We must recognize and confront the fact that the logical steps towards deeper integration that I just mentioned seem to run against what seems to be the mood of many Europeans, on the eve of European Parliament elections. It is true that crises always open the door to  15  See F.W. Scharpf (http://www.mpifg.de/people/fs/publikation-art_en.html). 16  Robert Gordon (2012) “Is US growth over? Faltering innovation confronts the six headwinds” CEPR Policy Insight n. 63. Robert Gordon (2014) “The demise of US economic growth: restatement , rebuttal and reflections” NBER wp 19895, Feb 2014. 17  David Rodrik (2011) “The globalizationparadox: why global markets, States and Democracy can’t coexist” Oxford University Press. Antonio Fatás blog “The UK makes the Euro Area look good” May 8, 2014. 10  BIS central bankers’ speeches  discontent and this crisis is not over yet. Some policy-makers seem too complacent in showing a sense of relief because the situation in Europe has stabilised and turned a corner, since economic growth is resuming, even if at incipient level. This sentiment is not shared by public opinion in many countries. It should rather be recognised that adjustment costs across nations and segments of the population could have been more balanced. In this context, it is useful to retain that the legitimacy of Europe has been always much more based on outcomes of growth and prosperity than on values or input legitimacy.
But sterling’s exchange rate has fallen – by around 4% since the MPC’s August meeting; and by about 15% since the beginning of 2007, so that, in sterling terms, the fall in oil prices has been less pronounced over the past month or so. On balance, those developments mostly comprise downside news, since the August Inflation Report, to the outlook for demand and for inflation. But the recent depreciation of the exchange rate has to be offset against that. And headline inflation has reached 4.4%. It will probably rise further. The Committee can and will ensure that this is a temporary state of affairs. But, for the moment, inflation expectations do continue to flash an amber light. Meanwhile, credit has remained tight, and underlying money growth has decelerated, implying that monetary conditions may be leaning against those incipient inflationary pressures. At the end of the last year – some months’ after the onset of the market turmoil – I set out some of the thinking that guided my interpretation of the monetary data and how it related to my policy decisions. 3 I stressed that “we must try to avoid a vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other”. A vicious circle between the world financial system and global economy has so far probably been kept at bay; global growth has slowed not collapsed.