Davos Forum: inflation caused by the conflict in Ukraine, “it’s the price to pay to defend our values”, says the Governor of the Banque de France



“Since day one of the invasion of Ukraine, Europeans have made a courageous economic choice”, declared on franceinfo Monday, May 23, François Villeroy de Galhau, on the occasion of the opening of the World Economic Forum in Davos, largely devoted to the economic consequences of the war led by the Kremlin. For the Governor of the Banque de France, “We knew it would mean less growth, more inflation, but in a way it’s the price to pay for defending our values.”

franceinfo: does the economic world also have a role to play in the conflict in Ukraine?

Francois Villeroy de Galhau: Since day one of the invasion of Ukraine, Europeans and democracies in general have made a courageous economic choice. We knew it would mean less growth, more inflation, but in a way it’s the price to pay to defend our values, to defend Ukraine and its freedom. There was also a call for help, already in the very short term, on Ukraine’s financial situation. I happened to attend a G7 meeting in Germany last week and the sum of 19 billion euros to help Ukraine has already been raised, which is more than expected. I believe that the mobilization is already very strong and this is a case where, in favor of democracy, solidarity, peace, we agree to pay an economic price.

European Central Bank President Christine Lagarde will be in Davos tomorrow, she explains that the ECB will come out of negative rates by the end of the third quarter, which means a hike in key rates by September, that’s the good thing timing?

Before returning to rates, we must return to what is the cause of our actions, that is to say inflation. In France, it is significantly lower than the euro zone average. We are around 5% against more than 7%. It’s already too much for our fellow citizens and it’s not just an energy shock. One could say that inflation is not only higher than before, it is also broader, that is to say, it is spreading to a set of goods and services. This is a sign that the central bank must act in the direction of what can be called normalization.

Does this mean that the money will cost more?

This normalization is a form of return to normal. Until now, there was not enough inflation and therefore we had money that was at exceptionally low rates, even negative rates for the States. Here, we will start by taking our foot off the inflation accelerator. There is no longer a need for it today and we will return to interest rate conditions which will remain favorable. This has an essential objective, which is to bring inflation down to 2% by 2024. This is not just our forecast, it is our commitment.



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