Sometimes you can only quote

Paul Krugman brings very clear light on a couple of data points that may go unnoticed to those who don't deeply follow macroeconomics.

I don't see much to add -or much to substract for that matter, which I feel compelled to do for it not to be a direct copy and paste (Mark Thoma told me in an email how difficult he sometimes found this exercise, in deference to him I will force myself to carry it too).

[...] One thing is not a risk, because it has already happened: the euro area has entered a Japan-style deflationary trap.

No, it’s not literally deflation at an EA-wide level, but that doesn’t matter — slightly positive and slightly negative inflation with interest rates already at the zero lower bound are essentially the same. Furthermore, southern Europe still needs substantial amounts of “internal devaluation” — that is, still needs to reduce costs and prices relative to Germany — so that a low overall euro area inflation rate means destructive deflation in much of the continent.

And if you look at the implied market forecast, it’s truly disastrous. Right now, German 5-year bonds offer a yield of zero — an implicit firm forecast that Europe will be in a liquidity trap for the foreseeable future, while 5-year index bonds are yielding about -0.35 percent. That’s telling you two things: investors see so little in the way of profitable investment opportunities that they’re willing to pay the German government to protect their wealth, and they expect something like 0.3 percent inflation over the next five years, which is catastrophically below target.

How is this supposed to end? [...] It’s really hard to see how the ECB could gain enough traction here to solve the problem even if it didn’t face internal dissent from the hard-money types.

So don’t think of Europe as having a tough but workable economic strategy, endangered by Greek voters and such. Europe is at a dead end; if anything, Greece is doing the rest of Europe a favor by sounding a wake-up call.