FRANKFURT: The European Central Bank is poised to announce a plan on Thursday to buy government bonds, resorting to its last big policy option for breathing life into the flagging euro zone economy.
Market expectations are sky-high for the ECB to unveil large-scale quantitative easing (QE) - printing money to buy government bonds - despite opposition from Germany's Bundesbank and concerns in Berlin that this could allow spendthrift countries to slacken economic reforms.
The momentous step - which comes as global economic prospects dim - has already prompted the Swiss central bank to abandon its cap on the franc, while Denmark, whose currency is pegged to the euro, was forced to cut interest rates in anticipation of the flood of money.
Canada has cut the cost of borrowing while two British rate setters at the Bank of England have dropped calls for tighter monetary policy.
A euro zone source has said that the ECB's Executive Board has proposed that it buy 50 billion euros ($58 billion) in bonds per month from March.
The broader, 25-member policymaking Governing Council began meeting at 0800 GMT on Thursday to discuss the proposal. ECB President Mario Draghi holds a news conference at 1330 GMT.
Former ECB policymaker Athanasios Orphanides said action was long overdue. "The ECB should have already embarked on QE," he said. "Now that the situation has deteriorated, the ECB will have to do much more."
There is uncertainty, however, about the length of the programme. While some media predicted that it would run until the end of next year, it could possibly be cut short or extended depending on whether or not it is having an impact on the euro zone economy.
The duration is significant. A programme starting in March and running for a year would total about 600 billion euros, based on a purchase rate of 50 billion per month. If a similar plan ran until the end of 2016, it could surpass 1 trillion euros.
Money market traders polled by Reuters expected a 600-billion-euro bond-buying plan.
Euro zone inflation turned negative last month; consumer prices fell 0.2 percent, far below the ECB's target that they should rise just under 2 percent annually.
But there are doubts, and not only in Germany, over whether printing fresh money will work.
"It is a mistake to suppose that QE is a panacea in Europe or that it will be sufficient," former U.S. Treasury Secretary Larry Summers said at the World Economic Forum in Davos on Thursday.
"There is every reason to expect that QE will be less impactful in a context like the present one in Europe than it was in the context of the United States."
Scepticism runs deep among Germans and their Dutch neighbours, who fear that it will see their strong economic standing used to sponsor weaker southern states such as Portugal with cheap finance via the ECB.
Earlier this week, tensions boiled over in a debate at the Dutch parliament, where a majority of political parties said they opposed quantitative easing if it would "lead to an increased risk of redistributing financial risks between euro member states".
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