PARIS, April 22 (Reuters) - ECB interest rate cuts will help to create the right conditions for France to carry out long-overdue and much-needed budget tightening, Bank of France governor Francois Villeroy de Galhau said on Monday.
France's independent fiscal watchdog said last week that the government faces an unprecedented budget tightening if there is to be any hope of sticking to Paris' plans to cut its deficit in line with an EU limit of 3% of output by 2027.
Some economists have warned such tightening, likely of the order of 50 billion euros ($53 billion) over the period, will weigh on growth and thus the budget deficit.
Pushing back against such concerns, Villeroy said: "The times are not unfavourable for carrying out budget consolidation."
The Bank of France expects a strong economic recovery in 2025-2026 as lower inflation boosts consumers' purchasing power and fuels household spending growth while interest rate cuts spur investment.
"So the monetary policy easing period creates favourable conditions for budget consolidation," Villeroy told a news conference to present an annual report on the French economy to President Emmanuel Macron.
As inflation has eased back towards its 2% target, the European Central Bank has flagged a first rate cut in June and Villeroy has repeatedly argued for it to be followed up with others on a gradual and pragmatic basis.
U.S. stocks ended mixed on Friday, with the tech-heavy Nasdaq posting its biggest weekly decline since October 2022.
He said that while France's budget tightening should focus on keeping spending under control, the government could ill afford to ignore boosting tax income by also reducing some of the 80 billion euros in tax breaks available to households and firms.
The government has so far stuck to its no-new taxes mantra, but it is considering targeted levies like a tax on energy companies' outsized profits and corporate share buybacks.
($1 = 0.9392 euros)
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Reporting by Leigh Thomas; Editing by Sharon Singleton
