Global investors were anxiously awaiting the European Central Bank's first policy meeting of the year Thursday, expecting it to announce a massive bond-buying programme to stimulate the struggling eurozone.
The European Central Bank's executive board has drawn up proposals to buy 50 bn euros ($58 bn) of sovereign bonds per month until the end of 2016, Bloomberg reports.
Speculation has reached fever pitch that ECB president Mario Draghi will use his most powerful policy tool yet in the battle against deflation in the euro area although analysts have warned that high hopes could be dashed.
The expected programme of sovereign bond purchases, known as quantitative easing (QE), comes after eurozone inflation turned negative in December, stoking fears that the region is on the brink of a dangerous spiral of falling prices.
Draghi and his colleagues on the ECB's executive board have been busy priming the markets for action ever since.
Following rate cuts and a range of unprecedented measures to pump liquidity into the financial system, QE is seen as the ultimate weapon in the ECB's arsenal.
However, the German central bank or Bundesbank believes QE takes the ECB outside its remit and is effectively a licence to print money to get governments out of debt.
Economists are also divided as to whether quantitative easing can really work in a single currency bloc made up of 19 economies in very different states of health.
- Passing the buck -
The greatest fear in Germany, Europe's paymaster, is that the measure will take the pressure off governments to reform their economies and get their finances in shape.
"The ECB can only be part of a fix in Europe. In my view they shouldn't go too far because the more they do, there is the incentive for governments to do less," said former Bundesbank chief Axel Weber at the World Economic Forum in the Swiss ski resort of Davos.
"And the problem is if you continue to buy time and the time is not used for reforms, you have to ask yourself if more of the same is the best recipe," he said.
Another German, the ECB's own former chief economist, Juergen Stark -- who, like Weber stepped down in 2011 because he disagreed with the turn the central bank's policy decisions had taken -- said fears about deflation were "completely exaggerated" and were being invoked merely to push through QE.
The finance minister for the regional state of Bavaria, Markus Soeder, warned of the "dangerous consequences" of QE.
Countries such as France and Italy would just sit back and let the ECB do the work, instead of reforming their economies, he said.
"The euro is in danger of becoming a soft currency. That can't be in the interests of currency union," Soeder said.
German Chancellor Angela Merkel also warned that the wrong signals could be sent regarding the necessity of economic reforms.
In order to placate such concerns, there has been some speculation that a revised scheme had been devised under which the national central banks will only be allowed to buy the sovereign debt of their respective countries and Germany, Europe's paymaster, will not be on the hook to bail out another country.
Nevertheless, French Finance Minister Michel Sapin said the ECB had a task to do and Germans should be mindful of the central bank's independence.
- Size matters -
Capital Economics economist Jonathan Loynes said that past experience "suggests that, when your economy and banking system is weak, you need to do an awful lot of QE to have an impact on growth and inflation."
So far, expectations had centred around a QE programme of the magnitude of around 500 billion euros ($579 billion).
But the latest media reports suggest the ECB is now considering purchases of 50 billion euros of bonds per month until the end of 2016, amounting to 1 trillion euros in all, or around 10% of eurozone GDP.
"It would be one of the biggest shocks in recent monetary policy history if ECB did not announce some form of quantitative easing today. But will it live up to expectations," Loynes asked.