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Brexit is bad news for UK: Bank of France Governor

Our priority is reducing uncertainty: ECB's Villeroy

The U.K.'s vote to leave the European Union (EU) will be "bad news" for the country itself more than for anyone else, according to the governor of France's central bank.

"Obviously Brexit is bad news, first and foremost for the U.K.," François Villeroy de Galhau, who also sits on the European Central Bank's (ECB) governing council told CNBC on Wednesday.

"But our priority (as central banks) is to reduce uncertainty and to foster confidence and this is what we did among central banks. The Bank of England, with the ECB and other G-7 (Group of 7) banks, helped to absorb the financial shocks (of the vote)," Villeroy said on Wednesday, speaking to CNBC in Paris.

"Our other priorities are enhancing the euro, which is our collective asset, and preparing the new negotiations between the U.K. and Europe which we know will be the key to reducing uncertainty as quickly as possible," he said.

The Banque de France headquarters in Paris, France.
Antoine Antoniol/Bloomberg via Getty Images

The Brexit vote on June 23 caused widespread market turmoil in the immediate aftermath before markets appeared to rebound last week. This week, however, fears have settled in about the ramifications of the vote on the U.K., EU and wider global economy and sterling has fallen again.

The pound dropped to a 31-year low against the dollar on Tuesday as confidence global confidence in the currency and the U.K. economy waned.

In addition, investors flocked to safe-haven assets such as U.S. Treasurys, the yen and the greenback on Tuesday after three U.K. real estate funds, Standard Life, Aviva and M&G Investments halted redemptions in their real estate funds and the Bank of England relaxed regulations to encourage banks to lend out more money.

The Bank of England has said that the outlook for the U.K. is "challenging", warning in its latest Financial Stability Report published on Tuesday that that there would be a "a period of uncertainty and adjustment following the result."

'New rules on the game'

The vote has also sent shockwaves through the U.K.'s political establishment, with Prime Minister David Cameron resigning, as well as prominent Brexit campaigners despite being on the "winning team."

Much to the consternation of EU leaders, the U.K. has yet to trigger Article 50 of the Lisbon Treaty, which would set in motion the process of withdrawal from the EU. Prime Minister David Cameron has said that it will be up to the next Conservative party leader and prime minister to set the ball rolling. A new leader is expected to be elected in September.

The Bank of France's Villeroy reiterated that investors needed to know the "new rules of the game," that is, the new parameters of the U.K. and EU's relationship, and that was why EU authorities were insisting on Article 50 being triggered as soon as possible. He said it was too early to know the consequences of the vote on the euro zone itself.

"Obviously they will be smaller than the consequences on the British economy. For France, I have already confirmed that our growth forecast, for 2016, is unchanged, so we have a gradual recovery in the euro zone…but all of us need more confidence and less uncertainty."

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