When central bankers use Montesquieu’s quote of “sweet ties of commerce”….you know we are living in tough times

We are living in tough times for sure. It is not very often when you see a central banker say that it is “sweet ties of commerce” which are keeping us away from military conflict! Charles Louis de Secondat, Baron de Montesquieu, a 18th century thinker, was a votary of using commerce for progress and peace.

Who better than François Villeroy De Galhau, Governor of Banque de France to say these words in this speech. After all France has been central to all such conflicts. He says world faces three conflicts:

It gives me great pleasure to speak before you today. I follow in the footsteps of several Ministers of Foreign Affairs, including Jean-Yves Le Drian and Nathalie Loiseau. Caro Enrico, thank you for your invitation, knowing this makes me feel all the more grateful and honoured! The decision to switch from diplomats to a central banker such as myself perhaps sends out three signals.

First, rarely have geopolitics and economics been so closely intertwined. Faced with the rise in protectionist tensions and the verbal volleys, which unfortunately intensified again this summer, some even say that economic interdependence – the “sweet ties of commerce” praised by Montesquieu – is the only thing still shielding us from military conflict. Conversely, rarely has a global economic slowdown been so clearly attributable to political causes: nearly everywhere, public policy instability and uncertainty are on the rise and are damaging private sector confidence; I shall come back to this.

Second signal: rarely have central banks been called upon to do so much.  I’m not going to bore you with a lesson on the technical delights and subtleties of monetary policy. Let’s just say that we have a central mandate – price stability – and a main instrument for achieving this – the short-term interest rate. But for the past ten years, since the great financial crisis, we have been using new instruments: quantitative easing (QE), forward guidance[i] and even negative rates. These non-standard policies have been effective; but they can also create the – mistaken – illusion that monetary policy is omnipotent.

Third signal: rarely has Europe appeared so necessary and at the same time so divided. I am a French and European official, I was in Maastricht 28 years ago to launch the euro; every two weeks I take part in meetings of the ECB Governing Council which manages the currency. I stand by this conviction in Europe and in the belief that the joint work carried out by France and Germany is an indispensable driver, even if it is not enough. Nearly 30 years ago, the fall of the Berlin Wall injected new impetus into the construction of Europe.

Today, Europe is turning in on itself, is on the defensive. Yet it is vital that it make itself heard in the face of the threats that it is facing, and that it do so with one voice if it doesn’t want to be inaudible. But beyond the threats, and at the risk of sounding paradoxical and even a little provocative, I would like to present you with an opportunity: in the current crisis of globalisation, Europe doesn’t need to keep its head down; it should assert and propose a model – its own social, environmental and mutilateral model.

I propose that we do this in the spirit of Stefan Zweig, who as early as 1934, admirably described the state of mind of the great European Erasmus of Rotterdam: “Instead of listening to the vainglorious claims of petty princelings, of fantastical sectarians and of national egoists, the mission of the European is on the contrary to emphasise that which unites the peoples.


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