Europe faces tough call on stimulus amid omicron fears

FRANKFURT, Germany (AP) — The European Central Bank is being pulled two ways: It's caught between a scheduled end of its pandemic stimulus and growing alarm about the new omicron variant of the coronavirus even as other central banks around the world decide to take steps to combat soaring consumer prices.

The dilemma faced by the bank and President Christine Lagarde at their meeting Thursday in Frankfurt is compounded by an wave of infections caused by the earlier delta variant. On top of that, persistent shortages of parts and raw materials also are contributing to a late-year slowdown of the recovery in the 19 European Union countries that use the euro.

Many questions are unanswered about the fast-spreading omicron variant, including whether it can evade vaccines and the likelihood of severe illness. That makes the outcome of Thursday's European Central Bank meeting harder to predict than usual, analysts say.

“Rarely has the backdrop for a major ECB decision been as uncomfortable and as uncertain as it is now,” analysts at Berenberg bank said.

With the eurozone economy within 0.3% of its pre-pandemic level and inflation at a record high of 4.9%, there are factors pushing “in favor of reducing the monetary stimulus significantly and fast," the Berenberg analysts said. “However, the recent surge in infections in core Europe and the rapid spread of the omicron variant ... are casting a dark shadow over the near-term outlook for the eurozone.”

Analysts say the bank's governing council will probably confirm that a 1.85 trillion euro ($2.08 trillion) bond purchase stimulus will end as scheduled in March 2022. But the bank could decide to maintain part of the pandemic stimulus by moving some of the bond purchases to a preexisting program. It could also promise to restart...