“Inflation must be considered as a disease, serious, and like any disease, it is necessary to find the right diagnosis and then adapt the treatment, to be administered as soon as possible.” Christian Delhomme, departmental director of the Banque de France and Vincent Massol, deputy, explained the why and how of the letter addressed to the President of the Republic this year, by the Governor of the Banque de France. It has been an annual exercise for more than 30 years. The Governor of the Banque de France analyzes a topical economic phenomenon and proposes solutions. This year once more, we are talking regarding inflation. Except that in 2023 it is said that France and Europe can defeat it.
Four transformations to be made to strengthen the economy
A 22-page letter with around twenty graphs explains why we are there in France (inflation at 7%), where are our European neighbors who have suffered the same external shocks as us (Covid crisis and war in Ukraine with the consequences that we know), and above all, where are we going? “Inflation has changed in nature. It has become more internal. The increase in the cost of raw materials is passed on by companies.” As a result, households, consumption, and therefore the economy, are impacted. The BDF forecasts that inflation will drop to 3.8% in the 4th quarter of 2023 and 2.5% at the end of 2024.
What solutions? Already, the monetary policy conducted by the European Central Bank must be temporary. Raising interest rates to contain the level of credit should be temporary until inflation stabilizes. Then, four major transformations must be made to strengthen our economy: Improve our vulnerability to external shocks (our debt, public and private, is 50 points of GDP more than the average of our European neighbors. In other words, we spend far too compared to what is produced). Better control inflation; increase potential growth by 1% to 1.5% per year (it is currently 0.6%) and carry out an ecological, energy and digital transformation as soon as possible. For all this, you need real capacities in terms of information and communication technologies and taking the digital turn. “We also talk a lot regarding industrialization, regarding producing in France. Let’s do it. It’s not a problem of financing, explains the Alpes-Maritimes director of the Banque de France. Note that each year 350 billion euros finance projects of our neighbours, because this envelope does not find a taker here.”
