A Pivotal Week for Europe\'s Central Bank Leader

Hannelore Foerster/Bloomberg News

Mario Draghi, president of the European Central Bank.

FRANKFURT - The last time addressed the news media after a meeting of the , on Aug. 2, he disappointed investors who wanted him to crack his whip and immediately bring bond markets to heel. The markets dropped even before Mr. Draghi was done speaking.

Only in subsequent days and weeks did the bond markets calm down, as investors evidently absorbed his underlying message: that the central bank intended to take meaningful action against debt crisis even if quick remedies were not possible.

But this Thursday, when the central bank meets again, Mr. Draghi, the bank's president, could have a far harder time reconciling the expectations of twitchy financial markets with the limitations of his power. Although investors are counting on bold action, analysts say the bank probably needs more time to resolve internal differences and deliver on a promise to use its financial clout to tame runaway borrowing costs for the most troubled euro zone countries.

“Market expectation of Draghi's ability to maneuver may be exaggerated,” said Marie Diron, a former economist at the central bank who advises the consulting firm Ernst & Young. “That could lead to a sell-off.”

Some analysts do expect the central bank to cut the benchmark interest rate to 0.5 percent on Thursday, from its already record low level of 0.75 percent. Although that reduction might not impress investors as much as a bold intervention in the bond market, it could at least indicate Mr. Draghi's commitment to his July promise of doing whatever it takes to preserve the euro.

The bank meeting is probably the central event, but not the only one, in what is likely to be a busy week for the euro zone. Political leaders will also continue making the rounds of one another's capitals to plot crisis strategy.

One of the most closely watched meetings, also on Thursday, will take place when Angela Merkel, the German chancellor, visits the Spanish prime minister, Mariano Rajoy, in Madrid. Spain's debt drama seems to have entered a dangerous phase, with some of the country's biggest regions requesting financial aid from a central government already staggered by its own high borrowing costs.

Mr. Draghi at least temporarily mollified markets last week with an opinion piece in the German newspaper Die Zeit that was widely interpreted as signaling the central bank's determination to begin buying the bonds of troubled euro zone governments, despite resistance from Germany. Exceptional measures may be required, Mr. Draghi wrote, “when markets are fragmented or influenced by irrational fears.”

Top European Central Bank officials have indicated that they are working overtime to determine how best to keep borrowing costs for countries like Spain and Italy affordable. Mr. Draghi and other members of the bank's executive board even canceled plans to attend the annual meeting this past weekend of global central bankers in Jackson Hole, Wyo., saying there was too much to do in Frankfurt.

So far, the mere promise of central bank action has had an effect. Since spiking in late July, bond yields, a measure of a government's borrowing costs, have fallen below 6 percent on 10-year debt for Italy and below 7 percent for Spain - levels considered acceptable, if not exactly comfortable.

But the yields, which have begun to edge higher again in recent days, are linked to expectations that Mr. Draghi will provide specifics of the central bank's bond-buying strategy at the news conference Thursday after the meeting of the central bank's governing council.

Mr. Draghi is thought to have the support of most of the council's 23 members. But he must contend with stiff and vocal resistance to bond buying from Jens Weidmann, the president of the German Bundesbank.

The Bundesbank declined to comment Friday on a report in Bild, a German newspaper, that Mr. Weidmann had even threatened to resign in protest over the bond buying, a course of action that has become something of a tradition among disgruntled German central bankers.

The Bundesbank would only refer to an interview published in Der Spiegel magazine last week, in which Mr. Weidmann said, “I can carry out my duty best if I remain in office.”