The central bankers of Frankfurt have thought again about how to ease the eurozone’s credit crunch. Earlier this spring, the European Central Bank floated the idea of a scheme to target directly small and medium-sized enterprises in crisis-hit countries. This week, it backed away from any large-scale intervention.

This is regrettable. It has been clear for some time that in parts of the currency union the monetary transmission mechanism is broken. Ultra-cheap interest rates engineered in Frankfurt do not reach businesses in countries like Italy and Spain. The credit crunch is forcing thousands of SMEs to shut down, with disastrous consequences for local jobs. Smaller businesses provide about 75 per cent of jobs in the euro area.

The ECB now thinks that the best way to deal with the credit crunch is to ensure that the eurozone banks are properly capitalised. The central bankers’ eyes are set on the review of the eurozone’s largest lenders, which the ECB will undertake before becoming their sole supervisor next year.