Europe already has one foot in ‘Japanese’ deflation grave (improved summary)

In The Telegraph of October 23, 2013 Ambrose Evans-Pritchard, analyses Europe’s debt crisis. As history has shown, deflation has the potential to cause economic disaster. If total debt grows too strong, as is the case in Western Europe, deflation becomes fatal. The ‘eurostat index’ depicts that deflation is decreasing. Prices at fall are therefore witnessed in numerous states. Similar to Japan’s crisis, the euro zone economy is threatened by high debt ratios and sustained deflation. Vicious dynamics such as the ‘denominator effect’ are observed in Italy, where debt rises faster than GDP. The same is valid for private debt, as crash diets only misguided the economy of troubled states even more. According to Mr Darvas, letting inflation grow could lead out of the deflationary spiral. Responsible for money shifting to Germany is the ECB and non counteracting member states which fear Germany would exit the euro zone. Germany too could be in danger with inflation being one possible way of improvement. The resulting rise of their wages, however, could harm Germany. Europe currently appears paralyzed and hopes for global growth to successfully fight the deflation virus.