Summary

Before:

SUMMARY OF Europe already has one foot in “Japanese” deflation grave

The risk of an European deflation and a potential debt crisis are being analyzed by Ambrose Evans-Pritchard in the article “Europe already has one foot in “Japanese” deflation grave”, published in “The Telegraph” on October 23, 2013.

According to Evans-Pritchard, Europe is going to slide into a deflation trap, as Japan is now, if policy errors continue to happen. A deflation would become lethal, once total debt exceeds 300pc of GDP. Besides, inflation has dropped to an alarming rate of 0.9pc, which caused price falls and a growth in debt in many European countries. Especially Italy has faced the problem of “runaway-dept”.

Mr Darvas states that the only possible solution is to let the inflation grow. The EBC should implement all possible measures to ensure that inflation does not fall below 2pc, which however is not done. Moreover this is not accepted by Germany, even though it may soon become a victim of deflation itself.

The author’s proposed solution is the unification of France, Italy, Spain and the Club Med allies. Demanding appropriate action from Germany, they could force them to accept inflation. On the contrary, Europe hopes for global growth to save the economy, which is unlikely to happen.

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After:

SUMMARY OF Europe already has one foot in “Japanese” deflation grave

The risk of a European deflation and potential debt crisis are being analyzed by Ambrose Evans-Pritchard in the article “Europe already has one foot in “Japanese” deflation grave”, published in “The Telegraph” on October 23, 2013.

According to Evans-Pritchard, Europe is going to slide into a deflation trap, as Japan is now, if policy errors continue to happen. Deflation would become lethal, once total debt exceeds 300pc of GDP. Besides, inflation has dropped to an alarming rate of 0.9pc, which caused price falls and a growth in debt in many European countries. Especially Italy has faced the problem of “runaway-debt”.

It is thought that the only possible solution is to let inflation grow. The EBC should implement all possible measures to ensure that inflation does not fall below 2pc, which however is not being done. Moreover this is not accepted by Germany, even though it may soon become a victim of deflation itself. 

The author’s proposed solution is for Club Med to demand appropriate action from Germany: force them to accept inflation. On the contrary, Europe hopes for global growth to save the economy, which is unlikely to happen.