Before & After Analysis: Europe already has one foot in 'Japanese' deflation grave

Version 1:

Ambrose Evans-Pritchard, in The Telegraph of October 23, 2013 analyses Europe’s deflation crises which increases debts.

According to Evans-Pritchard, deflation has often been seen by governments as a benign solution to escape crisis, but it is actually a policy error which leads to rocketing national and private debt ratios as can be seen along with the example of Japan. If total debt exceeds 300pc of GDP, deflation becomes lethal which is currently true for most of Western Europe’s countries and even Germany is at risk. Mr. Evans-Pritchard warns of a runaway debt in which Italy and Spain maybe pushed if the current downward trend remains.  

Furthermore, he emphasizes that the ECB should increas the inflation rate to 2pc as a possible way out of the current impasse. Another solution to stop the crisis could be that France, Italy, Spain and Club Med allies gang up in the ECB’s governing council against Germany and dictate terms. But as these states seem terrified that Germany might leave the EMU, they only hope for a global growth to improve the situation. Clearly, this is not a grown-up policy.

Basically Mr. Evans-Pritchard warns of deflation as a false friend making the problem only worse.

Correction:

Ambrose Evans-Pritchard, in The Telegraph of October 23, 2013 analyses Europe’s deflation crises which increases debts.

According to Evans-Pritchard, deflation is actually a policy error which leads to rocketing national and private debt ratios as can be seen in Japan. If total debt exceeds 300pc of GDP, deflation becomes lethal which is currently true for most of Western Europe’s countries and even Germany is at risk. Mr. Evans-Pritchard warns of a runaway debt in which Italy and Spain may be pushed if the current downward trend remains. 

Furthermore, he emphasizes that the ECB should increase the inflation rate to 2pc as a possible way out of the current impasse. Another solution to stop the crisis could be that the Club Med allies cooperate in the ECB’s governing council to work against Germany and dictate terms. But as these states seem terrified that Germany might leave the EMU, they only hope for a global growth to improve the situation. Clearly, this is not a grown-up policy. 

Mr. Evans-Pritchard warns of deflation as a false friend making the problem only worse.