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00:04We are joined by Emmanuel Moulin, who is the governor for the Banque de France,
00:08who joins today on the sidelines of the IMF World Bank meetings.
00:11And I do want to start off, Governor, first with asking you about,
00:15for your reaction to the data coming out of France.
00:18Because while, as you mentioned, inflation is down a bit on a sequential basis,
00:22it's still among its highest in about two years.
00:25What's your reaction to the data as a data-driven governor?
00:28Good afternoon, JP. Thank you very much.
00:32It's clear that the inflation data are above our target, both in the euro area and in France,
00:40we are at 3.4 percent, the last reading for September.
00:46What we need to see is the component of this inflation.
00:50And it's mainly driven by energy.
00:5321 percent increase in the energy price.
00:56Food prices are a little bit up, but core inflation remains quite stable.
01:04So we will have to analyze this data at our next meeting.
01:08It is clear that our mandate is to bring back inflation to our target of 2 percent.
01:14We have already acted in June and in September by increasing rates by 50 basis points, 25 basis points each
01:22time.
01:23And we will see at the end of October what we should decide, depending on the data,
01:28depending on the number of other data that we have.
01:34In particular, I'm looking also at the financial conditions because they are tightening with the increase in yields.
01:41So that's also an impact that we need to take into account.
01:44Okay. That was my next question.
01:47Is the possibility of a rate hike on the table, at least in the next ECBBA?
01:51And more importantly, is it possible or is there room to tolerate this?
01:54Because there is a concern now with rising rates and slowing domestic demand at the moment,
01:58that maybe the room to hike rates might not be as available for yourself and your fellow policymakers in the
02:04eurozone.
02:04I am going to disappoint you because, you know, we are not anymore in forward guidance.
02:10So we have a framework guidance.
02:13We look at inflation headline.
02:15We look at co-inflation.
02:17We look at transmission of monetary policy.
02:20So we have a very good, very clear framework on which we analyze the data.
02:27But we analyze data at each of our meetings.
02:30We are data dependent and we decide meeting by meeting.
02:32So we will decide in October, at the end of October, depending on the situation and the data we have.
02:39All right.
02:40Governor, I do want to ask you about some of the rising risks and concerns with regards to the budget
02:46deficit in France,
02:47which is really starting to raise a lot of worries in the region.
02:50Now, it's not the first time, and France has been here before,
02:53and France has brought the budget deficit down below from above 5 percent to manageable levels in the past.
02:59They've done this before, but it took over seven years.
03:01And some might argue that during that time, rates were lower and perhaps the political will and unity was a
03:07bit less fragmented during that time.
03:10If France were to bring down the budget deficit control it, will it have to do it in harder and
03:16for more difficult conditions as compared to last decade?
03:21Well, first, to respond to your question, we are facing an increase in interest rates everywhere around the world.
03:27In all developing countries, we are faced with increased long-term yields.
03:32This is linked to inflation, to the supply also by big tech companies.
03:42I mean, they're borrowing in long-term markets, but also inflation expectation and also the fiscal situation.
03:49It is true that in France, there has been an increase in spreads compared to Germany.
03:55And so, rates have increased more than other countries.
04:00This is linked, I don't think it is linked to, you know, a change in the fiscal situation, which has
04:05been the same compared to three weeks ago.
04:08It's really about political uncertainty and the question whether the budget will be adopted with a 5 percent deficit, which
04:16is the objective of the government.
04:17I think this is the key, and I think to reassure markets, it is important that there is a budget
04:23that is voted and a budget that sticks to the 5 percent deficit, which is the aim of the government.
04:31It's, as you said, we, in the past, we were able to consolidate public finance and to reduce our deficit.
04:39It is possible to do it.
04:40It's more difficult because we have increased interest charge.
04:45It's about 10 billion per year more, so we need to take this into account in the consolidation.
04:52But I think it is possible to get back to 3 percent deficit in 2029, which is the objective of
04:58the government.
04:59Is it possible to do this without some form of austerity, do you think?
05:03Because, as we know, austerity can be very, very painful.
05:05This was brought up during the sovereign debt crisis of 2012 from neighbors of France.
05:09And also because we've seen the reaction to efforts to reform pensions and perhaps bring reform, the student protests in
05:16France about the need to upgrade infrastructure.
05:18Is it possible to do this without austerity?
05:20Because it can be very politically charged and also very painful for an economy like France.
05:25Yes, it can be painful.
05:27But I would, I would, you know, challenge the fact that, you know, we are, this is austerity.
05:32This is not austerity.
05:33It is just putting back, you know, the house in order.
05:37The fact is, you know, we have a high public deficit, but we have very high saving rates.
05:45So it means that, you know, households are looking at the situation and they save for the future.
05:51And so if we reduce the deficit and put back, you know, the debt on a downward trajectory, then it
06:00might conduct households to reduce their savings, to consume more, etc.
06:06So it can be also good for growth and for the economic activity.
06:11And it would reduce also uncertainty.
06:13Okay.
06:14Do you worry about possible contagion risk?
06:16And this is something that has been raised by some of the other members of the Eurozone about possible contagion
06:21risks that might emanate.
06:23And could that then complicate the Banque de France's efforts to manage financial stability in France and also for the
06:30broader Eurozone?
06:31I'm confident about financial stability in France and in Europe.
06:35Our banking sector or insurance sector or financial sector are strong, well capitalized, with ample liquidity.
06:44So I think we've done the work in order to reinforce the strength of the financial sector.
06:51I think, you know, it's a global phenomenon that interest rates are increasing.
06:55It calls for, you know, stricter fiscal consolidation in a number of countries, be it the U.S., be it
07:03France, be it some other European countries, but also Japan.
07:07This is a global phenomenon.
07:09So I don't think, you know, we should be too much afraid of risk of contagion.
07:13Okay.
07:14Governor, earlier, just recently, we heard from the Managing Director of the IMF, Christelle Norgueva,
07:19who also had something to say about the state of France, saying that it will take time to restore confidence
07:25in France's finances
07:26and perhaps to rebalance some of the issues that we just talked about.
07:30Do you agree with her prognosis, or do you think maybe it's a little too harsh from the Managing Director
07:36to say it might take time to restore confidence and perhaps implying that there's a lack of confidence,
07:41the confidence deficit that France needs to overcome?
07:43I wouldn't say that because I think, you know, we are boring in the markets every week, every month,
07:50and we have no problem, you know, finding investors to buy our bonds.
07:55We pay it a little bit higher because of this political uncertainty and also because our fiscal situation needs to
08:04be improved.
08:05But I think investors see also that France is the seventh largest economy in the world, second economy in the
08:13euro area.
08:13It is it has a very diversified economy. It has low energy price. It has also, you know, strong savings
08:22from households.
08:23And so they see the strengths of the of the French economy.
08:29And I don't think they change their mind in terms of how they see the French economy and its trends.
08:36The thing is, they also look at our fiscal situation, and we need to deal with that and to put
08:43it back into order.
08:44Yeah, and when we talk about the state and the outlook for the economy, not just in France, but the
08:49eurozone energy,
08:49as we talked about earlier on, it's important for inflation. It's important for the economic outlook.
08:53There's a lot of concerns out there. And there's, to be fair, only so much a central bank can do
08:58to contain that with monetary tools.
09:00Do you think that maybe there are structural things that the eurozone can do to address inflation,
09:07make sure that energy security does not feed into inflation in an unwieldy fashion
09:12and thus put more too much of an onus on monetary authorities to try and control inflation?
09:16You're right. I think it's very important that we reduce our dependence on fossil fuels,
09:21both for economic reasons, but also for climate reasons.
09:26And it is, you know, the policy that we are pursuing at the European level
09:31in order to increase the amount of renewable energy, but also invest in nuclear for some countries.
09:39And I think it's very important to pursue this policy in order to be less dependent on fossil fuels.
09:44We have been able to reduce the component of the energy component of GDP in the last 10 years,
09:52and I think we should continue on this way.
09:56And I bring that up also because France is known as a leader in nuclear energy
09:59and arguably still has the highest nuclear energy per capita in the world.
10:02Do you think France can play a bigger role in perhaps promoting this as a possible sustainable energy of the
10:08future
10:09and perhaps assuage some of the concerns that linger about safety and security with regards to nuclear energy?
10:14Well, I think it's a very safe energy. It's for the government to do.
10:17It's not really the central banks to deal with that.
10:19But it's true that having this nuclear energy in France, having electricity, which is 75 percent coming from nuclear energy,
10:29it's carbon free, it is cheaper, and clearly it makes us less dependent on other countries
10:37and part of the world where there are conflicts, etc.
10:40So I think it's a good way to go.
10:44Some other countries are making the choice of renewable energy, wind or solar.
10:48That's good, too.
10:49I think a combination of the two is also the appropriate mix.
10:52Governor, I have to ask you a question with regards to the budget
10:54and how that might perhaps impede your ability in your role as a governor
10:58because there's been a lot of proposals to bring down debt in France from either side of the political spectrum,
11:04which you've remarked on as maybe something that needs to be reviewed on.
11:07And you've caught a lot of flack from both the left and the right, and some of the attacks come
11:11in a bit nasty.
11:11I do wonder about whether or not markets have to be worried about some of this political dissonance
11:18and these attacks perhaps impeding your ability to operate as a central banker with independence.
11:23What do you have to say about this?
11:26No, I don't think so.
11:28You know we are in a campaign, so it's time for people to make proposals, etc.
11:35And it's always a little bit more difficult when you are in a presidential campaign than otherwise.
11:41But, you know, I'm independent.
11:43I was appointed for six years.
11:44I act within the framework of my mandate and within the framework of the European treaties.
11:51And I act within the governing council of the ECB.
11:56We are 27, so we take decision at 27, mostly through consensus.
12:01So I'm, you know, I don't have any difficulties to exercise my role.
12:06And I benefit also from the solidarity of my colleagues.
12:12And here's to hoping that you can continue to operate in an independent fashion as well.
12:16Governor Emmanuel Moulin from the Banque de France, thank you for joining us today on CNBC.
12:19Fascinating conversation.
12:20And we look forward to the next time we can converse about matters perhaps in a more stable scenario
12:25and fewer challenging conditions for yourself and the Eurozone as well.
12:29Thank you.