FRANKFURT A landmark legal opinion this week will remind the European Central Bank of the limits it faces as it advances towards money printing, while a tumbling oil price saps inflation in debt-strained Europe.
With expectations high that the ECB is on the verge of buying government bonds with new money to shore up the economy, an influential adviser to Europe's top court will give his view on Jan. 14 about an earlier unused bond-buying scheme.
It is the latest chapter in a long-running and increasingly bitter dispute about quantitative easing (QE) between the ECB and Germany, the largest member of the 19-country bloc, that is likely to limit the size or scope of such a program.
As the debate continues, the euro zone economy is all but grinding to a halt. Germany is expected to announce modest growth on Jan. 15 for last year.
In the United States, fresh data on rising employment as well as retail sales is set to show just how much its recovery has overtaken Europe.
"The global economy is at a precarious point," said Jacob Kirkegaard of Washington think tank, the Peterson Institute.
"The falling oil price is a huge shot in the arm. Nonetheless, it is clear that the ECB will have to do something. There is no growth and the debt burden is too high. The world will be flying on one engine, the U.S., for quite some time."
Oil's second-biggest collapse on record has taken the price of a barrel of benchmark Brent crude to around $50 from $115 in the middle of last year. [ID:LCOc1]
That is a mixed blessing for the stuttering global economy.
While it is good news for a slowing China and should put more money in the pocket of motorists around the world, cheap oil has put price inflation into reverse in the euro zone, increasing the burden on countries with heavy debts.
It has also compounded an economic and currency crisis in neighboring Russia, one of the world's biggest oil exporters. Russia is already locked in conflict with neighboring Ukraine.
Ratings agency Standard & Poor's has said it will conclude a review of Russia's credit status by mid January. Any downgrade would badge Russian bonds as "junk" for the first time in more than a decade.
Low price inflation, a symptom of the global slowdown, has led some to question the rule of thumb for measuring economic health, namely that there should be a steady up-tick in prices.
British inflation will be watched on Tuesday, with analysts betting it will hit a fresh 12-year low below 1 percent.
Those looking for respite elsewhere may be disappointed. The People's Bank of China cut the cost of borrowing in November and loosened loan restrictions to encourage lending.
It is expected to take further such steps, as the country's property market downturn continues and local governments and companies grapple with heavy debts. Bank lending data and a readout on economic output in the final three months of last year are likely to paint a glum picture.
Hopeful eyes are turning to the ECB. But German opposition to money printing could put a fly in the ointment.
Its Bundesbank has warned that buying bonds issued by euro zone governments -- including politically brittle Greece -- could leave it on the hook for losses.
Next week, an adviser to Europe's top court will give his opinion on a challenge by a group of Germans to an earlier ECB bond-buying program. If he shares any of the concerns of Germany's constitutional court, which referred the case to European judges, it would be significant.
Alain Durre, an economist with Goldman Sachs, said this could lead to the ECB setting a fixed limit on its bond-buying plans or to take priority over other investors when it buys state bonds.
Whatever the outcome, the German protest is likely to get louder. "The ECB has stepped beyond its remit. The European court should forbid the ECB from doing this," said Dietrich Murswiek, a lawyer representing one of the plaintiffs.
"You can draw parallels with quantitative easing. From my point of view, QE is also beyond its remit. This can also lead to legal action."
(Additional reporting by Jason Bush in Moscow, Howard Schneider in Washington, David Milliken in London and Kevin Yao in Beijing; Editing by Catherine Evans)