Europe’s economy started 2026 on a strong footing following growth of 1.5% last year and inflation near the ECB’s 2% target, Villeroy said. He said the bank had modeled three scenarios for the impact of a negative supply shock on the economy, and none showed that a recession was likely.
Turning to fiscal policy, Villeroy said that while some countries, including Greece, Portugal, and Spain, had made progress in reducing budget deficits, “some of our countries, including mine, have homework to do.”
Although France has reduced its deficit from 5.8% of GDP to 5.1%, “this is still too much,” he added.
“The main challenge we have is about innovation and productivity,” he said, arguing that European policy makers must carry out the recommendations in the 2024 Draghi report, including uniting the bloc’s fragmented capital markets and investing more in AI, energy, and defense.
He said that the “new world order” was a “significant wake up call for… the European economy.”
“Believe, me it has been listened to.”
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