As R* has fallen, monetary policy has moved with it. This is an important point. The low level of interest rates over the past few decades reflects deep underlying factors on the supply side of the economy. As these underlying factors – trends in technology and demographics – only move slowly, it is not unreasonable to expect that R* will remain low. This means that, even as we now respond to rising inflation by raising Bank Rate, interest rates will not necessarily have to return fully to, and remain around, the higher levels they once had. But let me add a caveat: “It’s important to note that forecasting the future path of R* is challenging and subject to a significant degree of uncertainty. Economic developments and policy decisions can have unpredictable and complex effects on the economy, and it is difficult to predict their outcomes with complete accuracy.” This was not said or written by an economist of the human sort. This is a caveat added by ChatGPT. The ‘artificial intelligence’ underlying it reminds us that technology sometimes progresses in leaps, which can lead to a sudden emergence of productive investment opportunities across the global economy. New rounds of technological revolution are amongst the factors that could shift up Global R*. Monetary policy would have to move with it. So even if monetary policy is neutral in the long run, long-run supply does affect monetary policy by anchoring the level for interest rates.
And because if our common initiative is not sufficient to reach a European decision – indeed there are other countries and the Commission around the table –, it is nonetheless a prerequisite: without the Franco-German engine, the European car will remain at a stand-still. The projects for a better Europe must be chosen with care and prioritised; and we mustn’t just talk about them. We must ensure that we have the actual means, through efficient governance, to achieve concrete results. To put it briefly: little, well, until the end. There are naturally some non-economic areas such as defence, border security, climate change and youth education and training – an Erasmus-pro programme should be a priority to put an end to the tragedy of the unqualified and unemployed youth. But, as regards economic matters, much also remains to be done. As Helmut Schmidt repeated frequently, we must build economic union as well as monetary union. To my mind, we need to make headway on two projects. 2/3  BIS central bankers' speeches  The first project, to be started immediately, is a “Financing Union for Investment and Innovation”. The European Commission launched the Juncker investment Plan and Capital Markets Union, and Banking Union is now underway. But it is now necessary to make these initiatives converge, in the interest of European savers and firms. Europe needs a better sharing of private sector risk, in order to channel its abundant savings more effectively towards productive investment.