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The governing council of the European Central Bank meeting in Frankfurt today is expected to agree to launch a quantitative easing (QE) sovereign bond-buying program that is commonly called "money printing" - in contrast with sovereign bond purchases in the aftermath of the Greek crisis, there will be "no sterilisation" where equivalent amounts are withdrawn from the credit markets.
It was reported on Wednesday that the executive board of the ECB had agreed to monthly purchases of €50bn for at least a year. Mario Draghi, ECB president, said last month that the central bank would allow its balance sheet to grow by €1tn to €3tn - a level last seen in early 2012.
Besides the initial €600bn in 12 months, the central bank has also embarked on other programs to pump liquidity into the Eurozone economy.
Annual inflation fell to 0.2% in December and growth in the Eurozone has been almost stagnant or contracting for years.
"Bond purchases are the last tool at the ECB's disposal," said Marcel Fratzscher, who heads the Berlin-based German Institute for Economic Research, according to Deutsche Welle. "It can't issue any more credit to banks because the banks have received more than enough credit from the ECB."
It's not yet clear if the risk of buying bonds will remain with the 19 national central banks of the currency area or if the ECB will assume the risk, which is strongly opposed by Germany. The Netherlands is backing the German position.
Michael Noonan, Irish finance minister, said on Monday: “I believe that, if it becomes the function of national central banks rather than primarily of Frankfurt, then I think it will be ineffective.”
The FT says that an Italian finance ministry official said there was “concern” in Rome about national central banks taking on responsibility for their own bond purchases. “If QE is done through fragmentation, it will not be effective and it will not be coherent with a truly unified Europe,” the Italian official said, adding that the size of the QE programme was less important than its structure.
Jürgen Stark, former ECB chief economist, charges that the central bank is exploiting fear of deflation and using it as a pretext to push through new controversial measures. He told the German business daily Handelsblatt on Wednesday that the ECB "wants to drive down the refinancing costs of individual countries."
"That is very different from traditional monetary policy," he said.
Economic hope mired in Eurozone gloom - While there may be hope that low oil prices will help industrialised nations recover more quickly, there is also concern among delegates at the World Economic Forum in Davos about the eurozone despite an expected QE programme by the ECB. Chris Giles of the FT sums up the opinions.
As the market moves to anticipate sovereign QE bond purchases from the ECB on Thursday, the yield on investment-grade US corporate bonds has been pushed to its lowest in 57 years. John Authers reports from New York.
European Central Bank president Mario Draghi is expected on Thursday to launch quantitative easing. Laurence Mutkin, global head of rates strategy at BNP Paribas, discusses with Ralph Atkins, FT capital markets editor, how bond markets may react.