Draghi's concern is that the malaise prompts investors, consumers, and companies to pull back spending in anticipation of even weaker inflation, tipping Europe into a deflationary spiral that would be hard to reverse.

He cited the ECB's preferred gauge for inflation expectations, which fell below 2 percent this month. The last time the 5-year, 5-year inflation swap rate crossed that level, which matches the central bank's price-stability threshold, was in October 2011, according to data compiled by Bloomberg.

The backdrop of a stalled economy and slowing price gains, added to the trade risks surrounding escalating sanctions against Russia because of its support of separatists in Ukraine, is raising speculation the ECB will embark on quantitative easing (QE). Citigroup Inc. economists said today they predict a 1 trillion euro (US$1.3 trillion) package of broad-based asset purchases will be unveiled in December.

“The odds of such a program are rising, although whether or not it will happen is still very much uncertain,” Roberto Perli, a partner at Washington-based Cornerstone Macro LP, said after Draghi spoke. “Still, the odds of QE are going up, and that is probably more important for the markets than the exact date when QE might begin.”

Existing Stimulus

Draghi made no mention of quantitative easing in his speech, instead highlighting steps the ECB is already taking to bolster the economy. The central bank cut interest rates to record lows in June, and will next month start a round of cheap funding for banks linked to loans to the real economy. It is also “fast moving forward” with a program for buying asset-backed securities, and the euro area should benefit from a weaker currency, he said. The euro slid to an 11-month low against the dollar today.

He said that while he is “confident” that the package of measures will work, “we stand ready to adjust our policy stance further.” He also warned that there is a “real risk” that monetary policy loses some effectiveness.

The ECB's Governing Council next meets to set monetary policy on Sept. 4 in Frankfurt. It has so far avoided QE amid political and logistical concerns over how such a program would be carried out.

Draghi intensified pressure on European governments to play their part, saying “it would be helpful” if those with room to ease fiscal policy did so.

“We need action on both sides of the economy: Aggregate demand policies have to be accompanied by national structural policies,” Draghi said. “We should not forget that the stakes for our monetary union are high.”

He proposed four areas in which fiscal policy could be improved: better use of flexibility within existing European Union rules; lower taxes; stronger fiscal coordination between governments; and EU action to ensure a large public investment program.

Countries including France and Italy have argued for more flexibility with their budgets, and French Finance Minister Michel Sapin said this month that his nation will exceed a deficit target agreed upon less than four months ago with the European Commission. Germany has said governments should stick to the rules on fiscal goals.

“No amount of fiscal or monetary accommodation, however, can compensate for the necessary structural reforms in the euro area,” Draghi said. These reforms “can no longer be delayed.”

The ECB's economic outlook increasingly contrasts with that of the U.S. central bank. Fed Chair Janet Yellen told the Jackson Hole conference that the U.S. labor market has made “considerable progress,” though too many Americans are still out of work. Fed officials are slowing monetary stimulus and debating when to exit from ultra-loose policy.

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