Draghi's resolve is ECB's sharpest tool The eurozone may have avoided a break-up, but its economy is contracting at worrying speed. Purchasing managers" indices last week showed private sector activity shrinking at the fastest pace since the depths of the 2009 post-Lehman Brothers global recession. Such a precipitous drop raises the question of whether, having saved the euro, the European Central Bank might have to prevent parts of the eurozone falling into a deflationary slump. And if so, how? A little noticed feature of the bond buying programme drawn up by Mario Draghi, ECB president, suggests the bank's governing council is asking exactly those questions. When the ECB intervened in bond markets under Jean-Claude Trichet, its previous president, purchases were on a hold-until-maturity basis. But Mr Draghi's revamped "outright monetary transactions" programme would hold bonds in a trading portfolio - they could be sold as well as bought. As such, OMTs will be more akin to a flexible, US Federal Reserve-style "quantitative easing" programme. This opens up the possibility of OMTs morphing into a mechanism providing broad economic stimulus - rather than just removing the "tail risk" of a catastrophic eurozone break-up. About time too, many would argue. The US Fed is already into its third round of QE, but the eurozone economy looks sicker. Beyond the near term, even the ECB expects the economy to "recover only very gradually," with the risks on the downside. But do not expect ECB-style QE any time soon. For one thing, the bank's OMT programme has yet to be activated - that will depend on Spain first agreeing Mr Draghi's pre-requisite economic reform programme with European Union authorities and the International Monetary Fund. Even when purchases start, Mr Draghi has sworn they will be aimed purely at ensuring the proper "transmission" of its interest rate decisions to the real economy, without investors fretting about eurozone break-up risks. Amounts spent will be "sterilised" by withdrawing equivalent amounts of liquidity from the banking system. There is no question of the ECB "cranking up the printing presses," Jörg Asmussen, an executive board member, reassured last week. A successful OMT programme, however, would have stimulative effects by reducing borrowing costs in crisis-hit periphery countries and helping repair the eurozone fragmentation, which has led to wild variations in financial conditions between north and south. If further easing was required, the ECB could still use conventional monetary policy. Its main policy rate remains at 0.75 per cent, so further cuts are possible. More relevant is the rate charged on the ECB's deposit facility, used by banks to park funds overnight. With the ECB having flooded the banking system with liquidity, the deposit facility rate provides a floor for market interest rates. In July the deposit rate was cut to zero. But it could be pushed into negative territory (assuming computer systems can cope). The idea would be that the cost of parking funds at the ECB would encourage greater lending to the real economy. Still, the scope for rate cuts is limited. Negative interest rates could hardly be passed by banks to households or businesses. Beyond that, the ECB could try Fed-style guidance - pledging to keep interest rates low for a lengthy period in the hope of encouraging lending. But that would fly in the face of the ECB's "we never pre-commit" tradition, inherited from Germany's Bundesbank. So what happens then if the economy deteriorates further? Mr Draghi has not ruled out QE but nor has he flagged it as likely. That is probably wise. It is unclear how such a programme would work in the eurozone. Its financial fragmentation would have to be healed first but there are also political obstacles. Government bond purchases would have to be in proportion to the relative size of eurozone member countries. Thus more German bonds would be bought than any other - and Germans are already aghast at the prospect of purchases under the OMT. Corporate bond purchases would be as fraught: imagine the row if the ECB bought Fiat but not Daimler or Peugeot? The Fed is combating unemployment by buying $40bn of mortgage-backed securities a month. But there is no comparable market in the eurozone. One option could be to copy the Bank of England's "funding for lending" programme, which provides banks with cheap funding to lend on to consumers and businesses, perhaps tailoring it for individual eurozone countries. But that scheme has not yet transformed UK prospects. Sir Mervyn King, the Bank governor, is not afraid of admitting the limits of central bankers" powers. Mr Draghi might feel similarly - although the OMT programme's configuration suggests he would not give up without trying something. Ralph Atkins is the FT's capital markets editor