How can we answer this important question? Firstly, monetary union does not necessarily imply that, at any given point in time, all participating countries will have the same rate of inflation or growth, even though the creation of the euro was based on the successful completion of a convergence process. Let us take inflation for example. Inflation divergences across countries or regions are quite natural in a monetary union. In the euro area, long-term convergence to a common level of prices naturally gives rise to different inflation rates across countries. The convergence of productivity and living standards creates a trend towards price convergence. Now, present differentials in the Euro area are not very large, in comparison with those sometimes observed in the United States, which is a long established monetary union of comparable size. My intimate conviction is that we will witness further European integration and, in the medium term, an increasing correlation of economic developments in the area. Several academic studies show that business cycles are becoming more synchronous across Europe. Secondly, the question has often been raised as to whether EMU can be a success without some form of enhanced political union. Indeed, to achieve this, the correct mix is required between fiscal, economic and monetary policies. In the European Union, Member States are responsible for conducting economic and fiscal policies. We therefore believe that these policies should be closely co-ordinated.
On the downside, the speed of the recovery in the world economy may be held back by a number of factors, including the large outstanding debt position of corporate and household sectors; investment in the UK might remain subdued; or the weakness in pricing pressures we have seen over the past year or so may persist. But on the upside, the US might bounce back more rapidly than anticipated; consumption growth might remain robust; or the sterling exchange rate might begin to adjust downwards. Against this background of risks, it is quite possible we may see rates at current levels for some time until the way ahead is clearer. But, as you know, economic events have a habit of developing quite rapidly, so even short term predictions are never easy. For our part, we will continue to assess the case for interest rate changes on a month-by-month basis. In carrying out our task, the MPC relies heavily on having the very best information at our disposal, and in that we are enormously assisted by our network of regional Agencies. Each month, our Agents drive thousands of miles, eat hundreds of rushed sandwich lunches and, on occasion, no doubt push your goodwill to the limit as they seek out the latest news on developments in your businesses. Nigel Falls, our local Agent, is here with me tonight, and for those of you who have not already met him I really do encourage you to do so after the dinner.