Assuming the politicians in Europe were all on the same page, I think we could clearly expect a signal for a 25-50 bp cut in the refi rate based on the slide in EZ economic activity so far in 2012. But the fact that Europe is no closer to a durable solution to the ongoing sovereign debt/banking crisis, the ECB is not likely to act first. It feels it has done its part to stem the crisis by ballooning its balance sheet to the largest of any central bank in the world.
I think we will get vague promises that the ECB stands ready to support the banking system but the market may be disappointed by a lack of specificity.
Further LTRO seems unlikely as there is little good collateral left in Europe to be pledged for loans to the banking system. The ECB may want to keep its powder dry until after the Greek election, keeping a refi rate cut as a tool to counteract market turbulence should further government gridlock result…