Last Friday saw the first co-ordinated intervention by the central banks of the Group of Seven largest high-income countries since 1995. Then, the aim was to rescue a tumbling US dollar. The question is whether the G7 will be at least equally successful this time.

In a widely cited statement last week, Michael Mussa, the International Monetary Fund's director of research, accepted that the circumstances in which intervention was likely to succeed were rare. But "they do arise from time to time and one would . . . have to ask, if not now, when?" The central bank governors and finance ministers of the G7 agreed. In the communique of their meeting on Saturday, they justified the decision by pointing to the "shared concern . . .about the potential implications of recent movements in the euro for the world economy".

Behind the consensus that action was sensible lay four elements.

First, the euro is very weak. The Bank of England's trade-weighted nominal exchange rate for the synthetic euro (constructed retrospectively, with the weights of each component currency) is almost as low as in May 1985, when Ronald Reagan's soaring dollar peaked. According to JP Morgan's trade-weighted indices, the German and French real effective exchange rates are lower even than they were at that time.

Second, the euro has continued to fall from one low to the next. On the eve of the intervention, it fell to under 85 cents, a loss of 5 cents on the month. Since its creation, the euro had lost 28 per cent of its value against the dollar.

Third, the weakening euro is exacerbating the inflationary impact of rising oil prices in the euro-zone. The dollar price of crude oil is a little more than three times as high as at its trough. It is more than four times as high in euros.

Finally, the weak euro is putting pressure on the external balances and internationally open sectors of trading partners.

It is not hard to understand why the authorities would want to do something. But that does not mean they will manage to do much. This is not a question of ability. The central banks can, acting collectively, ensure currency stability. But they would have to aim their monetary policies at exchange rates rather than at price stability. None of the leading central banks would accept this (or is allowed to do so).

The issue is, instead, how far interventions that have no impact on monetary policy (are "sterilised", in other words) would stabilise the euro's exchange rate. The reason for believing that they might is that two of the generally agreed conditions for success now exist: a consensus that a currency is grossly misaligned; and co-operation from the central banks responsible for the appreciating currencies.

The co-operation has happened. But is the euro grossly misaligned? In its latest World Economic Outlook, the IMF lists several rational reasons for its weakness: faster growth of the US economy; higher short-term interest rates in the US; huge foreign borrowing in the expanding eurobond markets; the perceived weakness of policymaking in the euro-zone; and, most important, the perception that the US economy's performance, prospects and likely corporate profitability all exceed those of the sclerotic euro-zone. Yet Mr Mussa argues that one can still only explain the euro's fall from $1.18 to, say, $1, in this way. Why it went to below 85 cents is, he suggests, much more difficult to understand.

Even if the intervention meets the twin requirements detailed above, it fails on two others.

The first is that monetary policy should be supportive. That would imply looser monetary policy in the US, Japan, the UK and Canada and tighter policy in the euro-zone. The last is probable. But none of the other central banks seems likely to loosen policy much in the near future.

The second requirement is that the misalignment has been largely caused by speculation. But what seems to be driving the currency is not speculation. The euro-zone has a steadily weakening current account position. It also has persistent outflows of long-term capital. The so-called "basic balance" - the sum of the current account and the long-term capital outflows - has been strongly negative since 1998. Last year, this balance was minus E145bn. In January to July of this year it was minus E65bn. But this modest improvement was largely explained by an exceptional net inflow of E146bn in foreign direct investment in February, largely because of Vodafone's takeover of Mannesmann.

So long as the basic balance remains negative, it will be quite difficult for spasmodic and modest sterilised intervention to reverse the euro's slide. The alternative is for the authorities to finance much of the capital outflow. As it happens, the European System of Central Banks is in an excellent position to do so. As of June, it possessed total reserves of gold and foreign currency worth E386bn, of which E238bn was in foreign currency. The euro-zone's authorities argue that the euro is undervalued. If so, let them declare their willingness to sell a large proportion of these overpriced reserve assets, particularly dollars.

If they do not dare to do this, the intervention is quite likely to fail to reverse the euro's slide. For the ECB this may not matter. It has already achieved the aim of convincing the markets that intervention is possible. It will not worry the Americans much either. They have a nightmare far more disturbing than a weak euro - that of a collapsing dollar. The fact that Lawrence Summers, the US Treasury secretary, went out of his way on Friday to stress that a strong dollar remains US policy was revealing. A country with a current account deficit of over 4 per cent of gross domestic product and an economy operating at a high level of capacity wants neither a turnaround in the capital inflow nor a weakening of the currency.

Only some, but not all, of the conditions for a reversal in the euro's slide now exist. So long as the long-term capital outflow persists, it will be difficult for modest amounts of sterilised intervention to end the euro's weakness. But this need not matter that much, so long as the euro's retreat does not become a rout. In the near future, a big dollar fall would be far more damaging than a weak euro. The euro-zone should lie back and enjoy the currency's weakness for a while longer.

Martin.Wolf@ft.com