Reading the speech of the Vice-President of the ECB, Vítor Constâncio, I was reminded of the title of a recent and interesting book by Mohamed El-Erian, "The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse". Constâncio’s intervention is explicitly aimed at the defence of the monetary policy of the euro area's central bank; it is not difficult to guess in which direction the speech is looking.

Criticisms of the recent ECB decisions concern the ineffectiveness of the measures, or that these are not sufficient. The latter is a banal statement, says Constâncio, and the call of the G20 for fiscal policies and structural reforms would be welcome. But, there are justified doubts about the possibility to implement those policies. “While other policies would certainly be welcome, one can have justified doubts about their implementation. For a start, active stabilising fiscal policy is restricted by law in the EU and by politics in the US. More generally, countries that could use fiscal space, won’t; and many that would use it, shouldn’t”.

This is straight talk, but the propositions that follow are even more interesting: “That leaves us with structural reforms. Some, like upgrading education and judicial efficiency, are important but take a long time to implement and to produce results. The structural reforms economists often have in mind (i.e. liberalization and deregulation of markets) lead to lower wages and prices in the short-term, which does not help inflation normalisation. And concerning unemployment, higher productivity often initially implies labour saving. Structural reforms are essential for long-term potential growth, but it is difficult to see how they could spur growth significantly in the next two years, especially when the current problem is lack of global demand”.

Furthermore, according to Constâncio, the Brisbane G20 plan, which should result in additional growth of two points, with a detailed list of reforms, it was a failure. Conclusion: the only possible policy remains the monetary policy: ”If not monetary policy, then what?”.

I leave aside the theme of the effects of "structural reforms" on the long-term growth, except to say that on the full flexibility of work you can have many and reasonable doubts. Let's go back to the QE of ECB; assuming it is the only possible policy, the question remains whether it is effective. Constâncio backs on the ineffectiveness: sure, he says, if you look at the trend in inflation, it would seem that QE has not worked.

But if we ask ourselves what would happen if the ECB had not carried out his expansive policy, the conclusion, based on different models, is that in 2015 we would have had a deflation of -0.33%, and also in 2016 we would have had deflation. In short, QE has prevented a fall in prices, despite the collapse in oil price. Also the ECB estimated that two-thirds of the growth in the last two years is due to the monetary policy, but that the recent global economic slowdown has reduced the push of net exports.

Well, it would be strange if the ECB judges modest the effect of QE; you can take with some caution these assessments, as indeed we must do for the opposing assessments of rating agencies. Rather we must consider that we are already arrived at the third expansion of the QE, the latter with two innovations: the direct purchase of bonds of (large and established) companies, and a TLTRO further strengthened. Meanwhile, the figure for inflation in February is -0.2%, compared to + 0.3% in January. It is always true that it is easier to pull a rope than to push it.

The point is that in northern Europe there is no problem in financing investments; the issue is the reluctance of businesses to make them. In southern Europe, where the weight of bank financing is particularly strong, there are also serious problems from the credit supply side. And here it appears one of the oddities of European policies: while the QE pushes in one direction in the macro-level policy, EBA and ECB itself measures at the micro level go in the opposite directions.

The latest Commission forecasts give German current account at 8,6% of GDP. Apart from the fact that in this case we are in a clear macroeconomic imbalance, it is evident that there is all the space in the world for an expansionary fiscal policy. But if in Germany are deaf, and if the Commission's push has resulted only in the Juncker plan, then a modest proposal may be as follows: Germany leaves euro for at least five years (along with Austria and the Netherlands, if they want), returning to the "new mark", while other countries remain in the euro, to avoid competitive devaluations among France, Italy, Spain and other countries. The new mark revaluates, while the euro will depreciate even against the dollar, pound and yen. Who knows, it may be that in five years the mood will be changed in Germany.