ECB's Villeroy says fiscal policy must not influence monetary policy

PARIS (Reuters) - Governments should not expect the European Central Bank to let fiscal issues take precedence when it sets its monetary policy even if financial stability is at stake, ECB policymaker Francois Villeroy de Galhau said on Tuesday.

Villeroy, who is also governor of the French central bank, did not single out Italy, but Rome's decision to ditch previous deficit targets agreed with the European Union has put Italian assets under pressure, raising financial stability questions.

"There can be no fiscal dominance and no influence of any national fiscal policy on our common monetary policy," Villeroy, who is also governor of the Bank of France, told a conference in Paris.

He added that ECB policymakers' primary mandate was to guarantee price stability in the euro zone and that financial stability had to be ensured through regulatory measures.

Financial market angst about Italy, which has weighed on the euro and has sparked a spike in Italian bond yields, is focused on the country's vast debt burden.

EU Commission President Jean-Claude Juncker drew parallels on Monday between the budget plans of Rome's populist-led government and the finances of Greece, which only recently emerged from its third international bailout.

"Let me stress it, in the cyclical upturn we are still in, more public debt is not a cure, it's a disease," Villeroy said.

"I stress it for my own country, France, it's true for France, but it's true also for Italy and it's true even for the United States of America."

(Reporting by Leigh Thomas and Yann Le Guernigou; Editing by Mathieu Rosemain and Gareth Jones)

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