François Villeroy de Galhau: What can monetary policy do? Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the House of Finance Days of Paris-Dauphine University, Paris, 14 March 2016. *  *  *  Ladies and gentlemen, It is a great pleasure for me to participate in this first edition of the House of Finance Days of Paris-Dauphine University. In order to “[imagine] the finance of tomorrow” – to quote the theme of this event – it is essential to understand all facets, and in particular to be able to decipher the prevailing environment. Through its three main tasks, the Banque de France plays a key role as, firstly, it implements monetary strategy, as a member of the Eurosystem alongside the European Central Bank in Frankfurt; secondly, it ensures financial stability, by supervising the banks, insurance firms and, more generally, the financial system; and, lastly, it provides an economic service to households and SMEs/VSEs. Today I will focus on the monetary policy that we conduct in the framework of the Eurosystem. Monetary policy has long been considered a technical or even an austere subject. But, since 2008, it has been far more widely discussed: central banks in different countries have played a major role, and a role largely hailed as positive, in exiting the crisis. Today, however, their actions to address the persistence of very low inflation are subject to debate. I would first like to talk about our objective, then our instruments and their effectiveness.
They have translated into a substantial easing in borrowing conditions for euro area companies. Since June 2014, the cost of borrowing for businesses has fallen by 80 basis points. Without non-standard measures, we estimate that we would have had to lower key rates by around 100 basis points in June 2014 to achieve a similar effect on bank interest rates. This has also helped to stimulate lending to the real economy: in the euro area, outstanding loans to businesses have gone from a contraction of -2.5% in June 2014 to growth of 0.6% in January 2016. The impact is even more marked in France, where outstanding business lending grew by 4.8% year-on-year in the first month of 2016 - the highest pace of growth in the euro area and, what’s more, with the lowest rates of interest. Convergent estimates from the ECB and the Eurosystem indicate that, all other things being equal, the measures introduced since June 2014 should add 1 percentage point to inflation over the period 2015-2017, with a similar impact on growth. In France, they helped to boost 2015 growth by 0.3 percentage point, and estimates from INSEE even put the  BIS central bankers’ speeches  3  impact slightly higher at +0.4 pp. That represents about 80,000 additional jobs for the economy - although only structural reforms can generate lasting gains for a country’s growth and employment.