European governments must be wary of their excessively loose budget measures that could add to inflation which is already at higher levels, European Central Bank policymaker Francois Villeroy de Galhau said Friday.
"Alongside high inflation, public debts have reached historical levels mainly due to unprecedented waves of shocks, but also, for several countries, to legacy debts," Villeroy, who is the Bank of France chief, said in a speech at a forum organized by the think tank Eurofi in Spain.
"Now that these shocks are fading, governments must avoid an overly expansionary stance that would further fuel inflationary pressures."
Villeroy stressed on the need for a more coordinated and realigned fiscal and monetary stance.
The European Central Bank, led by President Christine Lagarde, raised its key interest rates for the tenth policy session in a row on Thursday as rate-setters assessed the euro area inflation to remain "too high for too long".
However, the bank signaled a pause, possibly a long one, in the tightening cycle and guided that the current level of interest rates if maintained for long would ensure a timely return of inflation to the 2 percent target.
While inflation rates, headline and core, have eased, they remain too high, Villeroy said. Eurozone inflation slowed to 5.3 percent in August from 5.5 percent in July.
"...we must and we will bring inflation back towards our 2 percent target by 2025," the ECB policymaker said.
Reiterating the commitment to the price stability mandate, Villeroy said monetary policy is the first line of defence, and the main remedy for high inflation.
Meanwhile, the policymaker refused to make comments about Thursday's ECB decision.
The collective fight against inflation calls for a more appropriate policy mix: the revision of the European economic governance framework provides a major window of opportunity to realign fiscal and monetary policy, Villeroy said.
