French PM urges ECB to cut rates to boost growth

French Prime Minister Francois Bayrou urged the European Central Bank to cut rates faster to help bolster economic growth in Europe now that inflation is back to normal levels, saying it was crucial to compete with superpowers like China and America.

“When will the European Central Bank actively support the economic activity of countries in the (European monetary) Union?” Bayrou said in an interview with La Tribune Dimanche newspaper.

“The ECB will have to cut rates too. If it doesn’t, we won’t be on equal terms with Chinese and American competition,” he said, in a rare comment on monetary policy by a French leader.

The ECB cut interest rates by 25 basis points on Thursday, the fifth time since June, lowering the rate that the central bank pays on deposits to 2.75% from 3.0%.

However, rates remain significantly higher than before the inflation shock brought on by the Russian invasion of Ukraine and the subsequent rise in energy prices, making borrowing costs more expensive for households, companies and weighing on growth.

Inflation in France is now below the ECB’s 2% target, lower than in the wider euro zone, where it was last at 2.4%. French unemployment has also started rising again and the French economy contracted by 0.1% in the final quarter of 2024.

Some economists have questioned whether the ECB was not “behind the curve” in cutting interest rates, which are still at a level restricting growth despite the euro zone flirting with recession, the German economy contracting and inflation abating.

In the interview, Bayrou also confirmed he would use special constitutional powers to pass the French budget, as expected. France has entered 2025 without a budget because of the fall of the previous government.
Source: Reuters