(Bloomberg) -- The European Central Bank can’t be the solution to the funding challenges for the green transition as it’s legally impossible and would risk stoking inflation, Governing Council member Francois Villeroy de Galhau said. 

Addressing a climate-finance conference in Paris, the Bank of France chief said monetary financing could fuel prices just as the euro area exits a crisis of record-high inflation. Doing so would also be in direct contravention of European treaties that prohibit deficit financing, he said.

“There’s a monetary illusion according to which central banks could shoulder the main part of the burden,” Villeroy said. “This thesis is neither desirable economically, nor possible legally.”

As Europe faces huge financing challenges for green investment, economists and politicians are returning to the idea of using the central bank. In France, Marine Le Pen’s National Rally party, which is far ahead in the polls for European Parliament elections, said last week it favors the ECB resuming quantitative easing to help fund climate investment. 

Villeroy also said fiscal resources are scarce, and that while government spending can be part of the solution, mobilizing private savings should be the main lever. 

“Confronted with these financing needs, the possibility of public financing — monetary as much as fiscal — is clearly limited,” Villeroy said. “It’s appropriate to fight against the temptation of a magic wand.” 

--With assistance from Ania Nussbaum.

©2024 Bloomberg L.P.