François Villeroy de Galhau: Challenges and opportunities in Europe and beyond Keynote address by Mr François Villeroy de Galhau, Governor of the Bank of France, at the 2018 Paris Europlace International Financial Forum, Tokyo, 19 November 2018. * * * It is a pleasure to be with you again in Tokyo, with my colleague and friend Governor Kuroda. This 22nd edition of the annual International Financial Forum is focused on the disruptive world that Europe is facing. But beyond disruption, the world is also increasingly uncertain, with tensions coming from protectionism, rising oil prices, a controversial policy-mix in the United States, and equity market valuations that remain volatile; but also, within Europe itself, the Italian fiscal policy and Brexit. So in my remarks today, allow me to elaborate on these two dimensions: the challenges and opportunities for Europe, but also the global questions that we have to address collectively. **  1. Our European challenges and opportunities Let me first speak about the gradual normalisation of our monetary policy. The broad-based expansion of the euro area economy is continuing, although at a more moderate pace. Despite a slowdown in the first half of the year, GDP growth is still expected above potential in 2018, even if the output gap is closed. 9.2 million jobs have been created since 2013 and the unemployment rate has fallen from 12.1% to 8.1%.
Second, we have seen a steady decrease in dependency ratios, which has stimulated excess savings and therefore lowered the equilibrium rate. This trend, too, will reverse soon, as the increase in the share of the elderly population will outpace all other population groups. Dependency ratios around the world will rise, which will buoy the equilibrium rate. Third, inequality has risen in past decades, again adding to the increase in the mean savings rate. But note that we are now observing a decrease in (at least) wage inequality in many countries, including the Czech Republic. Inequality, broadly defined, has decreased in most countries around the world since the crisis (World Bank, 2016). I believe that the discussion on inequality tends to be overly pessimistic. Fourth, more and more developing countries have been getting fully integrated into the world economy, releasing their supply of savings into global markets and giving rise to the notion of a “savings glut”. I see no reversal here, which means that this factor will continue to depress the equilibrium real rate of interest. Fifth, the relative price of capital goods has been decreasing. In consequence, capital has become cheaper relative to labor. This is reducing the total demand for capital (when counted in nominal terms) and thus lowering the equilibrium rate. Again, this trend is likely to continue. Sixth, we have witnessed a preference shift away from infrastructure projects, which is again reducing the demand for capital. In many countries, environmental regulations have made it difficult to invest in infrastructure.