Part II.  Financing for Growth

30 Apr, 2019 13:23

Singularity Financial: Back on France, you expressed positive comment on President Macron in 2018 for leading France into new growth.  Now looking at the fundamental momentum of the three areas you prioritized, i.e., labor as a factor for growth; capital by tax reform, and increase of productivity, how satisfied are you? What are the measures to do better still?

Christian Noyer: I think my analysis and hope are more true than ever.  It’s fortunate that just a couple of days ago, the OECD has issued an analytical study on France, and they were extremely positive on the effect of those structural reforms. The OECD has expectations not only on the major reforms of labour market and the tax regime, but also education, vocational training, and unemployment benefit.   The expectation for growth potential should increase by 0.3 to 0.4 per year. And that the overall per capita GDP will increase between 3% to 5% the next few years.

That’s very significant.  From my point of view, the OECD among the international institutions is the one that has been studying more carefully and profoundly, particularly on issues of structural reforms and the effects of social reforms. So I think they are in principle relatively credible.

But even the some of the measures taken after all the so called crisis of the yellow jackets on the western side, interesting episode are much less dramatic than what is often portrayed abroad. One of the positive measures was to increase, for instance, the actual income of people  coming back to work in the low range of earnings. And this is seen by the OECD as extremely good for increasing the willingness to work, the capacity to take part in the labor market. And that should also contribute to increase potential growth.


Singularity Financial: What is the status of financial stability and viability of the Eastern Europe part of the European Union?  

Christian Noyer: Well, in the Eastern part, the situation is contrasted, but I think the major concerns have been dealt with.  The western banks have invested more.  In Poland, for instance, we have French banks and other western banks that have been invested and were able to restore the competitiveness and credibility of their new subsidiaries.

As globally speaking, the financial sector is better, these economies are trying to attract capital from other places as well. And It is true that the level of foreign direct investment is high, especially coming from the west, from Germany, France and the other countries, and this has been the basis for the development of the manufacturing industries in these countries.

So one has to see that the capacity to finance these economies comes through the western part of Europe.  I don’t think there are major concerns in this regard.

Singularity Financial: What so you see the role and effect of the BRI investment in Eastern Europe?

Christian Noyer: The Belt & Road Initiative investment from China in this part of Europe seems to be more interested on harbors and facilities etc. on the road between China to Europe. But I think the economic development of the eastern part of Europe, and the EU, is more financed by all the programs delivered by the EU in itself.

This has been the case for a number of years, and has a significant impact on the rate of growth in those countries in terms of increase in production capacity, and the rate of potential growth. I think that will maintain the main drive for the years to come.  Therefore, both the financing for economic development program and foreign direct investment these countries receive from western economies or other parts from within the EU are so important that they are still the mainstream.


Singularity Financial: Could NPL (Non-Performing Loans) be an issue in this part of the EU?

Christian Noyer: It’s true that we had gone through this problem of excessive rate of non-performing loans. Part of this was sometimes due to the anchor of loans to the currencies that later devalued, which led to difficulties for these countries to fulfill their obligations.

It is typically something that should have been prevented, so it had been dealt with and was restructured. And we had some problems in country like Hungary, where the government is regulating to a certain degree that may be beyond necessary from the rational economic point of view. But it is not all the generic case in Easter Europe. As a matter of fact, for example, Slovakia, and the members of Baltic countries in the Eurozone are and potentially will be safe in this regard. So this was only limited to a small part of countries. And I think the most delicate part of this story is already gone. This is not a major concern for the years to come.


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