PARIS (Reuters) - Overly loose budget policies risk fueling inflation at a time when the European Central Bank is fighting to bring it lower, ECB policymaker Francois Villeroy de Galhau said on Friday.
The ECB raised its main interest rate on Thursday to a record high 4% and signalled its latest hike was likely to be the last as the euro zone's economy slows after a moving to bring inflation lower over more than a year.
Speaking at a financial conference in Spain, Villeroy declined to speak about the decision and urged governments to not complicate the ECB's task as it seeks to bring inflation back to its 2% target towards its 2% by 2025.
"Governments must avoid an overly expansionary stance that would further fuel inflationary pressures. We therefore need a more coordinated and realigned fiscal and monetary stance," Villeroy said.
A planned reform of the European Union's fiscal rulebook, the Stability and Growth Pact, which is widely considered overly complex and has often been flaunted, would be a welcome step in that direction, Villeroy said.
EU governments aim to agree revisions to the rules by the end of this year, but Berlin is digging in against some changes that other governments say are necessary to give more flexibility.