Imagine that the 1958 ambition to forge an “ever-closer union” in Europe, stated in the Treaty of Rome and its successors, had come to fruition prior to the introduction of the common currency back in 1999.

Europe would now be a federation with a centralised budgetary policy, a minister for finance as well as a single currency and just one central bank.

Forget about whether this is desirable, just imagine that it had happened and the individual member states had surrendered their individual roles in economic policy to central institutions.

You are now dwelling, in your imagination admittedly, in the United States of Europe, and you look to Brussels for macroeconomic management rather as residents of Texas look to Washington.

What economic strategy would those imaginary central institutions be following in the circumstances that currently exist in Europe? Those circumstances are pretty grim: unemployment, is at intolerable levels in many parts of the federation, economic activity is stagnant or even declining, businesses have been going bust for six years and there is no real sign of recovery.

The average price level across the common currency area has been falling in recent months. It is a reasonable guess that the federal ministry of finance would be under pressure to arrange a rapid economic stimulus, perhaps through a tax cut and a boost to investment spending, while the central bank would be loosening monetary policy.

This, of course, is pretty much what has happened in the actual federation called the USA, where the worst of the downturn seems over.

But in Europe, there has been no overall macroeconomic strategy, since it is neither a fiscal nor a monetary union. There is no institution charged with the conduct of overall policy. This would not matter too much if the component states were free to formulate their own responses, but they are not. Several, including Ireland, have no scope to conduct an independent budgetary policy, since they are already over-borrowed. And since they have abandoned their separate currencies, they can have no independent monetary policy either.

In the eurozone, we have a currency without a state, and consequently a currency without an overall counter-recession policy. Those countries which could sustain an expansionary policy to fight the downturn, especially Germany, see no reason to do so, while the countries which most need stimulus have already borrowed so much that they cannot go for expansionary budgets.

The result is a long and deep recession to which the policy response has been too little, too late. Interest rates on central bank money have been cut close to zero, which helps, but this has been accompanied by an overall tightening of budgetary policy, which offsets the beneficial effect. In any event, the banks have tightened credit availability and have moved from reckless lending to excessive risk avoidance.

Official interest rates are already as low as they can go: a further cut of something trivial like 0.1% will make no difference. The ECB is under pressure to engage directly in purchasing financial liabilities of governments and private issuers, a policy called quantitative easing (QE).

But things have been permitted to deteriorate to the point where QE, which might have worked in Europe had it been introduced several years ago, may not be enough to pull the eurozone economy out of the trough. The deflationary forces have become entrenched in several countries, notably France and Italy, and the crisis in Ukraine appears to have halted whatever recovery was under way in Germany.

For a country like Ireland, there is little that can be done: there is no scope for running bigger budget deficits than planned and any injection of funds could be dissipated through the private sector using the proceeds on an import splurge or to pay down debt. The best outcome would be a willingness from the bigger and most solvent countries to loosen budget policy.

The European Central Bank has a mandate to keep inflation at 2% or so. With the inflation figures running so far below this target, it could engage in a big programme of asset purchases without endangering the target.

This combination of moves would likely have the beneficial side-effect of lowering the euro’s exchange rate, as well as providing a boost to aggregate demand. This is the policy pursued successfully in the USA but our European partners seem as reluctant as ever to act decisively.