European Central Bank President Mario Draghi has been trying to boost inflation for years -- to no avail.

With the rate back below zero, the gloves have to come off at Thursday's meeting of the governing council -- and the starting point should be the debt of peripheral countries such as Italy.

A deposit rate cut is already baked in, according to investors. Eonia forwards, a gauge of funding rates for banks that closely tracks the ECB deposit rate, are already pointing to about 12 basis points of easing. But much, much more needs to be done.

The ECB should not only expand bond purchases by at least 10 billion euros ($11 billion) a month, it should train its focus on the debt of some peripheral countries, such as Spain, Italy and Portugal, at the expense of Germany.

These countries need help with their borrowing costs. Their bond markets have underperformed German debt since the ECB's last rate decision on January 21, showing that the risk-off global environment is a problem for them.

For instance, 10-year German debt yields have fallen about 25 basis points in this period, while Spain's have dropped just 17 basis points. True, Spain's yields have always exceeded Germany's, but the problem is that the gap between the two is now above the average spread for the past 12 months.

Peripheral Bonds are Underperforming
Spread of 10-year debt over German bonds is above the average for the past year
Source: Bloomberg

It's impossible to say by how much yields on debt of peripheral countries will tighten relative to Germany's were the ECB to pick up purchases, but they surely will. And given the economic headwinds these nations are facing -- massive unemployment, a cooling global environment, austerity measures -- every little bit of help should be given.

The breathing space that struggling, indebted nations need is substantial. Spain, for instance, has more than 140 billion euros of debt maturing this year. A lower cost of refinancing would certainly help.

Stimulating nations' economies isn't the only inflation benefit from expanding QE. The move could also soften the currency, which could raise the cost of imports and give another boost to inflation.

There's a problem. To focus on peripheral countries, the ECB will have to ditch its "capital key." This establishes that the amount of bond purchases should be roughly proportional to the size of each nation's economy. This is a system that favors the bonds of Germany, the bloc's biggest economy.

The ECB put this rule in place to avoid giving the impression that the central bank was engaged in monetary financing of governments. There's also the issue that favoring the debt of profligate countries creates a moral hazard.

The worsening global environment doesn't bode well for a pickup in prices. So, the ECB can't conduct business as usual any longer -- it needs to do more.

There's another angle to this. A focus on peripheral debt will enable the ECB to demonstrate its commitment to the whole euro-area project -- irrespective of where you reside in the euro area, the ECB will do "whatever it takes" to keep your currency intact and each country solvent.

Euro-area Unemployment Rates
Germany at all-time lows; periphery struggling

The periphery will benefit from this vote of confidence. Every government wants the cheapest borrowing costs it can possibly achieve, but the ECB giving a lift to the countries that need it most underscores the inviolability of the "euro project."

It's hard to say if Draghi will go for this on Thursday. Though a deposit-rate cut is likely, the political argument for setting aside the capital key will need to overcome a lot of outrage. He may use the press conference to lay the ground for this action in the future.

Richard Jones is a Bloomberg First Word strategist covering global macro markets. His opinions are his own and aren't intended as investment advice.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Richard Jones in London at rjones207@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net