's why I talked about budgetary strangulation, because we risk borrowing at increasingly higher prices. That's the first consequence. We have to pay more and more interest on the debt. But it also has consequences for all economic players in France, for companies that have loans to invest and even more so for households that have mortgage loans.
You said let's stop playing around with taxes. What does that mean? And did you, who a year ago and I remember having you on this very microphone, actually advocate for an increase in taxes on high incomes? Do you think that things have gone too far today? One of the sticking points at the moment is the issue of the tax which was only supposed to be a one-off on the very large incomes of the main large companies. And that's where the problem lies, because the right wing doesn't want it, because the left wing does. Yes. In that case, a political compromise will be necessary.
François Villeroy de Galhau
5:02 ↗
Now, let's move on to the other aspect of this budget, which is that the 5% is essential but I believe it is achievable and that ultimately it requires a cocktail, or rather an alloy, we must first really try to stabilize expenses. Today in France we have the highest spending not only in Europe but in the world. And regarding taxation, I believe it needs to be both more stable and fairer. There are still possible avenues for justice. And there is probably a need for some exceptional targeted measures like what you were saying, namely the surtax on the profits of large companies. I've said that before, and I'll say it again. I say this without enthusiasm, but it's necessary. Beyond that, indeed, the wise thing to do is to try to stabilize the tax as much as possible. As you said in the introduction, things aren't going too badly. What does that mean?
For the first time, we are hearing a lot from entrepreneurs. Until now, they believed that politics was politics. Well, we heard from the MEDEF, we heard from a number of big bosses who we didn't see on TV sets, complaining about the situation and what they see as budgetary madness. Enough is enough, say some bosses. This is also the title of an opinion piece that reappears today in the newspaper L'Express. And it also conveys the idea of instability, of a lack of perspective. But at the same time, French entrepreneurs are doing quite well. So, firstly, regarding stability, there is the fiscal stability we were talking about. That doesn't mean we shouldn't have some limited tax increases, but we need to stop improvising every little thing. There is political stability, which is desirable. But it's true that in the midst of this environment, the French economy is holding up rather well. We conduct a survey every month among 8500 entrepreneurs in the field thanks to the women and men of the Bank of France. We published this investigation last night, and what does it say? The point is that over the whole of 2025, growth should be at least 0.9 because we have slightly reassessed the expected growth in the last quarter, 4 quarter 0.9 if we are quite precise.
It seems to me that in your last forecast you said it might be 0. If you say at least 0.9 was a ceiling, 0.9 would now be a floor.
François Villeroy de Galhau
7:15 ↗
So we didn't say maybe, but now we definitely say at least. So it's a floor. That's also worth at least 0.2 over the last quarter of last year. And that is the courage of the entrepreneurs that I salute, who continue to take risks, to invest, and that is the work of the French. It's not said often enough, but there have never been so many French people working in terms of hours worked, and the French work rather well in terms of productivity per hour. I believe that this also reflects a number of long-term structural strengths of the French economy. We are more of a service economy within an industry that is suffering a lot in Germany. For example, French specialization in aeronautics and defense is quite promising, and we are less exposed to large-scale exports to the United States. So, we suffer less from Mr. Trump's tariffs or from tensions with China. So. However, the uncertainty costs us compared to these 0.9. We estimate that budgetary political uncertainty costs France at least 0.2 points of growth. That means we would be above 1% and we should be overall if there hadn't been these political twists and turns. So. And overall, we should be doing much better on growth; around 0.9% is not enough.
Yes. So it's not just due to political uncertainty. No, but I know that when I start using that kind of word, it scares you, Governor, you don't necessarily want to, no, I myself have spoken of political instability, but I think it is important to see alongside that a problem which concerns all of Europe and not just France, which is that we are not mobilizing our resources enough. We have this American challenge, we have the new administration around Mr. Trump. We talk about it every morning, maybe a little too much amongst ourselves. We cannot change the other side of the Atlantic, but we must change our own side. Europeans have plenty of resources, they have abundant savings, they have a large market, they have a reservoir of human talent and young people. Perhaps we'll talk about the amazing young people. We also have the roadmap. This is what has been called the Draghi report of 2024. Let's wake up, let's mobilize. Mr. Trump is meant to serve this purpose. I particularly remember when I received you 1 year ago, you quoted this same Draghi report and regarding France, you said there is not enough investment and above all there are too many regulations. When you see the farmers' anger lately. And indeed, the fact of looking a lot at the United States or South America or Brussels, saying that it's a bit of all of that at once. Isn't it mainly the fault of our own politicians who have effectively stifled, to use your word, a number of our farmers with standards, with constraints, with a much heavier tax burden than that of our neighbors?
