Fed's tapering shift leaves ECB with headache of its own ECB president Mario Draghi holds a news conference in Frankfurt As they gather at the Eurotower for Thursday's European Central Bank policy vote, the 23 members of the governing council will no doubt be relieved that blame for the latest bout of market turmoil cannot, for once, be pinned on them. The finger-pointing has recently been in the other direction across the Atlantic, after hints from Ben Bernanke that the US Federal Reserve could soon slow the pace of its bond-buying - sparking turbulence in global financial markets. Nonetheless, the actions of their US counterparts have left ECB policy makers with a problem: governments and businesses in the eurozone have not been immune from the rise in borrowing costs triggered by the increase in US Treasury yields that followed from the Fed's shift towards the exit. As policy makers meet in Frankfurt, the de facto tightening of monetary conditions in the currency bloc will, along with the political turmoil in Portugal, be high on their list of concerns. Among the worries specific to the currency bloc's rate-setters are renewed signs of financial fragmentation, with the rise in borrowing costs steeper in the EU periphery than in the core. The German government's borrowing costs are up by less than 50 basis points since the beginning of May. The equivalent yields on 10-year Italian and Spanish debt are 75 and 70 basis points higher, though spreads with Bunds remain far narrower than at the height of the sovereign debt crisis last summer. Borrowing costs in Portugal have soared above 7 per cent for the first time this year. However, investors expecting rate cuts to stem the rise in borrowing costs look set to see their hopes dashed. Since mid-May, the economic data on the currency bloc has been mostly favourable. The purchasing managers" index for manufacturing rose to its highest level for almost a year and a half in June, fuelling hopes that the bloc's economy could have finally turned a corner. While Mario Draghi, the ECB president, has signalled that an exit from its loose monetary policy remains far off, the chances of a cut in its main interest rate below 0.5 per cent have lessened as the economic outlook has brightened. ECB watchers expect little more than talk from Mr Draghi at the press conference that follows Thursday's governing council vote. "Mr Draghi will undoubtedly use the conference to hammer home that the euro area isn't the US, and that monetary policy will remain expansionary for a long while," said Jens Larsen, economist at RBC Capital Markets. The difficulty is following the words up with action: a rate cut will not do much currently, negative deposit rates are unlikely, and the ECB seems to have ruled out a large-scale asset-purchase programme for now. Some point to an outside chance the ECB could deploy its own form of Fed-style forward guidance by linking the timing of any policy tightening to an improvement in economic conditions. Others view this as unlikely, given the central bank's predilection to "never pre-commit" on future monetary policy decisions. Nor is the ECB expected to announce any update on discussions with other European institutions to help the region's smaller businesses access financing; other organisations, such as the European Investment Bank, are now expected to take the lead here. Even without the Fed's hints of tapering, there has been some tightening in eurozone monetary policy. While the US central bank's balance sheet continues to swell despite the shift towards the exit, the ECB's has contracted in recent months. If the definition of euros is restricted to banknotes and coins, along with reserve balances held at the central bank, there are now fewer out there. However, the shrinkage highlights the marked improvement in the health of the region's banks since last summer. Most of the contraction stems from repayment of the funds gained through the ECB's crisis-fighting offers of unlimited, cheap three-year loans; the banks are no longer as reliant on the ECB's cash as they once were.