Forget the confetti bomb, ECB faces a minefield

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If it weren't for Greece -- and perhaps a smidge of Benoit Coeure -- we might have been half-wishing for another rogue confetti bomber to inject some drama at this Wednesday's European Central Bank (ECB) meeting.

But here's a quick look at some potential minefields bank president Mario Draghi must negotiate this month.


Euro zone economy

At first look, there seems to be plenty of reason for the ECB to maintain its "steady-as-she-goes" approach: the euro zone's economy outperformed U.S. growth in the first quarter, financial fragmentation is easing and money supply growth continued to rise in April.

However, one key concern is the recent stabilisation in lending rather than a pick-up -- but don't let distract you from likely oil-related tinkering with inflation and growth forecasts.

Read MoreEuro zone Q1 GDP outpaces US

According to a note from Societe Generale's global economics team Friday: While first-quarter gross domestic product growth beat expectations, and growth overall is expected hit around 1.5 percent this year, some survey indicators point to downside risks in the next three months.

With all that in mind, watch out for an upward revision to headline inflation when ECB President Mario Draghi speaks to the press after the rate-setting meeting, though the more crucial core inflation should remain unchanged.

Frontloading bond-buying

The ECB has managed to kill two birds with one stone with its decision to increase its bond-buying ahead of a summer lull in the debt markets. Not only is this a solution to liquidity concerns, it also suggests that the ECB was closely following the bond selloff that began in late April.

Draghi must be pretty satisfied by the tightening in spreads since then – but he won't admit it. He recognises the dangers of confirming investors' perceptions that frontloading was an effort to thwart rising bond yields and protect the economy. So expect a reminder that the ECB does not pick and choose the level of bond yields.

The ECB will argue the adjustment is merely a tweak for technical reasons while at the same time maintaining the ability to do more frontloading if required. Read: in the event of yields increasing when the U.S. Federal Reserve raises rates, particularly if the euro zone recovery looks wobbly.


Communication techniques

Investors so far may have liked the message from the ECB -- but not the delivery. One of the leading members of the central bank's governing council, Benoit Coeure, gave a speech in London last month delivering the news of frontloading to a room full of investors… a day before the ECB went public. This raised questions concerning the ECB's communication policy and whether or not investors at that meeting were able to profit ahead of time.

Read MoreECB controversy over speech that sank the euro

ECB board member Ewald Nowotny told CNBC last week: "the whole discussion from my point of view is grossly overblown..much ado about nothing."

Overblown or not, Draghi will be asked for his take.

Have to be careful about ECB's QE exit: Nowotny
Have to be careful about ECB's QE exit: Nowotny   

Exit strategy

Talking of communication, Draghi has been asked -- and has reiterated -- several times whether the bond-buying program will run until September 2016 and the ECB'll taper beforehand.

Surely it makes sense to keep up the dovish communication until we see genuine progress with core inflation? Either way, markets like to forward predict so expect more questions on exit strategies this Wednesday.

Don’t forget Greece

The International Monetary Fund confirmed last week that the Greek government may postpone June payments until the end of the month.

This includes the 300 million euros due on June 5th. We may or may not have a deal by then. Either way, pressure on the Greek banks has fast become unbearable with reports of 800 million euros of outflows in just two days.

Draghi will do little more on Thursday than reiterate that a political solution is under way. He'll likely be asked about the ECB's action if an IMF repayment is missed and – if a deal has been done-- to clarify the conditions required to allow Athens to raise short-term cash and ease the liquidity crisis.

Benoit Coeure hinted last week that if there were a little more willingness on the side of the Greek government, the ECB could think about raising the amount of T-bills the country can issue.

When CNBC asked ECB Vice President Victor Constancio for his take, his response was more guarded. "That's a decision for the governing council as a whole to take so I cannot predict what will be the view on the governing council on that one. It's not for the board of the ECB to decide on its own"

ECB expects Greece to stay in EU
ECB expects Greece to stay in EU   

A word - or 40 - on reforms

Finally, no ECB rate meeting would be complete without Mario Draghi reiterating monetary policy can't fix the euro zone on its own. Cue the words "structural reform" and a prize to the reader who guesses correctly the number of times we hear the phrase uttered in Wednesday's meeting. My guess is at least 40 because apparently Draghi's speech on May 22 used the word "reform" 85 times!

And there you go, Greece aside there's no need for confetti bombs to entertain us at the ECB meeting after all - happy counting!


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