Green QE not legally possible, says Banque de France’s Villeroy

April 30, 2024|Written by Moriah Costa|Banque de France, European Central Bank

Funding the green transition through central banks is not economically or legally feasible, Banque de France (BdF) governor Francois Villeroy de Galhau said on 22 April.

Speaking at an event at the l’Institut de la Finance Durable in Paris, Villeroy – who is also a council member of the European Central Bank (ECB) –  said it was an “illusion” that central banks could provide public financing through quantitative easing or monetary financing. This would not only create inflation but is not legally possible under the European treaties.

“We need to resist the magic wand temptation,” he said.

France’s far-right party, the National Rally, wants the ECB to use quantitative easing to fund climate investment while, at the same time, would like the EU to reconsider the European Green Deal which aims to make the bloc carbon neutral by 2050.

Meanwhile, French president Emmanuel Macron endorsed dual interest rates for green projects, something ECB executive board member Isabel Schnabel said could be considered when interest rates decline. On Thursday, Macron went a step further, calling on the ECB to expand its remit to include decarbonisation.

Villeroy said the ECB and BdF are fully committed to combating climate change.

“The Banque de France has been recognised as the greenest central bank in the G20,” he said, referring to the Green Central Banking Scorecard.

“Along with the ECB, [the BdF] is a pioneer both as a supervisor – climate risk monitoring and stress tests – and as a monetary authority – greening of monetary policy operations, climate macroeconomics”.

While some public financing is possible, private financing will be needed to transition to a global green economy. However, more incentives are needed across regulation, subsidies, carbon pricing, or a combination of all three.

Despite its unpopularity, carbon pricing is “an economic no-brainer”, Villeroy said.

“Whatever form it takes, carbon pricing will have to be global – not just national or European – and socially equitable”.

Villeroy also said he supports calls for a capital markets union and, in particular, a savings and investments union which would be used to support the “ecological transition”.

“We have no choice but to take action: every day we are increasingly witnessing the adverse, albeit foreseen, effects of climate change. Let’s not give in to resignation and inaction: the Paris Agreement remains a decisive achievement,” he said.

This page was last updated April 30, 2024

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