France can’t afford higher spending and tax cuts – central bank chief

Banque de France Governor Francois Villeroy de Galhau delivers a speech to open a conference titled ‘Bretton Woods: 75 years later’ in Paris, France, July 16, 2019. REUTERS/Philippe Wojazer

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PARIS, Jan 18 (Reuters) – France cannot afford the tax cuts and spending increases announced by presidential candidates ahead of elections scheduled for April, the central bank chief said on Tuesday. .

France has seen its public debt soar to around 115% of economic output during the COVID pandemic from less than 100% previously, with President Emmanuel Macron promising to do “whatever it takes” to prop up the economy during the crisis.

But if the future government were content to continue the trends seen over the past decade, public debt would remain stable at best, said Banque de France Governor Francois Villeroy de Galhau.

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“Proposals for new spending and additional tax cuts are proliferating in public debate today. The reality is that our country can’t afford that either,” he told a conference. at Paris Dauphine University.

“We cannot let our public finances deteriorate further,” he added.

France is due to hold the first round of its presidential election on April 10 and the second round on April 24.

A one percentage point increase in interest rates, which was ‘far from an extreme scenario’, would cost 39 billion euros ($44 billion) a year after 10 years, equivalent to the budget defense of France, said Villeroy.

With the costs of an aging population and the energy transition only mounting, policies cannot continue to defer the need to put public finances in order, he said.

“Sooner or later it will cause a political or social crisis or a crisis of confidence among international investors,” Villeroy added.

He called for a strategy to reduce debt to less than 100% of GDP over a decade from next year focusing on raising France’s growth potential by at least half a point percentage while keeping the annual growth of public expenditure at a maximum of 0.5%.

Faster growth depends on increasing employment to levels closer to those of peers like Germany, and it depends on better training young people and pension reform. said Villeroy.

($1 = 0.8812 euros)

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Reporting by Leigh Thomas Editing by Gareth Jones

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