France's central banker sounds alarm bell over public spending

FILE PHOTO: Governor of the Bank of France Francois Villeroy de Galhau delivers a speech to open a conference entitled "Bretton Woods: 75 years later" in Paris, France, July 16, 2019. REUTERS/Philippe Wojazer

PARIS (Reuters) - Growth in France’s public spending is reaching dangerous levels even when taking into account the exceptional stimulus plan to support the coronavirus-ravaged economy, the country’s central bank head said on Saturday.

“There’s a real alert and it is time to regain control (over public spending),” central bank head Francois Villeroy de Galhau told France Inter radio station.

“We can’t afford everything all the time,” he added, saying that France’s public spending has grown at a pace of 1% in real terms over the last 10 years.

France announced a 100 billion-euro ($117 billion)stimulus package last month. This equates to 4% of gross domestic product, meaning France is ploughing proportionally more public cash into its economy than any other big European country.

Villeroy said France’s welfare system was comparable to that of other European countries, which showed there was an “efficiency problem” in the way money was spent.

“There is a justified debt which is the COVID debt, there is a dangerous debt which is the one under which we would live beyond our means for a long time,” Villeroy said.

Villeroy underlined the risk that a lasting slippage in public spending could increase borrowing costs, making French debt increasingly expensive to repay. In an extreme case, it could even make it impossible for France to continue to borrow in the markets.

Credit rating agency S&P kept its AA rating on France’s long-term debt on Friday, saying it believed France’s recent economic, budgetary and structural reforms have improved the economy’s capacity to face the COVID shock.

($1 = 0.8538 euros)

Reporting by Mathieu Rosemain; Editing by Christina Fincher