François Villeroy de Galhau: Monetary policy in the euro area - was it too late? Or could it now be too much?

Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the European Central Bank – Centre for Economic and Policy Research – Bank of France Conference on "Monetary Policy Challenges for European Macroeconomics", Paris, 25 September 2023. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Ladies and gentlemen,

It is my great pleasure to welcome you to the 'Monetary Policy Challenges for European Macroeconomies' conference. As you know the conference is jointly organised with the European Central Bank, CEPR and the Journal of Monetary Economics. The programme features some of the most distinguished economists in the field of monetary economics, and I would like to welcome in particular my colleague Philip Lane, the Chief Economist of the ECB, who will give a speech tomorrow, and our two keynote speakers, Hélène Rey and Jordi Gali. Central bankers are always eager to learn from academics: we need high quality research to provide good policy.

The conference aims to present recent studies with a focus on European questions. It is a welcome initiative as an overwhelming majority of applied macroeconomic research focuses on the US. This is for understandable reasons, given the size of the US economy, but I daresay that European questions are really worth exploring further. First, the euro area is the world's third largest economy. Second, and most importantly, the euro area constitutes a unique endeavour, in which 20 countries have freely and peacefully decided to unite their efforts and create a joint currency. This currency union will celebrate its 25th anniversary next January. It has resisted severe stress tests – most recently Covid and war – and has garnered ever increasing popular support: today 78% of citizens in the euro area support our single currency, up from 68% in 1999. Despite its remarkable success, the largest currency union in the world gives rise to specific economic challenges. In the remainder of my talk I will elaborate on the current situation in the euro area, looking back at the inflationary episode that started in 2021.

To set the scene I would like to discuss two criticisms that have been directed at our monetary policy (and other central banks'): (i) we allegedly reacted too late when inflation started to rise; (ii) we could run the risk of doing too much today.