Prices have been falling at a pace of 6.5pc in Greece, 5.6pc in Italy, 4.7pc in Spain, 4pc in Portugal, 3pc in Slovenia and nearly 2pc in Holland since September, based on my rough calculations (annualised) of Eurostat monthly data.. "The biggest threat to public debt dynamics is weaker-than-expected inflation. Merely lower than expected inflation, not even deflation, would lead to a significant deterioration in countries’ public finances," they said. The bank said lingering "lowflation" would cause debt ratios to surge by 2018, rising 10 percentage points in France to 105pc of GDP, 15 points in Italy to 148pc and 24 points to 118pc in Spain... Reza Moghadam, from the International Monetary Fund, says that even inflation of 0.5pc threatens to "scupper the nascent recovery" in Europe. It aggravates the North-South divide, making it yet harder for the Club Med to claw back lost competitiveness. The debt-stricken states have to carry out even more drastic internal devaluations to regain ground, but that in turn pushes up their debt ratios. "Each point of relative price adjustment must be bought at the cost of greater debt deflation," he said.
ECBs deflation paralysis drives Italy, France and Spain into debt traps - Telegraph