before/after: deflation grave

ORIGINAL

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

In a Telegraph article from the 10/23/2013 Ambrose Evans-Pritchard argues that the harmful policies applied by the EU in tackling the Eurozone crisis lead to deflation. The current strategy is to enforce harsh austerity measures on crisis-torn countries like Greece and Spain. With no monetary stimulus to boost their economies such countries are experiencing serious deflation. This is highly dangerous because deflation will cause unrepayable runaway debts for public and private actors. In order to deal with such debts states will be forced to cut down on their spending even further, which will result in lower wages and consequently decrease the purchasing power. Private actors will be forced to run down on their liquid assets. In short, economies are going to stagnate and Europe will end up in what the author refers to as deflation grave. Ironically, the initiators of these policy errors, with Germany leading the way, will also eventually face deflation. The currently proposed solution to this problem of religiously anticipating economic growth is harshly criticized by the author. Instead he argues that Spain, France, Italy and the Med Club ought to demand that the inflation rates are increased in their national economies.

CORRECTED

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

In a Telegraph article from the 10/23/2013 Ambrose Evans-Pritchard argues that the harmful policies applied by the EU in tackling the Eurozone crisis are leading to deflation. The current strategy is to enforce harsh austerity measures on crisis-torn countries like Greece and Spain. With no monetary stimulus to boost their economies such countries are experiencing serious deflation. This is highly dangerous because deflation will cause unrepayable runaway debts for public and private actors. In order to deal with such debts, states will be forced to cut down on their spending even further, which will result in lower wages and consequently decrease the purchasing power. Private actors will be forced to run down their liquid assets. In short, economies are going to stagnate and Europe will find itself in what the author refers to as a "deflation grave". The currently proposed solution to this problem of religiously anticipating economic growth is harshly criticized by the author. A real solution would be to raise inflation rates but countries like Germany strongly oppose such measures  because they fear it will erode their savings. Ironically, this reluctance will eventually also cause Germany  face detrimental deflation. The author urges the Club Med  to put Germany under pressure and  demand that the inflation rates are increased in their national economies.