In an interview with the Financial Times last week, Matteo Renzi struck a defiant tone against suggestions by the European Central Bank that Italy needs to implement more structural reform. Still, the Italian prime minister missed a trick. He should have said he does not take advice from a central banker who is missing his own targets. If Mario Draghi, president of the ECB, had delivered his side of the bargain – an inflation rate of 2 per cent – the situation in Italy would not have been nearly as bleak as it is now.

I, too, believe Italy needs to reform. But slow progress has nothing to do with Italy's performance in the last quarter. After all, Germany also declined, while unreformed France did better, avoiding a contraction.

The ECB is failing to deliver on its inflation target not because it has run out of instruments but because it has based its policy on a poorly performing economic model. The ECB never expects inflation to deviate from the target of just under 2 per cent. Yet each month inflation undershoots, and the ECB is apparently taken by surprise. Because it relies on inaccurate intelligence, the ECB has committed three errors over the years.

First, the ECB should have embarked on large asset purchases and cut interest rates to zero early on in the crisis. It did neither. This level of support was needed even more urgently in the euro zone than in the US, because fiscal policy in Europe was much tougher. This was compounded by the decision to raise interest rates briefly in 2008 and in 2011, when the ECB governing council expected a recovery that never happened.

The second mistake was Mr Draghi’s promise to buy euro zone government debt in the secondary markets, known by the official name of outright monetary transactions. This surely helped the bond market to recover, and took the heat out of the euro zone crisis. But it was at best a partial victory because it made everybody, including the ECB itself, complacent. OMT ended all crisis resolution.

The third mistake was to misjudge the dynamics of the fall in inflation rates late last year. Core inflation has been fluctuating around 0.8 per cent since November. Yet each month, Mr Draghi repeats the mantra that “inflation expectations are firmly anchored” at close to 2 per cent. He reminds me of Cato the Elder, the Roman senator, who ended all of his speeches with the remark Carthage needed to be destroyed. The difference is Cato was right.

By pussyfooting around with liquidity policies instead of acting on inflation, the ECB has signalled it is safe to bet against the inflation target. That is what German bond yields are telling us. To undo this would take some heavy lifting – much heavier than anything we have seen from the US Federal Reserve, the Bank of Japan or the Bank of England. I am not sure the legal and political room for manoeuvre allows such an extreme response. Still, it is worth considering what this would entail.

The ECB should start by ditching the inflation target and replacing it with a price-level target. This would signal to investors that if inflation is too low one year, the ECB will make up for it by overshooting in the opposite direction.

The ECB should starting buying equities and junk bonds. It should subsidise mortgages and consumer credit. It could fund an investment programme in transport infrastructure, energy networks and scientific research, by buying debt to fund such projects at zero interest rates. All these measures would be effective. Most would be illegal.

The one thing the central bank can do without any legal problems would be to drop the silly macroeconomic model – Smets-Wouters, after its authors – on which it has been relying for too long.

My guess is the ECB will not do any of these things. It will continue blaming euro zone governments for not implementing structural reforms. Eventually, it will adopt a programme of asset purchases that is too small, which it will abandon prematurely at the first sign of recovery.

The euro zone will end up looking like Japan, but with one difference. Countries whose policy goes off track have nowhere to go. The member states of a monetary union have alternatives. By failing to deliver on its inflation target, the ECB could give members a good reason to leave the euro zone: they could have a better central bank. My advice to the ECB: do not let that happen. – (Copyright The Financial Times Ltd 2014)