ROME (Reuters) – Increased budget spending by Italy will not automatically translate into higher growth and public debt cannot rise indefinitely, French central bank chief Francois Villeroy de Galhau said on Thursday.
“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,” Villeroy, a European Central Bank policymaker, said in Rome.
“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,” Villeroy, who is often mentioned as a candidate to succeed ECB president Mario Draghi, said.
(Reporting by Gavin Jones; Writing by Balazs Koranyi; Editing by Andrew Heavens)