E.C.B. Expected to Extend Measures to Contain Interest Rates

FRANKFURT — The European Central Bank is expected to say on Thursday that it will buy large quantities of government bonds and other assets for longer than initially planned, an attempt to protect the eurozone economy from an increasingly unpredictable political landscape. Investors are showing nervousness about economic and political stability in the 19-nation eurozone after Italian voters rejected constitutional changes over the weekend and amid rising anti-European Union sentiment in much of the bloc. If investors demand higher premiums to buy government bonds, the increase in borrowing costs would most likely ripple through credit markets and make it more difficult for businesses in the eurozone to grow. To prevent that, the European Central Bank is expected to say that it will continue buying government bonds and other assets at least through September 2017, six months longer than previously announced. The central bank has been spending 80 billion euros, or $86 billion, on government and corporate bonds each month in an effort to keep interest rates at record lows and to stimulate the economy. Mario Draghi, president of the European Central Bank, will hold a news conference at 2:30 p.m. in Frankfurt on Thursday to present any decisions by the central bank’s Governing Council at its regularly scheduled meeting earlier in the day. Below are other issues that have raised concerns among some economists, investors and central bankers. The Rise of Inflation The reasoning behind the European Central Bank’s asset purchases is that they are one of the most effective ways to bring inflation in the eurozone closer to the official target of just under 2 percent. (In November, the annual inflation rate was 0.6 percent, a level considered unhealthy for the economy.) But that reasoning could be weakening. Some economists argue that, with oil prices low and inflation picking up in the United States, eurozone inflation is almost certain to rise in 2017. If so, Germany and other countries will most likely press for cuts to the bond buying, which critics say has distorted prices. When the European Central Bank ends the so-called quantitative easing program, they say, the shock to bond prices could destabilize the fragile eurozone economy. “The E.C.B.’s argument that the inflation rate in the euro area is too low will no longer be applicable in 2017,” Clemens Fuest, president of the Ifo Institute, an economic research group in Munich, said in a statement on Tuesday. “The negative side effects of the E.C.B.’s bond purchases will come to the fore.” Pushback Against Overhauls For years, Mr. Draghi has been beseeching leaders of eurozone countries to take steps to help their economies grow faster, warning that the European Central Bank cannot guarantee the health of the common currency area on its own. But when Italian voters rejected constitutional overhauls on Sunday, they also demonstrated how difficult it was for leaders to effect change. Resistance to overhauls in Italy, as well as in France, has strengthened the arguments of those who say that European Central Bank support for the eurozone economy has allowed national leaders to procrastinate rather than deal with the region’s problems, such as high government debt or laws that stifle entrepreneurship. Central bank measures have “hollowed out the principle of individual responsibility,” Jens Weidmann, president of the Bundesbank in Germany, said in a speech in Munich on Monday. Mr. Weidmann, who is also an influential member of the Governing Council, is likely to push for an early end to bond purchases in an attempt to put pressure on government leaders. “It’s dangerous to imagine that central banks can use cheap money to fight the causes of finance and debt crises, globalization angst or rising populism,” he said. Rescuing Italy’s Banks One of the biggest fears in the wake of the Italian vote, and Prime Minister Matteo Renzi’s resignation on Wednesday, was that political uncertainty would upset plans to pump fresh capital into struggling Italian banks. Those fears seem to have subsided for now. Shares of big Italian banks including UniCredit or Intesa Sanpaolo fell after the vote but have since recovered their losses and even increased in value. Some investors apparently decided that fears of a bank meltdown were overblown and that the vote might provide a catalyst for government leaders and bank executives to move quickly to resolve issues, such as the huge number of bad loans. Still, Italian lenders are likely to be a subject of discussion for central bankers meeting in Brussels on Thursday. The European Central Bank functions as the eurozone’s supreme bank overseer, and it is ultimately responsible for the health of the area’s banking system. “All in all, the banking sector, and perhaps more generally the financial sector, is stronger than it used to be before the crisis,” Mr. Draghi told the Spanish daily El País last week, referring to eurozone banks in general. “But in the medium term, it is not yet clear what the consequences of past, current and future political uncertainty will be. There will be consequences, that much is certain.”