DIE ZEIT: Mister Villeroy de Galhau, when you close your eyes and think about Europe, what do you see, red lines or new horizons?
François Villeroy de Galhau: I prefer keeping my eyes open! We can then see an improving economic situation. We expect 2.2 per cent growth for the Eurozone in 2017. Unemployment is decreasing: Eurozone has created 7 million jobs since the beginning of 2013, and monetary policy played a significant role in this recovery.
ZEIT: The new French president Emmanuel Macron talked about "new horizons" for Europe and FDP party leader Christian Lindner in Germany before the election set "red lines" for European policy. What do we need?
Villeroy de Galhau: We should probably have both: red lines and new horizons.
ZEIT: That is a very diplomatic answer.
Villeroy de Galhau: No, I am convinced about this. Let's - finally - stop to oppose "German rules" and "French visions". The Germans stress – and they are right – that we need on the domestic scenes more reforms, starting in France. But we also need on the European scene a stronger economic union. Remember what we agreed upon in the Maastricht treaty 25 years ago. It was an economic AND monetary union. Monetary union is a success, for the Economic union there is still work to be done. This work is necessary to avoid that "monetary policy is the only game in town", a well-founded German worry. And to reduce unemployment in Europe, still too high at 9%, while strengthening our collective resilience in case of another crisis.
ZEIT: I would not call the monetary union a success as it nearly broke apart some years ago. But let us talk about the economic union that you say still has to come. What do you mean by that?
Villeroy de Galhau: As the euro is supported by 81 % of the Germans, as it resisted to the worst financial crisis, monetary union is clearly a success. On economic union, we first need domestic reforms, and we now see them implemented in France. But we also have to strengthen the Eurozone. There are three suitable accelerators for that: First, a Financing union for investment and innovation, in order to better use European excess savings of 350 billions yearly. We proposed this Financing Union together with my colleague Jens Weidmann, President of the Bundesbank, as early as February 2016. Second, a better Economic policy coordination: as there are more reforms in France now, there is also room for stimulus in other countries like Germany.
ZEIT: You want to propose a public investment programme for Germany?
Villeroy de Galhau: Which type of
stimulus Germany chooses is obviously up to its own choices. It could be public
investment as proposed in the unanimous report of the commission headed by the
economist Marcel Fratzscher in 2015. It could be tax cuts for German
households, or it could be wage increases as Jens Weidmann mentioned some years ago.
ZEIT: Are the Germans ready for a stimulus?
Villeroy de Galhau: Each of these possibilities has been raised in the German internal debate, and the IMF also suggested them in its latest report. More broadly, economic policy coordination should mean a better collective strategy in the Eurozone. In the past the discussion has been somewhat unproductive, between the advocates of domestic reforms, and those of economic policy coordination. The simple truth is that both are necessary.
ZEIT: Beyond economic policy coordination, what about a common budget?
Villeroy de Galhau: As proposed by President Macron, it is the idea that we have some common goods that should be financed collectively, such as defence, external borders protection, digitalisation, refugees crisis management. Part of it could be financed through private savings: this is what I call the Financing Union for Investment. And part of it will require some common public expenditures, which would benefit to all countries including Germany. So this budget, the third of the three accelerators I mentionned, would be in no way a "Transferunion". A Transferunion on the contrary would be a one-way budget with always the same countries contributing or the others benefiting. And in that case, I would understand German fears.
ZEIT: In Germany after the elections it will be more difficult for this idea. The FDP is in discussions about forming a government with the CDU and the Green party. And it is opposed to a common budget for the Eurozone and calls it a "collectivisation of debt".
Villeroy de Galhau: The Banque de France and its Governor have been fully independent for 23 years now. I obviously don't have to comment the German political scene developments. But I trust our German friends to go now somewhat beyond traditional fears. Germany is very committed to the Eurozone. Germans are very positive towards the Euro. According to all economic analysis each country has benefited from the Euro, but Germany has benefited the most. France is reforming itself courageously. It is the right time to build for the future: now or never.