RENEE MONTAGNE, HOST:
When the European Central Bank holds its monthly meeting today, investors around the world will be watching nervously to see what the bank's head, Mario Draghi, says about interest rates. Draghi was recently quoted as saying he would do whatever it takes to keep Europe's debt crisis from growing out of control, and that could go beyond just cutting borrowing rates.
As NPR's Jim Zarroli reports, any European Central Bank plan to use its resources to prop up Europe's weaker economies will face strong opposition from the Germans.
JIM ZARROLI, BYLINE: The annual economic conference in Jackson Hole, Wyoming is a huge event for economists and central bankers. And so when ECB head Mario Draghi suddenly backed out of attending last week, a lot of eyebrows were raised. But Draghi made clear he had too many pressing problems at home, problems that were threatening to erupt in full-scale conflict among European officials.
Ferdinand Fichtner is chief economist at the German Institute for Economic Research.
FERDINAND FICHTNER: Normally, disputes about monetary policy are not taken into the public. So, in a way, it's extremely surprising what we've seen over the last four weeks, basically.
ZARROLI: Fichtner says Draghi may use today's meeting to lower official European interest rates. But Draghi has also dropped hints that he's ready to go further, by buying up long-term government bonds of weaker countries like Spain and Italy.
Jacob Kiekegaard is with the Peterson Institute for International Economics.
JACOB KIEKEGAARD: So you had to come up with something new, a new way of providing financial support for these countries in a way that is both financially sustainable and politically sustainable.
ZARROLI: Kierkegaard says that by keeping rates low, the ECB could bring some badly needed stability to these countries.
KIEKEGAARD: Rather than just trying to, you know, put a Band-Aid on the crisis at all the time, you are now, for the first time, starting to change the fundamental institutions that underpin the euro.
ZARROLI: Draghi did make clear the ECB was ready to step in only if the countries involved were committed to fiscal prudence and were willing to stick with it indefinitely.
Still, the idea of using ECB resources to help prop up weak governments has run headlong into the objections of some European officials, especially in Germany.
The German finance minister warned recently that state debt cannot be financed through monetary policy. And the head of the Bundesbank has reportedly threatened to resign several times if the bond-buying program is expanded, but each time, he was talked into staying.
Ferdinand Fichtner says German economists have pretty firm ideas about the role that the ECB should play, and the idea of using ECB funds to keep interest rates down is anathema to them.
FICHTNER: German economists tend to argue for a very clear division of labor between policymakers. German economists want the Central Bank to be in charge of price stability, and only price stability.
ZARROLI: The dispute goes to the very definition of the ECB. Unlike the Fed, its only goal is to keep an eye out for inflation pressures. But with Europe sliding into a recession, many European leaders think a focus on price stability is no longer enough and that the ECB can do much more to help bail out indebted countries.
As for German Chancellor Angela Merkel, she has lately been coy about her intentions. She says she stands behind the Bundesbank, but also believes in an independent central bank.
But straddling the fence may no longer be an option for European leaders, and today's ECB meeting could encourage them to strike out in a new direction.
Jim Zarroli, NPR News, Berlin.
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