ECB official discusses market tools

Emmanuel Moulin, a European Central Bank official, acknowledged that the ECB has tools to address disorderly market movements that could disrupt monetary policy, including the ability to purchase government bonds on the secondary market. However, he emphasized that such measures are subject to strict conditions, which are not currently met, as financial fragmentation in the euro area is not observed. Moulin made these remarks during an interview in Bangkok on the sidelines of the annual meetings of the International Monetary Fund (IMF) and the World Bank.

France's debt market under pressure

France is experiencing investor distrust on the debt market, with its 10-year borrowing rate approaching 5%, a level not seen since 2002. Moulin downplayed the risk to financial stability, stating that the financial sector, particularly banks and insurance companies, is solid and can cope with rising interest rates due to high capital levels and reserves. However, he warned that the primary concern is public finances, as higher interest rates increase the burden on debt and make budget consolidation more difficult.

French budget proposal faces challenges

Moulin highlighted the complexity of achieving a 5% deficit of GDP for the French 2027 budget proposal, which is currently under discussion in the National Assembly. The proposal's adoption appears uncertain due to a lack of majority support and the approaching 2027 presidential election. The current tension in French bond rates is attributed to the country's high debt, budgetary challenges, and political uncertainties. Moulin stated that reducing the deficit, achievable through a combination of tax increases and spending cuts, is up to parliamentarians to decide.

Political backlash against ECB official

The National Rally (RN) called for Moulin's resignation, accusing him of crossing a red line by suggesting the budget could be adopted without a parliamentary vote. Moulin had previously mentioned provisions in the French Constitution allowing a budget to be passed without a parliamentary majority, potentially referring to Article 49.3 or the use of ordinances. This statement sparked a strong reaction from Jean-Luc Mélenchon of LFI.

Moulin defends ECB neutrality

Moulin responded to AFP that the increase in interest rates France pays on its debt is primarily linked to uncertainties about the budget vote. He emphasized the need for a budget that outlines a deficit reduction to minimize the interest burden. However, he stressed that the Bank of France or the ECB should not interfere in the electoral campaign for the 2027 presidential election. Moulin reiterated that the Bank of France is a politically neutral institution that recalls economic realities, such as the impact of rising interest rates on budget maneuvering and public finances.