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Ultimately, Wolf’s outlook is not optimistic. With stasis in Frankfurt, the only thing that will kick the ECB into action will be another crisis, this time a deflationary one. Pre-emptive action seems off the cards. “This ‘Waiting for Godot’ kind of policy strikes me as wrong conceptually and wrong practically, but I can’t envisage anything else happening.”

This is forcing vulnerable countries into deflation, which raises the real level of their debt.

Furthermore, it is clear that the ECB would be taking on credit risk. It would be charged with monetary financing of governments. I believe it should go ahead. But the row between northern and southern Europe would surely be deafening.

It also hopes that, through this and other programmes it has announced, it will be able to expand its balance sheet

Moreover, the range of measures taken reinforce the ECB’s forward guidance. It has locked itself into ultra-accommodative monetary policies for years, as it should.

this year Germany’s current account surplus might be as big as 8 per cent of gross domestic product.

5. Export surpluses create no real value if they translate into claims vis‐à‐vis countries which ultimately cannot pay their debts,

6. The ECB Council overstepped its mandate when it transferred to Eurozone national central banks, primarily the Bundesbank, the task of financing the public and private deficits of other countries.

7. Germany’s liability for the bail‐out initiatives does not total 211 billion euros, as often cited, but is actually now close to 600 billion euros if the far larger bailout initiatives of the ECB are included in this figure.

8. The Target credits and the purchase of government bonds by the ECB system transfer the investment risk of private investors and banks to the taxpayers of economically sound countries, posing a threat to the euro because they offer debtor countries incentives to advocate inflationary policies at the ECB Council which would help them defer their obligation to repay their foreign debts.

9. Eurobonds would undermine debt discipline, lead to much higher interest burdens for the German state, and anew induce capital flows in Europe that would exacerbate the external imbalances.

) Target debts are to be settled on an annual basis with interest‐bearing, marketable assets as in the US.

g) Countries that are not competitive enough to repay their foreign debts should, in their own interest, leave the Monetary Union.”

I also appreciate the fact that the declaration envisages a credit boom in Germany that would ultimately rebalance the eurozone economy. Nevertheless, this rebalancing is likely to prove painfully slow and certainly requires a prolonged period of relatively high inflation in Germany, to offset relatively low inflation in the vulnerable countries. It is far from clear that German public opinion is prepared for such an outcome.

More important, I do not believe a currency union that takes for granted the possibility of sovereign defaults and even exit would prove workable. It is a recipe for extreme financial instability, with huge runs on credit to banks, private non-banks and governments built in.

mechanisms of financing and adjustment. Permanent transfers from some countries to others, merely to offset a lack of

competitiveness (rather than accelerate income convergence), are indeed undesirable. Nevertheless, financing needs to be sufficiently large and generous to give vulnerable countries some chance of managing the adjustment to shocks, without sovereign default, mass private bankruptcies and implosion of financial systems.