The European Central Bank could announce hundreds of billions of euros in new bond-buying this week to keep fighting the pandemic crisis, analysts predict, as EU governments prepare for a long fight over a joint response.
While some policymakers have urged abandoning the ECB's self-imposed limits on buying government debt to stoke growth and inflation, its meeting on Thursday is also the first since a ruling by Germany's Constitutional Court urging restraint of the central bank's powers.
"At a minimum, we think (governors) will add a further 500 billion euros" ($557 billion) to the 750-billion-euro Pandemic Emergency Purchase Programme (PEPP) decided in March, Capital Economics analyst Andrew Kenningham said.
If the ECB keeps up its present pace of buying government and corporate debt, "the total envelope will be exhausted by early October", he added.
"The only questions are exactly what changes are announced and when."
ECB board member Isabel Schnabel reiterated last week that the "size but also the composition and duration" of PEPP could all be increased, with some analysts tipping an extension from the end of this year to September 2021.
As well as Thursday's policy moves, eyes will be on June's quarterly growth and inflation forecasts from ECB staff, as January-March figures were compiled before the virus struck.
Bank president Christine Lagarde last week predicted that the eurozone economy would contract by between 8-12% this year, before a hoped-for strong rebound next year.
Meanwhile inflation in the 19-nation eurozone collapsed to 0.1% year-on-year in May – down from 1.2% in February before the pandemic and worlds away from the ECB's just-below-2% target.
The inflation outlook could fall as low as zero across the year, Capital Economics predicted, potentially offering a powerful justification for further measures to support activity and lift price growth towards the bank's goal.
Governors will meet less than a month after a German Constitutional Court (GCC) ruling that a 2.6-trillion-euro bond-buying scheme launched in 2015 may not have been "proportionate" to its price stability goal and demanding clarification.
If the ECB cannot satisfy the judges, the German Bundesbank, the central bank, may not be able to participate in bond-buying.
While finding a face-saving solution to the immediate legal headache, policymakers must also consider how court challenges might limit their future options.
Bank of France governor Francois Villeroy de Galhau last week said the so-called "capital key" – under which the ECB buys countries' bonds in line with their stakes in its capital – is an "uncalled-for constraint".
Free of limits, the central bank might choose to buy more Italian, French or Spanish debt to keep financial conditions on an even keel across the eurozone.
But the self-imposed capital key rule was also shaped to dodge just the kind of legal tripwire that has sprung up in Germany.
"While I do not think the ECB will be deterred by the GCC, I also think they do not necessarily want to raise the stakes by blatantly going against its worries," Oliver Rakau of Capital Economics said.
"An official dropping of the capital key is likely fairly controversial at this stage."
ECB chiefs will also be aware that long-awaited help on the fiscal front remains far off, as leaders are just getting started debating a 750-billion-euro pandemic recovery fund proposal from the European Commission.
While Germany this month gave up some of its red lines in a deal with France, including on the emotive question of joint debt issued from Brussels, a so-called "frugal four" group including Austria and the Netherlands are fighting a rearguard action.
Short of joint measures, markets' fears of an eventual breakup of the eurozone could resurface, the ECB warned last week.
But tied into the EU's always hotly contested budget negotiations and calls for bloc-wide taxes on plastics and big tech to fund borrowing, it will be a challenge for governments to seal the deal even by a January deadline.