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Part 1 of 3 – Gary Shilling: “The Euro has Been Defying Gravity for Years”

In an April 22 editorial for Bloomberg View, Gary Shilling offers his view on European deflation, explaining that the euro is no safe-haven: "The 18-member euro area has no common fiscal policy and probably never will, given its vast cultural and economic differences."

Shilling believes the euro's days are numbered due to mushrooming fears of deflation across Europe:

Bankers and policy makers worldwide are deeply worried about trivial inflation in the euro area turning into chronic deflation. Christine Lagarde, the chairman of the International Monetary Fund, said in a January speech: "We see rising risks of deflation, which could prove disastrous for the recovery. If inflation is the genie, then deflation is the ogre that must be fought decisively."

This month, Olivier Blanchard, the IMF chief economist, said deflation "would make the adjustment both at the euro level, and even more so for the countries in the periphery, very difficult. We think that everything should be done to try to avoid it."

Kenji Yumoto, vice chairman of the Japan Research Institute Ltd. and a former adviser to the Japanese government, said recently that the Bank of Japan "didn't think Japan was going to be entangled with deflation" until it was too late. "The ECB still can't be complacent. Europe is lucky to have Japan's case study," he said.

You can read the entire article here:
http://www.bloombergview.com/articles/2014-04-22/deflation-is-about-to-wallop-europe

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