The deflation dragon is back to haunt Europe. Inflation in the euro zone seeing a surprise fall to 0.8% on the year in November. Michael Gallagher, MD at IDEAglobal says Thursday will bring ECB dovishness and Ireland can be held up as the real poster boy for European programmes.

SHOWS: LONDON, ENGLAND, UK (REUTERS - ACCESS ALL) (JANUARY 7, 2014)

1. IDEAGLOBAL, MANAGING DIRECTOR, MIKE GALLAGHER, SAYING:

JOURNALIST ASKING MIKE GALLAGHER: 'I don't know if dragons haunt things. It's certainly making things a little hotter down Draghi's collar, right?'

MIKE GALLAGHER: 'Well I think we'll see some dovishness when we come to Thursday's ECB meeting. I think the contrast with December will be more noticeable. However, the ECB are unlikely to act until really March or April in terms of the refi rate and we expect a cut around that time period.'

JOURNALIST: 'But what do you expect in the meantime? Anything else?'

MIKE GALLAGHER: 'Well it's possible that they could actually announce a 12-month LTRO. I think the big three-year LTRO is going to wait for later this year until after the stress tests. So in the meantime, we could see a down payment potentially as early as this week, possibly not though, I think more likely February.'

JOURNALIST: 'Did this number surprise you, the 0.8%?'

MIKE GALLAGHER: 'The number certainly does disappoint. I think the ECB's trajectory is that the inflation should go back above 1% and flatten out for a little bit. I think it's still the lag effects of the recession in Europe that we saw in 2012 and 2013.'

JOURNALIST: 'Are we overplaying it to talk about a deflationary threat?'

MIKE GALLAGHER: 'Yeah, I think we are overplaying deflation, but ultra-low inflation is serious in and of itself. So it does need to be watched quite closely. I think ultimately, the ECB are sensitive.'

JOURNALIST: 'But we need to stop comparing Europe with Japan over the last decade, right?'

MIKE GALLAGHER: 'Yeah. I mean true deflation is where you see persistent negative inflation numbers and we're not quite there yet in terms of a lot of the indicators in Europe.'

JOURNALIST: 'Ireland had a very successful, no great surprise but a successful, auction. The yield has hit an eight-year low. Bumper demand, let me see if I can run through it, EUR9 billion were bid. Do you think it's enough to get Moody's to switch from non-investment grade?'

MIKE GALLAGHER: 'I think it potentially is. I think Ireland's the real poster boy for European programs. But I think we can't necessarily read too much from Ireland to Europe as a whole. I think Ireland is in a good recovery story and I think that will continue to gain momentum, but it doesn't necessarily translate over to Portugal, for example.'