ECB expected to buy Spanish and Italian bonds

ECB chief Mario Draghi last week said the bank would do "whatever it takes" to support the euro, adding "Believe me, it will be enough."

He specifically mentioned a controversial bond buying programme that last year helped bring down Spain and Italy's borrowing costs.

Both countries are again struggling to sell government bonds, as their interest rates are too high to be considered "sustainable," meaning investors are asking extra premiums for fear the countries may default.

Jens Weidemann, the head of Germany's central bank who also sits in the ECB governing council comprising of all central bankers from the 17 euro countries, is fiercely against such a move, however.

The ECB should not "overstep its own mandate" he said in an interview published on the Bundesbank website on Wednesday, just after the German banker met Draghi. Weidemann also underlined that the Bundesbank is "the largest and most important central bank in the Eurosystem and we have a greater say than many other central banks."

Last week, the Bundesbank also stressed it opposes bond purchases because they are an indirect way of helping governments, something that is forbidden under ECB rules.

A compromise solution may be found, however. Sueddeutsche Zeitung on Thursday reported that a majority of the board members are in favour of resuming the bond purchasing programme, which so far has put more than €200 billion into acquiring distressed government bonds.

The German paper said a plan may be put forward for a co-ordinated bond purchasing action of the ECB and the upcoming bailout fund (ESM) in September, after Germany's constitutional court rules on challenges brought against the ESM.

"He will really disappoint if he doesn't deliver," Carsten Brzeski, a senior economist with ING Bank told this website.

He noted that Draghi had raised expectations several times before and came out with much smaller moves than expected.

"It will probably be a collection of smaller things hinting at bigger moves between the lines. They could resume buying bonds like it was done last year, when ECB chief Jean-Claude Trichet said 'I never said the programme stopped' and at the same time the ECB was active on the markets," the economist recalled.

One of the "big moves" pushed forward by Italian Prime Minister Mario Monti is to give the ESM bailout fund a 'banking licence,' meaning unlimited borrowing from the ECB.

Speaking in Finland on Wednesday, Monti said he was confident such a move would "help" countries. "I think this will in due course occur," he said.

But Germany also opposes the big-bang option.

"A banking license for the ESM rescue fund is absolutely not our way," German deputy government spokesman Georg Streiter told reporters on Wednesday.