The European Central Bank is expected to announce today that it will spend billions buying the debt of euro zone member states in order to kickstart the European economy.
Talks were continuing late last night in Frankfurt between members of the ECB Governing Council over how any potential losses would be shared among member states. The issue dominated the first day of the World Economic Forum in Davos, Switzerland.
The 26-member Governing Council body, including Irish Central Bank governor Patrick Honohan, was meeting informally last night to try to resolve the impasse. The official decision is due to be taken at lunchtime today.
If it goes ahead, the much-anticipated bond-buying programme, known as quantitative easing, will be a defining moment in the history of the Frankfurt-based institution.
ECB president Mario Draghi is expected to say that the bank will spend up to €50 billion a month for two years buying bonds to stimulate the stagnant euro zone economy, which has been struggling with low inflation, lack of growth and persistently high unemployment.
For the programme to work, the banks that sell bonds to the ECB will have to lend the cash to business and individuals, who would then spend it and boost economic activity.
Germany opposes the plan on the basis that it is tantamount to the ECB lending to euro zone governments, which it is not allowed do under its own rules. They have insisted that national central banks bear the losses if any euro zone governments default on their bonds.
Italy and other member states want the risk shared equally across the euro zone.Minister for Finance Michael Noonan and IMF managing director Christine Lagarde both expressed a preference for mutuality at a conference in Dublin this week.
The size and duration of the programme to be announced was unclear last night. Speaking at Davos, José Ángel Gurría, secretary general of the OECD, indicated he favoured an uncapped bond-buying programme, arguing that quantitative easing should be continued “as far as we need it”.
Former Bundesbank chief and current chairman of UBS Axel Weber said that while he expected the ECB to announce a "sizable programme" of quantitative easing, euro zone countries still needed to implement structural reforms.
“The ECB can only be part of the fix in Europe, in part because the more they do, they give a big incentive for governments to do less,” Mr Weber said.
His comments were widely taken as reflecting the consensus view in Germany that the answer to Europe’s economic woes was tougher action on reducing deficits, or fiscal consolidation, by governments, rather than excessive risk-sharing by the ECB.
Italian prime minister Mario Renzi, who has been a consistent critic of the EU's emphasis on fiscal consolidation, said that Europe "should stress the importance of growth, not only the discipline of austerity", calling on the ECB to help Europe find "a new direction".
Taoiseach Enda Kenny arrived in Davos last night for a two-day visit during which he will hold bilateral meetings with a number of existing and prospective IDA client companies.