And this combination of events is likely to create an environment in which business investment spending will gather strength. Finally, I believe this tug-of-war analogy is useful in explaining the recent inflation dynamics. As is well known, total inflation, as measured by the personal consumption expenditures (PCE) deflator, has slowed sharply over the past year and is now running below the FOMC’s expressed goal of 2 percent. Much of the slowing of total inflation is due to declining energy prices resulting from the weakening of global growth mentioned earlier combined with increased energy production here in the U.S. However, it is also the case that core inflation, that is, excluding food and energy, has slowed sharply as well. A decomposition of the slowing in core inflation reveals that some of it is due to slowing in the rate of increase in prices of non-food and non-energy goods. This probably is due in large part to the softening of global demand for goods and the modest appreciation of the dollar that has occurred since mid-2011. In the service sector, the rate of increase in prices of medical services and “non-market” services – the latter includes some financial services – also has slowed notably recently. In contrast, the rate of increase in prices for other non-energy services has been relatively stable.
France has already said that it will take a few liberties with the European deficit limits. Shouldn’t the fiscal straightjacket on Member States be loosened? This has been a little bit overstated, because the security figures are quite low in the budgets, and it is not prohibitively expensive to strengthen security. Of course, it is relevant from a fiscal  2  BIS central bankers’ speeches  point of view, but the amounts are not very high. By contrast, if we include the cost of national defence under security, then the figures are potentially higher. However, it should be emphasised that this is not the source of France’s fiscal woes: it also has a well-known structural problem. How can we counter the surge in nationalist and populist currents in Europe from an economic perspective? By delivering the prosperity and economic security that was promised when we created the euro area. Today, we have the same level of economic output as we had eight years ago. The crisis caused significant economic and social pain, notably in the countries that experienced a drop in their living standards. Inequality has risen as a result of unemployment. This is unacceptable socially and has political consequences. There is no obvious willingness to integrate the euro area further. We are at a turning point. Integration at the financial level is progressing, but the European project as a whole needs to be further deepened.