No central banker has come out and said it yet, but the reality is that most of them are pretty much out of ideas as to what to do next to revive their struggling economies. Apart from in the US where the economy is performing reasonably well, all conventional and non-conventional measures tried by central banks to date have had limited success, and it’s difficult to know what more they can do. Mario Draghi has probably come closest to admitting defeat when, on several occasions recently, he has told euro zone governments that they now need to play their part via their fiscal policies.

However, the large European economies that are most in need of fiscal stimulus – France, Italy and Spain – are the ones that can least afford it. All are either in breach of the EU’s annual budgetary limits, or have existing levels of debt that are far in excess of what is safe or healthy, and so none of them is in a position to either cut taxes or increase government spending.

There is little doubt that when Draghi talks about fiscal stimulus, it is Germany that is uppermost in his mind. Germany’s economic success means that it now has very significant current account and budgetary surpluses – i.e. it exports far more than it imports, and its government’s tax intake far exceeds expenditure.

Last year it had a record current account surplus of almost €250bn – that is the net inflow of funds into the economy at the expense of its trading partners. In 2015 it also had a government budget surplus of around €35bn (1.2% of GDP). It was expected that the arrival of over 1 million migrants into Germany over the past year would prompt a major increase in Government spending, but figures released last week show that the surplus actually increased in the first 6 months of 2016. The German Government clearly has considerable scope to increase expenditure, and if it did so it would inevitably have a positive spillover effect on the rest of Europe.

It can be argued that the average German worker has not benefited to any major extent from German’s economic and industrial success. There was a time when German trade unions were very powerful, and average wages rose very much in line with the growth of the economy. But changes made to employment law by Helmut Kohl in the 1990s greatly reduced the power of the unions, and since then German wage growth has been pretty modest.

Because of the strength and wealth of the German economy, many analysts believe that the German consumer is a potentially powerful economic force which is being held back by the excessive conservatism of both industry and government. They argue that Germany needs to share its success by granting bigger wage increases to its workers and cutting taxes. The belief is that if more money can find its way into the pocket of the average German consumer, he or she will buy more French wine, Belgian chocolates and Irish whiskey, and take more holidays in Italy or Spain.

So far Germany is not getting the message. From an economic perspective it is a highly conservative country with a strong emphasis on saving for a rainy day, and doesn’t understand or approve of the more spendthrift habits of many other European countries. It is the only euro zone country which has consistently opposed the low (or negative) interest rate policies of the ECB, because of the impact it has on savers. Unlike in most other countries, it is German savers rather than borrowers who receive most of the public and political sympathy. There is no doubt that Germany is going to come under increasing pressure to loosen its purse strings and help out its neighbours, but this would involve a major change in the German economic mindset, and there is no indication that it will happen any time soon.

Eight years after the financial crisis began, the results of stress tests on European banks released by the European Banking Authority (EBA) recently showed that the two Irish banks included in the tests – AIB and Bank of Ireland – compared very poorly with their peers in terms of their ability to withstand another major economic downturn.

As with previous stress tests, the EBA considered an “adverse scenario” in which the global economy suffers a severe recession, equity markets tumble and interest rates rise sharply, and they project the impact this would have on each bank’s capital position. It shows that in this scenario, by 2018 AIB’s key capital ratio – known as the Fully Loaded Common Equity Tier 1 Ratio (CET1) – would have fallen to 4.31%, the second lowest of the 51 banks in the test. Bank of Ireland’s CET1 would have fallen to 6.15%, the fourth lowest of the 51 banks.

Unlike previous stress tests, this one did not set “pass” or “fail” levels, but the pass level of 5.5% in previous tests is generally seen as the minimum required. AIB was one of only two banks to come in below that level – the other one being Banco Monte dei Paschi, which we discussed in previous Investment Notes and which showed a negative CET1 position in the adverse scenario (i.e. the bank’s capital was completely wiped out).

AIB and BOI have some justification in arguing that the timing and methodology of the tests were particularly unfavourable towards their current positions and business models, but there is no doubt that the results were a disappointment and will have implications for both banks. BOI may have to review its intention to start paying a dividend again by 2017, as future profits may have to be retained in the bank to strengthen the capital position. Shareholders’ disappointment at this is reflected in a 14% fall in the share price since Friday. As virtually all AIB shares are owned by the state, there is no meaningful AIB share price, but the results have made the already difficult task of offloading that shareholding even more challenging. It also means that any hopes that the exchequer might start to earn a dividend from the bank will be put on hold as any profits need to be retained.

For comparison purposes, the table below shows the results for various credit union counterparty banks, including their actual CET1 as of December 2015, the projected CET1 as of December 2018 under the adverse scenario, and where each one ranks among the 51 banks under that adverse scenario: