Dr. Robert Kelly:

If we have a more expansionary budget, yes. However, the other crucial factor, about which I am just as concerned, is the potential detachment from the inflationary dynamics of Europe because if we become too out of step, as a central bank, we cannot respond by raising interest rates even further to tame demand. We are within the euro system, a monetary union, and we are a very small part of it when considering the size of our economy relative to the rest of Europe. ECB monetary policy has got to be set with the whole of the European economy in mind. If we end up on a path where inflation is deviating from what is happening in Europe because of fiscal expansion, that creates this competitive problem we have seen.