francois villeroy de galhau : monetary and fiscal policy - mix addressing the disease of inflation speech by mr francois villeroy de galhau, governor of the bank of france, at the eurofi financial forum 2023, santiago de compostela, 15 september 2023. * * * ladies and gentlemen, it is a great pleasure to be here for this final day of the traditional september eurofi meeting, and i extend my warmest thanks to didier cahen and david wright for organising this event, this time in the holy city of santiago de compostela. let me start with good news about a favourite eurofi topic : banking regulation and basel 3. i say it as bis chair and former chair of ghos : we had in monday an important ghos meeting in basel, and we unanimously welcomed the decisive progress made this year in the implementation of basel 3. by 2025, all jurisdictions – including europe and – yes – the us – should have implemented it in a broad compliance with the standards. i know each banking industry, on both sides of the atlantic, tends to consider that the other side has undue advantages. it's simply not right, and our motto is now straightforward : let us now close this page, and implement the european compromise, no less and no more. no less as some banks would perhaps still dream of, and no more as some theoreticians of regulation would perhaps imagine. and we should now turn to the priority learned from the banking turmoil : " strengthening supervisory effectiveness " i rather than focusing on further regulation. let me now turn to my theme which is the policy mix to fight our main economic disease : inflation. well, santiago has not yet produced a miracle for inflation, but there is indeed some encouraging news : headline inflation has passed its peak since the beginning of 2023, and it seems that core inflation is following suit. indeed, the latter started to recede, to stand at 5. 3 % in august ( down from 5. 5 % in july and 5. 7 % in march ) in the euro area. obviously, these inflation rates remain too high : we must and we will bring inflation back towards our 2 % target by 2025. i reiterate this morning this clear commitment which is fully consistent with our latest ecb forecasts. monetary policy is the first line of defence, and the main remedy for this disease. i won't make comments about yesterday's governing council and monetary decision

to ensure fiscal discipline. in other words, in the famous rules / discretion debate, we need indeed more discretion - but not too much ; and we need less mechanical or obscure rules, but we still need rules. the set - up should indeed ensure binding thresholds for the minimal annual adjustment of public finances. let me add that the more we progress effectively on national fiscal discipline, the easier we could envisage a common fiscal capacity – which we badly need. mario draghi eloquently advocated it recently, v and i wish it will be part of his new mission on competitiveness in europe. to conclude, let me borrow a fundamental principle from physics, stated by isaac newton : " when two forces unite, their efficiency double ". well, it is time to combine the two forces of our monetary and fiscal policy, towards a greater efficiency of our euro area economy and to the benefit of our citizens. thank you for your attention. i press release : governors and heads of supervision endorse initiatives in response to the banking turmoil and reaffirm priority to implement basel iii. ii eurogroup statement on the euro area fiscal stance for 2024, press release, 13 july 2023. iii c. bouthevillain, s. debu, towards a much - needed reform of eu fiscal rules : the european commission's proposals, banque de france bulletin no. 246 : article 2, 21 june 2023.. iv x. debrun, l. jonung, under threat : rules - based fiscal policy and how to preserve it, european journal of political economy. v the economist, mario draghi on the path to fiscal union in the euro zone, 6 september 2023. 3 / 3 bis - central bankers'speeches