Eurozone leaders must end “trench warfare” between creditor and debtor countries and tackle tricky reforms, the governor of the Bank of France said Wednesday, offering ways to shake up long-paralysed debates.
“It is time to forget about ideological trench warfare,” Francois Villeroy de Galhau told a Frankfurt conference.
“We have to arm ourselves with stronger economic instruments” to make sure the European Central Bank is not the only firefighter when the next economic crisis breaks out, he added.
The 19-nation eurozone booked stronger GDP growth in 2017 of 2.3 percent, after years suffering the shockwaves of the 2008 financial crisis.
But critics say central bank largesse rather than effective reforms has been the crutch for the creeping return to expansion.
Meanwhile eurozone leaders have been locked in a “sterile division between northern Europe and southern Europe” that has prevented necessary reforms to areas like bank deposit insurance or bankruptcy rules for governments, Villeroy de Galhau said.
“To work well, our Union needs both risk reduction mechanisms and risk sharing,” he insisted, two principles often seen as incompatible by national capitals.
Existing plans for a capital markets union, banking union and a European Commission plan for public sector-led investments could be bundled to produce a more ambitious “financing union” package that would support growth and innovation, Villeroy de Galhau suggested.
Meanwhile reform laggards should follow French President Emmanuel Macron’s example by pressing structural changes to the economy rather than waiting for help from Brussels, while chronically thrifty nations like Germany should spend more to increase demand.
The eurozone should also set up a fund to ward off crises before they happen, he said, as well as a eurozone-wide investment budget for “common goods” like digital infrastructure or border security.
The French central bank governor’s ideas closely match the manifesto proposed by Macron, who surged to power last year on a platform of reform to the moribund single currency bloc.
In a sign the wind could be turning in the French leader’s favour, Berlin said Chancellor Angela Merkel would this week make Paris the first foreign visit of her fourth term after her swearing-in Wednesday.
Macron has been waiting impatiently for a new government in Germany since September elections, seeing revived Franco-German cooperation as the key to meeting challenges facing the single currency area.