The European economy's continued excessive reliance on the central bank is increasingly becoming a more tenuous proposition to defend, as it increases the political vulnerability of the ECB and undermines its longer-term policy effectiveness, creates a more difficult environment for banks, and distorts the allocation of capital. Indeed, the ECB could be vulnerable to following Japan's path, seeing declining benefits outweighed by rising costs and risks.
When the Bank of Japan stunned markets a few weeks ago by taking interest rates negative, it probably didn’t anticipate what followed: a stronger (rather than weaker) currency, a stock market selloff (rather than a rally), a furious parliament demanding explanations, and evidence of increased disintermediation by households from the banking system. This is a vivid reminder that, beyond a certain point, prolonged unconventional central bank activism -- especially when it involves negative nominal interest rates -- can go from being part of a short-term solution to causing complications that are not easy to contain.
The main question to ask before the ECB's meeting should not be whether officials will do more. They will. Rather, it is how quickly they will inadvertently approach the unfortunate situation that the Bank of Japan now finds itself in – that of reduced policy effectiveness and increase political vulnerability.
No one who cares about the health of Europe and the global economy would want another systemically-important central bank getting to that stage.