francois villeroy de galhau : france – economic developments and reforms, where are we heading? speech by mr francois villeroy de galhau, governor of the bank of france, at the economic club of new york, new york city, 18 april 2018. * * * accompanying slides of this speech. ladies and gentlemen, i am very pleased and honoured to give this speech to the economic club of new york. the theme of my speech is “ economic developments and reforms in france ”. one year ago, you would probably not have suggested it. this shift tells something : france is currently going through exciting times and deserves a close scrutiny. [ slide 1 ]. before addressing the subtitle of my speech “ where are we heading? ” i would like to ask “ where are we starting from? ” as about everywhere among the advanced economies, france experienced a decline in its potential growth from 2 % in the 1990s to about 1. 3 % currently. potential growth could be higher, as in several other advanced countries. an increase would indeed be necessary to face the headwinds of high public debt, ageing and environmental transition, while safeguarding the european social model. if funded, this european social model is a long term economic asset, while bringing more education and more cohesion [ slide 2 ]. there are two other more specific challenges for france. the first one is a persistently high unemployment, which never fell below 7 % since 1983. the second one is high public expenditures, the highest among eu countries in 2016 ( as a share of gdp ). yet, france also enjoys major assets. first, a high investment rate, which has returned to its 2008 peak for private non - residential investment – close to the us level, indeed – and remains above the euro area average for public investment. it also has a wealth of fast - growing innovative firms according to deloitte. [ slide 3 ] second, a high level of hourly productivity, on a par with germany and the united states, but with a more dynamic working - age population than in the rest of europe, which will support potential growth in the medium term. [ slide 4 ] that ’ s where we are starting from. i would like to underline that we are enjoying a favourable momentum, which offers a window of opportunity for reform. this opportunity is indeed being seized to implement ambitious and consistent reforms, so yes, france is heading in the right direction and at a fast pace. [ slide 5 ]

well as in the euro area as a whole ( 1. 7 % and 1. 3 % respectively for year - on - year harmonised inflation rates in march ) have been decisively supported by our non - standard monetary policy measures. we are now following our central course of gradual normalization. and there is at present a high convergence in our views within the governing council : whether our net asset purchases stop in september or december is not a deep existential question. along with this clear sequencing of gradual normalisation, we also agree that our monetary policy will remain accommodative for an extended period of time. in particular, keeping a sizeable stock of assets is key for easing financial conditions over a long horizon by compressing term premia. so we are predictable, but we are not precommited. what could slow down this course of gradual normalisation? certainly not fiscal dominance : let me be crystal clear, nobody should expect us to delay a warranted monetary normalisation in order to accommodate the debt problems of any member state. instead, we should pay close attention to a possible cumulative risks scenario, the likelihood of which has increased recently : an adverse loop of protectionist threats, unfavourable exchange rate movements, and abrupt financial markets corrections. such a negative loop would tighten financial conditions, and deteriorate the growth outlook in the eurozone. our monetary policy stance would then have to be adapted, depending on the ultimate impact on inflation prospects. in any case, this cyclical expansion provides an appropriate timing for reforms, especially for those that may be costly in a downturn, such as reduction in public expenditures and labour market reforms. the growth and employment performances of other european countries [ slide 9 ] in recent years show that implementing deep reforms can have large payoffs. in spain, for instance, significant reforms were implemented between 2010 and 2012 to reduce the duality of the labour market, to increase labour flexibility for firms and to strengthen active labour market policies. there have been some short - term employment costs, but france would not have to face these costs in the current upturn thanks to the supportive medium prospects, and could enjoy major benefits from structural reforms. 2. this momentum is being harnessed to implement ambitious and consistent reforms. [ slide 10 ] 2 / 4 bis central bankers'speeches however, to take advantage from these benefits, there is a need for consistent structural reforms. the success of the reforms will indeed hinge on perseverance – as no