The European Central Bank is on a “journey” toward its inflation goal as the recovery in the euro area gathers pace, but now is not the time to rein in stimulus, according to Bank of France Governor Francois Villeroy de Galhau.
“In this uncertain world, if there is a region where things go as expected or slightly better, it could be the euro area because growth is firming,” Villeroy, who sits on the ECB’s Governing Council, said in a Bloomberg TV interview in Davos, Switzerland. Even so, “we have time and we have the whole year in front of us.”
The ECB on Thursday reaffirmed its intention to keep quantitative easing going until at least the end of 2017 after a policy meeting that Villeroy described as “short and easy.” Accelerating inflation is already causing alarm in Germany, the region’s largest economy, sparking calls to curb the 2.3 trillion-euro ($2.4 trillion) asset-purchase program. Villeroy said Germany could see a “temporary peak” in consumer-price growth.
President Mario Draghi appealed for patience, saying officials will look through faster headline inflation as long as underlying price pressures remain subdued. Discussions on tapering QE haven’t started because “inflation is not firm enough, is not sustainable enough,” Executive Board member Benoit Coeure said in a CNBC interview on Friday.
Villeroy also said his homeland is doing its best to lure financial institutions when the U.K. leaves the European Union. Banks and insurers are considering locations outside London, especially after British Prime Minister Theresa May this week indicated the country won’t remain part of the EU’s single market.
“The prime minister’s speech could mean that the city of London will probably not be able to keep its European passport,” Villeroy said. “I can only say we are mobilized to welcome financial actors in Paris, and we have very serious contacts with many of them.”
One financial activity that EU nations have their eyes on is clearing. In Davos, where clearing wouldn’t normally be a topical subject, bankers are divided on how much of the business London will lose. Coeure said it will be hard but not impossible for the city to retain its dominance in the area.
After the U.K. leaves the single market “we’ll have to know what are the new foundations, and whether this is good enough to ensure financial stability in the euro zone,” he said. Asked whether clearing could stay in London, he responded: “If the new framework is strong enough, yes. Is that possible? I don’t know, I don’t know. It sounds challenging.”