In his statement yesterday, ECB President Mario Draghi showed little evidence of a change on policy.

What he ought to have said the council has had second thoughts: The changes in June were too timid, and since then the situation has only worsened.

Inflation in the euro zone is still falling. In the year to July, it was 0.4pc – yet again, less than private forecasters were expecting, and the lowest in more than four years.

The central bank’s target for inflation is “below but close to 2pc”. The ECB’s most recent projections have inflation undershooting this rate even at the end of 2016. This week, Germany’s 10-year break-even rate (a measure of inflation expectations) fell to 1.27pc, the lowest since 2012. It’s obvious the ECB’s monetary policy is too tight.

The central bank might say that core inflation (excluding food and energy prices) is no longer falling. True, but at 0.8pc, that measure’s still far too low. It could also say that the steps announced in June should be given more time to work. That would make sense, except that those steps didn’t amount to much.

The move to a slightly negative interest rate on banks’ deposits at the central bank, a cut in the ECB’s policy rate from 0.25 to 0.15pc, and the extension of an existing refinancing programme to encourage bank lending, gave investors a lot to discuss but added very little in fresh monetary stimulus. The euro area needs outright quantitative easing (QE), modelled on the successful programme that the US Federal Reserve is now winding down.
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The case for QE has been compelling for months, and the ECB hasn’t entirely ruled it out. In June, it promised to “intensify preparatory work” for a programme to buy asset-backed securities. That would be a step in the right direction, even though the ECB doesn’t seem to have large-scale Fed-style QE in mind.

Starting QE in a small way would be better than not starting it at all. One way or another, it’s time the ECB’s preparations yielded an explicit change in policy.

Very low inflation – to say nothing of outright deflation – makes it almost impossible for the European Union’s weakest economies to pay down their debts and restore fiscal stability.

In coming years, Greece, Ireland, Italy, Portugal and Spain will have a difficult enough time maintaining big primary surpluses (that is, excluding interest payments); add deflation to the outlook, and another debt crisis is all but certain.

Meanwhile, chronically deficient demand is holding back growth.

On Wednesday, Italy’s government announced that its economy has fallen back into recession, reporting a second consecutive quarter of declining output.

In Germany – the strong man of Europe – factory orders have slipped, business confidence is dropping and inflation stands at 0.8pc. Granted, the news isn’t all bad: euro-area manufacturing showed signs of life last month. But the risks are tilted to the downside.

Above all, there’s a clear and present danger of deflation, and no indication whatsoever of wages or prices rising too fast.

That’s really all a central bank needs to know.
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