In many ways, the task facing the ECB’s Mario Draghi is the most daunting of all central bankers. On one hand, the ECB head has to keep financial conditions as loose as possible to stimulate the lethargic credit pathways in Europe, on the other European banks and insurance companies have been the most severely impacted by the ECB’s Negative interest rate policy. Which is why some have suggested that pursuing a BOJ-like policy of “curve manipulation”, where the 10Y is pegged at a certain level and allowing the curve to steepen while pushing short rates even lower may be the best approach for the central bank. However, due to the peculiarities of the joint European bond market, where political considerations make such an experiment particularly complicated complex, it is unlikely that the central bank will be able to mimic the BOJ’s exercise in progress.

Making matters worse for the ECB is the intertwined nature between depressed European bank equity prices and local lending. As Deutsche Bank suggestively cautioned earlier, “our view has been that, in what is predominantly a bank dominated market, lending standards (and then actual lending) could soon be hurt by the depressed nature of European bank equity prices as bank equity prices have led lending by 12 months since the Euro commenced (updated graph included in the piece). The tightening seen yesterday is still way below GFC levels but given recent equity trends it is a potential worry in the quarters ahead. Perhaps this is another sign to central banks that current monetary policy could hurt lending in so far as it hurts bank equity prices. It is not clear that the ECB has any inclination to change direction but it feels increasingly unlikely that they can ease further without causing collateral damage.”

As DB concludes, “the path of monetary policy is becoming more and more complicated.”

Still, Draghi has to say something, and as Bloomberg notes, the ECB meeting on Thursday may boil down to Draghi’s communication about asset purchases, with market watchers focusing on just one key aspect: any hint of QE tapering would spur a large scale sell-off in the rates market, according to most of the sellside strategists.

Here is what the prevailing consensus of what Draghi may and should say tomorrow looks like: