ECB, Fiscal Policies Must Align to Avoid UK Mess, Le Maire Says

James Regan
·2 min read

(Bloomberg) -- The European Central Bank and euro-zone governments need “perfect coordination” on monetary and fiscal policy to avoid making similar mistakes to the UK, French Finance Minister Bruno Le Maire said on Thursday.

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The errors that led to British Prime Minister Liz Truss’s confrontation with financial markets and her subsequent exit show how countries cannot afford to do “anything at all” with public finances, he told BFM Business television.

“We need perfect coordination between monetary and budgetary policy,” Le Maire said. “When monetary policy becomes more restrictive, because you have to fight inflation -- everyone’s strategic objective is to return to 2% inflation because this inflation is intolerable both for households and for firms -- when the ECB tightens its monetary policy, fiscal policy must also be more responsible.”

Asked about interest rates in the euro zone ahead of an ECB decision on Thursday that will likely result in another hike, the minister said it wasn’t his job to pass comment. However, he urged governments not to work against central bank policy.

Read more: ECB rate decision preview - 75 basis-point hike expected

“I have to make sure, with all the other European finance ministers, and I do it every day, that our fiscal policies are coordinated with monetary policy and that we don’t do the opposite of what’s been decided by the ECB with our state budgets,” he said.

“Our priority, our ambition, our fight, is to return to more reasonable inflation. Life will be better for everyone when we have more reasonable inflation.”

Le Maire’s remarks differ in emphasis from those of his boss, President Emmanuel Macron, who appeared to warn last week against too-aggressive tightening to rein in consumer prices.

“I’m concerned to see lots of experts and certain European monetary policymakers explaining to us that we need to break demand in Europe to better contain inflation,” he told Les Echos newspaper.

Read more: Macron Warns Policymakers Over Busting Demand to Tame Inflation

Italy’s new premier, Giorgia Meloni, also warned on Tuesday that raising rates “is considered by many to be a rash choice” in a direct attack ahead of this week’s decision.

By contrast, German Deputy Finance Minister Florian Toncar told Bloomberg Television that the ECB doesn’t need much advice on what to do, although he observed that the euro’s weakness risks stoking consumer prices further via imports.

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