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 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".
GLOBAL FALLOUT
The ECB has already cut interest rates to record lows, begun buying
debt and funnelled hundreds of billions of euros in cheap loans to
banks, in the hope that they would lend the money on into the
economy and stimulate growth.
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Now its last remaining major option is QE, a policy that the U.S.
Federal Reserve, Bank of Japan and Bank of England have already used
to revive growth since the global financial crisis. Euro zone
policymakers are keen to prevent the kind of deflationary spiral
which has plagued Japan for years, resulting in weak growth
punctuated by recessions.
By buying sovereign bonds, the ECB would show its commitment to
pushing up inflation - while also generating a "portfolio effect"
under which investors snap up other debt and securities, some
outside the euro zone, thereby depressing the euro.
Expectations that the ECB will opt for QE are high, with the euro
diving against the dollar in anticipation.
Even French President Francois Hollande jumped the gun on Monday,
predicting that the ECB "will on Thursday take the decision to buy
sovereign debt".
Germany is worried about the announcement, which will come just
three days before an election in Greece where anti-bailout
opposition party Syriza is on track to gain roughly a third of the
vote.
Highlighting her concerns, German Chancellor Angela Merkel repeated
on the eve of the meeting that any move by the ECB to buy government
bonds with new money should not be used as an excuse to put economic
reforms on the back burner.
Greece's finance minister urged the ECB not to exclude it from QE:
"No country needs quantitative easing as much as Greece," Gikas
Hardouvelis told German business daily Handelsblatt.
Against this backdrop, Draghi must balance the intense market
pressure to act and a need to buoy inflation on the one hand, with a
desire to minimise German dissent on the other.
One option to achieve a compromise is for the euro zone's national
central banks to bear the brunt of the risk of bond purchases,
rather than the ECB itself.
Ireland's finance minister said on Monday such a ploy would make a
QE plan "ineffective", yet this scenario may nonetheless be part of
the final plan, sources have told Reuters.
RBS economist Richard Barwell said this would contradict the concept
of solidarity among euro zone countries. "It breaks the d'Artagnan
principle of a currency union: 'one for all and all for one'," said
Barwell.
($1 = 0.8627 euros)
(Writing by Paul Carrel; Additional reporting by Noah Barkin in
Davos; Editing by David Stamp and Pravin Char)
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