More Stimulus Expected From E.C.B., but Will It Be Enough?

FRANKFURT — For someone with a reputation for caution, Mario Draghi is off to an audacious start as president of the European Central Bank. Since taking office little more than a month ago, he has presided over an interest rate cut, signaled a greater willingness to deploy E.C.B. resources to fight the European debt crisis, and turned up the pressure on governments to remake the euro zone.

More action is likely Thursday when the bank’s policy council meets. Analysts expect another cut, perhaps a big one, in the bank’s benchmark interest rate, currently at 1.25 percent.

The E.C.B. is also expected to start offering longer-term loans to banks to compensate for a flight from European financial institutions by private lenders. And Mr. Draghi is likely to re-emphasize the tacit bargain he offered political leaders last week: The central bank would temporarily stabilize financial markets if the politicians make concrete progress on fixing the structural flaws in the euro zone.

Mr. Draghi, businesslike and direct in his public statements so far, seems unencumbered by past policy moves and determined to take the initiative before the strains of the crisis exhaust him, as they sometimes seemed to have worn on his predecessor, Jean-Claude Trichet.

While Mr. Trichet remains an esteemed figure in Europe, with a legendary stamina, three years of nearly nonstop crisis management took their toll in his final months in office. For now, at least, Mr. Draghi appears fresh and unafraid of putting his own stamp on policy.

“Draghi can say different things,” said Marie Diron, an economist in London who advises the consulting firm Ernst Young. “People won’t say, This is not what you were saying a few months ago. It makes a change of policy, a bit of U-turn, easier.”

But will it be enough to satisfy the large body of economists and political leaders who contend that the crisis endgame will have to include much more aggressive and controversial action by the E.C.B.?

Guntram B. Wolff, deputy director of Bruegel, a research organization in Brussels, argues that the E.C.B. may have no choice but to become lender of last resort to governments and not just banks, as the only way to prevent market panics that drive up borrowing costs for countries like Italy.

“A lender of last resort needs to be created in order to stop self-fulfilling sovereign crises,” Mr. Wolff wrote Monday. “Interest rates paid on sovereign bonds in a number of countries are clearly the result of self-fulfilling crisis, which will ultimately force default even on a country like Italy, with devastating consequences for the euro area as a whole.”

For all his differences in tone, Mr. Draghi also inherits the tensions that made Mr. Trichet’s tenure so difficult, including a mandate that did not anticipate the kind of crisis now threatening the European and global economies. And he faces, as Mr. Trichet did, determined opposition from Germany to any expansion of the E.C.B.’s writ beyond a single-minded focus on price stability.

Mr. Draghi last week tacitly offered to intervene more aggressively in bond markets to keep interest rates under control in countries like Italy and Spain, if euro zone governments did more to discipline their members. But it is not yet clear what he meant by that.

Would the E.C.B. simply expand its existing bond buying in a modest way? Or would it cross the Rubicon and buy securities on a scale that would amount to significantly enlarging the money supply? He did not say.

In any case, the reaction in Germany to Mr. Draghi’s remarks was swift. Jens Weidmann, the president of the German central bank, said he remained stalwartly opposed to more bond market intervention, which he regards as an illegal transfer of debts from one country to another. Mr. Draghi risks straining the unity of the euro zone if he radically steps up E.C.B. purchases of government bonds over the objections of Germany, the European Union’s largest member.

Jörg Krämer, chief economist at Commerzbank in Frankfurt, expressed a sentiment widely shared in Germany. “Huge purchases of government bonds in the euro zone threaten to shatter the monetary system,” he wrote Monday in a note to clients.

Opponents of E.C.B. bond buying argue that it is actually far riskier than securities purchases made by the U.S. Federal Reserve. The Fed has bought far more paper: $2 trillion versus €207 billion, or about $277 billion, by the E.C.B. But while the Fed’s purchases have included large amounts of U.S. Treasury securities, which remain an international haven, the E.C.B. has bought mostly bonds from troubled countries like Greece and Portugal, becoming what critics say is a storehouse for distressed government debt.

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