TOKYO The eurozone is facing a bleak economic outlook, with growth remaining stagnant and the threat of deflation looming large. The economist Martin Feldstein, who was skeptical of the initiative from the start, now calls it a failure.

And that's basically deflation 50 percent deflation.

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That's a 50 percent deflation rate.

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In terms of price performance, that's a 40 to 50 percent deflation rate.

What accounts for this apparent indifference also evident among European politicians to the looming political risks in Britain?

With progress come the looming threats of HIV AIDS, drug abuse, premarital sex and teenage pregnancy, to mention a few.

Deflationary pressures eased in Japan but firm evidence that deflation has ended is still awaited.

Policymakers will have to worry about a strange beast called stag deflation (a combination of economic stagnation recession and deflation) about liquidity traps (when official interest rates become so close to zero that traditional monetary policy loses effectiveness) and about debt deflation (the rise in the real value of nominal debts, increasing the risk of bankruptcy for distressed households, firms, financial institutions, and governments).

Price deflation is far more likely in the near term. But temporary deflation need not be the terror that central bankers fear, at least if the banking system is recapitalized and if interest rates in the industrial countries fall sharply.

Early in that terrible decade, deflation became a reality for nearly all countries and for all of the advanced economies. In the last two years, at least six of the advanced economies and as many as eight have been coping with deflation.

Reactions in the scientific community ranged from slight novelty to looming apocalypse. The former is more apt Venter s creation is evolutionary, not revolutionary.

The inability of unconventional monetary policies to prevent outright deflation partly reflects the fact that such policies seek to weaken the currency, thereby improving net exports and increasing inflation. This, however, is a zero sum game that merely exports deflation and recession to other economies.

Japan provides good lessons about where the true risks are, as it has been suffering from deflation or near deflation for 14 years. Since 1991, Japan has been mired in what Harvard economist Alvin Hansen, a contemporary of Keynes, once described as secular stagnation.

A five year cumulative 30 deflation in prices and wages in Greece, for example which would mean five years of deepening and socially unacceptable depression even if feasible, this amount of deflation would exacerbate insolvency, given a 30 increase in the real value of debt.

Deflation increases the real (inflation adjusted) debt burden, as well as the real interest rate. Though there is little evidence of the importance of small changes in real interest rates, the effect of even mild deflation on real debt, year after year, can be significant.

In the summer of 2003, public debate and market sentiment in the euro area were influenced by Japan s protracted deflation and the expectation of a possibly severe disinflationary process in America. Some observers saw a risk of sustained deflation in the euro area as well.

The main lesson of the Asian financial crisis or, for that matter, of any financial crisis is that deflation is the ultimate threat to recovery. Because the 1997 crisis was confined to East Asia, China was able to escape deflation after it joined the World Trade Organization.

But now the eurozone seems incapable of escaping near deflation, with little economic growth and prices barely moving upwards.

South Korea s leaders do not have to look far to find out what will happen if they fail to address looming challenges quickly and resolutely.

Moreover, China s rulers are focused on the looming 17th Congress of the Communist Party, which could likewise be spoiled by a bloody confrontation in Burma.

These are the major questions looming before us as the president elect prepares the American people for what can only be a rough ride ahead.

But that is logically flawed even with deflation, real purchasing power would fall, and the real value of debts would rise (debt deflation), as the real depreciation occurs. More importantly, the exit path would restore growth right away, via nominal and real depreciation, avoiding a decade long depression.

Deflation fears were mistakenly raised in 2001 2003, when the strong response of the US housing market and consumer spending to lower interest rates should have made the debate redundant. Influenced by a misreading of the Japanese experience, this led to excessive protection against the tail risk of deflation.

Markets seem to be driven by stories, as I emphasize in my book Irrational Exuberance. There are stories of great new eras and of looming depressions.

This is no surprise for an export led economy dependent on faltering global demand. But China s looming slowdown is likely to be both manageable and welcome.

It is almost an optical illusion looming on Japan s horizon, and on Europe s and on America s, is a pensions crisis. The problem is real, though exaggerated.

Let me say that the European Community welcomes and strongly supports the initiative of President Bush concerning the looming danger of avian flu's becoming a pandemic.

If you have 50 percent deflation, people may increase their volume 30, 40 percent, but they won't keep up with it.

A public debt crisis in Japan (as the combination of recession, deflation, and high deficits drove up the debt GDP ratio).

The main reason for the new dose of transatlantic drift is that the crisis is being experienced differently. America fears deflation

The past three months, however, have seen a significant slowdown in China s exports, domestic investment, industrial output, and tax revenues. A major slowdown seems to be looming.