Revised Deflation Grave Summary

Original version:


Summary of “Europe already has one foot in ‘Japanese’ deflation grave”

 Ambros Evans-Pritchard, in the Telegraph of October 23, 2013 explains why a policy error in Europe could soon cause a deflation crisis.

Recently inflation in the euro zone has dropped to 0.9 pc with no signs of turning into an upwards trend anytime soon. That is putting the euro zone on the edge of a deflation crisis. According to Evans-Pritchard, a deflation would become absolutely disastrous once a country’s debt surpasses 300pc of GDP. For Countries like Italy or Spain deflation would mean a “runaway debt” situation.

Evans-Pritchard believes the ECB should be doing everything to ensure the inflation does not fall below 2pc. Instead, due to a strong bias towards Germany, the ECB is sitting on its hands, waiting for the global economy to grow again and lift the European economy up. Ironically Germany, fundamentally voting against inflation, is on the edge of deflation itself. According to Evans-Pritchard that offers the perfect opportunity for the “Club Med allies” to unify and use their authority and persuade the ECB to change its policy. If nothing changes Evans-Pritchard fears Europe will follow into Japans footsteps. All it needs is one nasty surprise and Europe will have its very own deflation crisis.

Revised version:
Summary of “Europe already has one foot in ‘Japanese’ deflation grave”

Ambrose Evans-Pritchard, in the Telegraph of October 23, 2013 explains why a policy error in Europe could soon cause a deflation crisis.

Recently inflation in the euro zone has dropped to 0.9 pc with no signs of turning into an upwards trend anytime soon. According to Evans-Pritchard, deflation would becomes absolutely disastrous once a country’s debt surpasses 300pc of GDP. For countries like Italy or Spain deflation would result in “runaway debt”.

Evans-Pritchard believes the ECB should be doing everything to ensure inflation does not fall below 2pc. Instead, due to a strong bias towards Germany, the ECB is sitting on its hands, waiting for the global economy to grow again and lift the European economy up. Ironically Germany, fundamentally voting against inflation, is on the edge of deflation itself. According to Evans-Pritchard that offers the perfect opportunity for the “Club Med allies” to unify and use their authority and persuade the ECB to change its policy. If nothing changes Evans-Pritchard fears Europe will follow into Japans’ footsteps. Only one surprise could act as a catalyst and Europe will have its very own deflation crisis.