November 29, 2018 / 5:43 PM / 19 days ago

ECB's Villeroy warns on global risks, cautions Italy on deficit

European Central Bank policymaker Francois Villeroy de Galhau, who is also governor of the French central bank, attends the Paris Europlace International Financial Forum in Tokyo, Japan, November 19, 2018. REUTERS/Toru Hanai

ROME (Reuters) - French central bank chief Francois Villeroy de Galhau said on Thursday several risks faced the global economic outlook, including rising protectionism in the United States, and warned Italy about its budget plans.

Villeroy, a European Central Bank policymaker, told a gathering of students that risks in Europe had already been spelled out by the European Central Bank.

Outside Europe, he cited “the U.S policy mix,” with rising protectionism and “fiscal stimulus when there is already an almost overheating economy.”

He also mentioned “some emerging economies where debt has increased significantly, especially private debt.”

Turning to Italy, he said government plans to boost budget spending will not automatically translate into higher growth and public debt cannot rise indefinitely,

“If public deficits and debt were the key to growth, then our two countries (France and Italy) would be the growth champions of Europe; unfortunately that is not the case,” he said.

“In the short term, a bigger deficit will not necessarily have a positive impact on growth, if it is also accompanied by a higher risk premium on interest rates,” he added.

Italy has been locked in conflict with Brussels over its plans to spend more next year than allowed under European Union rules, raising the prospect of a drawn-out battle and sanctions on one of the bloc’s biggest member states.

“In the longer term, no country can allow its public debt to rise indefinitely. Aside from the risk of bankruptcy, there is also a question of fairness; it is a burden that is passed onto future generations,” said Villeroy, who is often mentioned as a candidate to succeed ECB president Mario Draghi.

Reporting by Gavin Jones; Writing by Balazs Koranyi; Editing by Andrew Heavens and Crispian Balmer

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