Deflation would be the stuff of nightmares for European economies| Paul Mason

Just as a bad cold leads to pneumonia, so over-indebtedness leads to deflation, wrote the US economist Irving Fisher in 1933. The theory is, if there is too much debt, people spend all their money repaying it and so stop spending. Prices fall inflation turns to deflation. What could be bad about falling prices? Well, the debts dont shrink so you end up using more of your income to service them, and you spend even less.

This actually happened in the US between 1929 and 1933, leaving economists like Fisher and indeed the whole of society terrified of it happening again. Economists call this the debt-deflation spiral, and since 2008 politicians have been haunted by the prospect of a repeat.