The European Central Bank meets in Frankfurt Thursday amid market concerns that it might fail to meet expectations of new action to tackle the debt crisis following ECB chief Mario Draghi's pledge to do what it takes to safeguard the euro.
Analysts are not expecting the bank's 23-member governing council to announce another a rate cut, after it delivered a 25-basis-point reduction in borrowing costs to a historic low of 0.75 per cent at its July meeting.
But Draghi's comments last week that the ECB would do whatever it takes to protect the eurozone sparked market speculation that the bank would stem the surge in borrowing costs in countries at the centre of the crisis - notably Spain and Italy - by reactivating its controversial government bond-buying programme.
Since then, Draghi's remarks have been backed by a round of coordinated statements from key European political leaders, including German Chancellor Angela Merkel, French President Francois Hollande, Italian Prime Minister Mario Monti and the head of the Eurogroup, Jean-Claude Juncker.
This has helped to fuel speculation that the ECB is planning to link up with the European bailout fund, the European Financial Stability Facility (EFSF), to help shore up vulnerable eurozone members through buying bonds.
A week after Draghi's bold pledge it remains unclear exactly what the ECB is planning.
Describing Thursday's gathering of the ECB's decision-making body as the most-anticipated meeting in a long time, Commerzbank economist Christoph Balz said: "Perhaps Draghi will pull a new rabbit out his hat."
Analysts say the ECB could also chose to boost investor confidence in the eurozone by rolling out another round of long-term cheap loans.
German media reported this week that France and Italy are spearheading a push to provide the planned permanent rescue fund, the European Stability Mechanism (ESM), with unlimited financial firepower by granting it a banking licence.
Many analysts remain sceptical about what Draghi will announce at his press conference after the governing council meeting. He has after all consistently said that it is up to governments to take the lead in dealing with the crisis.
The scepticism also follows signs of the continued opposition from the eurozone's biggest economy, Germany, and its powerful central bank, the Bundesbank, to buying bonds and granting the ESM a banking licence.
A banking licence for the ESM "cannot be our way," German Economics Minister Philipp Roesler said Wednesday.
Draghi is to meet Bundesbank chief Jens Weidmann ahead of the ECB meeting. Weidmann is a strong critic of the bond-buying programme.
Despite the risks of being isolated in Europe in the battle to head off the crisis, Germany has argued that moves by the ECB to purchase government bonds threatened to fuel inflation and compromise the bank's independence.
It also believes that purchasing government bonds risked violating the bank's charter by blurring its monetary responsibilities with new fiscal duties.
In an interview published this week marking the founding of the Bundesbank 55 years ago, Weidmann told an in-house journal that in preserving its independence the ECB "had to respect and not overstep its own mandate".
He also warned governments not to overestimate what the monetary authorities can deliver.
Policy makers "overestimate the central bank's possibilities and expect too much of it," he said.
Analysts have downplayed the outcome of the ECB meeting also because of logistical issues.
"The ECB might not be able to deliver anything specific already on Thursday, as it needs more time to coordinate with EFSF, Italy and Spain," wrote analysts from Denmark's Danske Bank in a note to clients.
"If we have learned one thing from verbal interventions it is that the market impact will only prove sustainable if backed by action," they wrote.
In a reminder of the bleak economic backdrop to the meeting, a key survey released Wednesday showed the eurozone's manufacturing sector stumbling deeper into recession in July after its 11th consecutive monthly contraction in industrial activity.
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