Key focus for the coming week will be the ECB meeting on Thursday. It looks set to be a very interesting meeting - not least after stories in the past week about mutiny within the ECB. The Daily Telegraph reported that a growing number of members were seeing the need for a more aggressive approach as economic and financial woes continue to mount. Industrial production is in freefall and survey data from Ifo and PMI fell back again in February after showing some improvement in January. Add to this increasing internal pressure as several countries see their bond yields rise significantly due to supply worries and speculation about potential EMU break-up. And to top off the problems the crisis in Central and Eastern Europe (CEE) has escalated recently. This will weigh further on Euroland growth as banks - particularly in Austria and Italy - could get a strong hit from losses in CEE (See Research Euroland - Exposure to the crisis in CEE). It is also a blow to especially German exports which are highly exposed to CEE.
Several ECB members have started to express the need to act fast. Italy's central bank governor Mario Draghi pointed to the experience from the US in the 1930s and Japan in the 1990s which suggested it was necessary to fight the crisis in the early phase. This was indeed a lesson from the Great Depression in the 1930s as we described in our recent Research Global - Lessons from the Great Depression. We expect ECB to cut rates by 50bp on Thursday and keep the door open for further easing on the back of sharply down-ward revised projections for both growth and inflation. It will be quizzed on quantitative easing but we do not think the ECB is ready to go down that path yet - both due to reluctance but also due to the practical prob-lems of implementing it in a currency union with 16 dif-ferent countries.