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For markets there is not much doubt: at this week’s meeting, the European Central Bank will cut rates deeper into negative territory, and then again later in the year. But the more pressing question is whether this will be counterproductive in the fight against the economic shock caused by coronavirus.

One of the premises of central bank action throughout the past decade is that ever cheaper money would stimulate aggregate demand and, hopefully, inflation. This was particularly the case in economies where banks’ balance sheets were still constrained, such as in Europe. But after a decade of unconventional policy, we are at a critical juncture. Some central banks’ actions may be doing more harm than good.

The issue turns on the nature of the growing economic risks posed by the coronavirus outbreak. Is this a supply, demand or financial shock — or some combination of the three?

Conventional economics view this primarily as a negative supply shock that will reduce growth and increase costs. Monetary policy is largely impotent to address these risks.

Singapore has provided one model. It has created a $4.5bn relief package helping tourism, aviation, retail, food services and transport. Scaling this up to the eurozone would imply measures worth at least $200bn. In that bullish scenario, governments would finally awaken to the benefits of active fiscal policy. But the base case remains that Germany will once again prove a drag on Europe’s ability to sail forward.

Former ECB vice-president Vitor Constâncio argued last week that the present shock required banks to be “strong enough” to cover customers’ liquidity shortfalls “resulting from temporary declining revenues from broken supply chains and lower demand”. However, the average European bank made returns on equity of just 6 per cent last year.

Such returns are one consequence of deeply negative interest rates. Unconventional policy such as this is similar to taking steroids, which can be highly effective in short dosages but not over the longer term, as they weaken the system. Further cuts in rates will damage not only the eurozone’s banking system but also the investment thesis for Europe, writ large.

So what should be on the investor wish list for a more bullish scenario from the ECB? First, liquidity in abundance, both through short-term repos, the longer-term lending scheme, and, if required, additional quantitative easing.

Second, the use of macroprudential tools. The ECB, as bank supervisor, should lower the required “countercyclical” buffers of capital that banks are supposed to build up in good times. The central bank could also announce it will modify stress test assumptions to incorporate the coronavirus shock.

To complete the menu, the central bank should also include plans for potential stress on payments systems. The World Health Organization has said that banknotes could carry coronavirus, so South Korea and China are taking notes out of circulation to clean them. The ECB should also plan for a big increase in the use of digital payments.

Put all this together, and it is clear that a material rate cut from the ECB this week, without accompanying swift and intense measures, could put markets on to a much sharper downward trajectory.