and innovation gaps thanks to productive investment. but unfortunately, this key debate over the quality of spending is the blind spot in our european democracies. ii. public finance in france now, allow me to illustrate these principles with reference to the country i know best. in france, we sometimes have a strange relationship with austerity : we are the country that fears it the most but one of those that practises it the least. this unfounded fear distracts us from our real problem : the weakness of our growth and the excessive cost of our public services even though we have the same social model as our neighbours. i strongly believe in our european social model, which is not a handicap but one of our strongest common european assets. and let me be clear : i am not promoting austerity – with cuts in public expenditure – but moving gradually towards a stabilisation of public expenditure in real terms. our challenge is the 10 percentage - point differential between our government spending - to - gdp ratio and that of the rest of the euro area : since 2008, the pace of growth rate in our public expenditure has diverged significantly from that of gdp growth, in contrast to germany or the rest of the euro area. we are starting with a public debt of 115. 7 % of gdp at the end of 2020, which is almost twice as high as 20 years ago : under a no - policy - change assumption, with potential growth of around 1. 1 % and a rate of public spending growth in real terms of around 1. 1 %, which is close to the trend over the last ten years, we will only succeed in stabilising our public debt at this high level over the next decade ; this would be a dangerous strategy given the risk of a new exogenous economic crisis or an interest rate shock. but we can write a more positive script to avoid this trend - based scenario. it involves a combination of three ingredients : time - only start to reduce our debt ratio once we are economically out of the covid crisis, hence after 2022, and adopt a tenyear strategy ; growth – which will generate revenue but not miracles ; and more controlled and efficient public spending : zero growth – i. e. stabilisation – of total public expenditure in real terms at constant taxation rate would reduce the debt to around 100 % of gdp in 2032. real expenditure growth of 0. 5 % per year would reduce the debt to around 110 % of gdp. the government ’

eurofi high level seminar – lisbon, 16 april 2021 what fiscal policies beyond monetary policy support? speech by francois villeroy de galhau, governor of the banque de france ladies and gentlemen, i am very happy to join you today. i would like to extend my warmest thanks to didier cahen and david wright for fostering the fruitful european spirit that we all cherish, despite the difficulties of the moment. as you know, the ecb silent period has already started, so i won ’ t say a word on monetary policy. however, this will give me the opportunity to tackle a core issue of our incomplete economic union besides our successful monetary union : fiscal policy. monetary policy cannot be – and fortunately no longer is – the only countercyclical tool available in the euro area. there are two other links between monetary and fiscal policy to which i would like to draw attention : an accommodative monetary policy, as we have today, supports an active fiscal policy. the second is the risk of a bank - sovereign loop, which as supervisors we are keen to avoid. let me nevertheless stress that i have no such fear for the country i know best : french banks since 2014 have decreased their exposures vis - a - vis public debt in absolute terms and have done so dramatically as a proportion of their balance sheet. i will first talk about the “ fiscal ” lessons we can draw from the covid crisis for europe ( i ). i will then turn to the national level and illustrate these principles with reference to the french situation ( ii ). i. improving europe ’ s future fiscal rules the eu and its member states have reacted vigorously in 2020. the ecb ’ s balance sheet is now double the size of the fed ’ s as a percentage of gdp. and active fiscal policy was of the essence. in 2020, covid - related discretionary measures were stronger in the united states than in the main euro area countries. however thanks to our social model and its higher automatic stabilizers, the overall 2020 fiscal stimulus in the euro area was almost as strong as in the united states : having said that, what can explain the larger loss of gdp in 2020 in the euro area compared to the united states? according to the banque de france ’ s work, much [ 80 % ] of the difference in losses is due to something other than public support. in southern europe, about 40 % is explained through effective constraints on economic activity, and 40 %