Many have tried to come up with a theory of what is happening in the European economy. Why is unemployment not coming down faster? Why is inflation so much lower than the forecasts suggest? Why are we once again near a recession?

Of all last week’s statements by Mario Draghi, European Central Bank president, it was what he had to say about these questions, rather than concrete policy measures, that were the most interesting.

Regular readers can probably guess my answers to these questions - but, even if we disagree on the precise causes of the present downturn, we can still find a common and effective policy response.

On my almost certainly incomplete count, there are four broad categories of theory most frequently heard in this debate.

First there is the Keynesian view, according to which poor economic performance is the result of fiscal austerity, the ECB’s 2011 interest rate rises, and the failure to reverse those policy errors fast enough.

There is a different but related theory I would put into the same group. The theory of a balance sheet recession, popularised by Japanese economist Richard Koo, is ultimately a Keynesian theory. The idea is that when indebted companies and individuals deleverage, they do not react to monetary stimulus. Hence the government must act by expanding fiscal policy. In the Keynesian view, fiscal policy dominates during a severe recession.

Eurozone policymakers and their economic advisers are structuralists by inclination. The monetarists are mostly gone, even in Germany. The love-in between German economists and monetarism was always one of expedience

Second, there is the fiscal theory of the price level. This theory is comparatively modern, and defies a one-paragraph definition. As the name suggests, here inflation adjusts to a fiscal stance. But the mechanisms are totally different from those in the Keynesian models.

The third theory is monetarist. Some will be surprised to find that monetarists still exist, but they do under new guises, such as ‘market monetarists’. Milton Friedman, the godfather of monetarism, said inflation is always and everywhere a monetary phenomenon. And so, of course, would be a lack of inflation. The market monetarists argue that the central bank should target a certain measure of broad money in circulation to achieve price stability.

The fourth group is the structuralists. Whatever the problem, economic reform is the answer. They believe that once you commit acts of deregulation, the economy grows stronger. What they could never explain is why it was possible for the eurozone’s unreformed economies to perform well in the past, and why Finland, the world champion of structural reforms, has lately turned into an economic basket case.

Eurozone policymakers and their economic advisers are structuralists by inclination. The monetarists are mostly gone, even in Germany. The love-in between German economists and monetarism was always one of expedience. The minute monetarism demanded an expansionary monetary policy, they turned towards other conservative ideologies. The economists’ disagreement may leave outsiders bewildered but fortunately the appropriate policy response is not that complicated.

If you expand fiscal policy and monetary policy, and if you pile structural reforms on top, surely some combination of those measures will eventually work. Think of it more as economic carpet bombing than the ‘big bazooka’ of David Cameron, the UK prime minister. Of course, you will not know which of the policies you used did the job. Empirical success or failure never settles a theoretical dispute between economists. But so what?

This approach is essentially what Mr Draghi proposed in his speech at last month’s gathering of central bankers in Jackson Hole, Wyoming, which was followed by last week’s ECB monetary policy decisions. My view is that structural reforms are mostly irrelevant for the recovery. In countries such as Italy they could help raise long-term growth rates a little. If, for political or legal reasons, structural reforms constitute a quid pro quo for further fiscal easing, then let us have them right now. I am happy to accept a cranky theory if I can have the better policy as a byproduct.

While I am relatively optimistic that an effective policy response is feasible, I am much less optimistic that it is actually going to happen. When European politicians talk about fiscal flexibility, they do not mean big tax cuts or an investment programme. Flexibility is about how to frame the next steps of austerity, whether you cut your expenditures this year or next.

Mr Draghi’s hardest job will be to co-opt policymakers, including those in the new European Commission, into a significant and co-ordinated response. The odds are not zero but they are not very large either.

If this does not work, the second best option would be to use the maximum amount of monetary policy action: a quantitative easing programme to buy government and private sector securities; and a restatement of the inflation target to make the commitment to a higher inflation target more credible. These would be my preferred policies.

But carpet bombing would be a much safer bet.

Published in Dawn, Economic & Business, Sep 15th, 2014