Chief economist of the International Monetary Fund ( IMF ) believes that the risk of deflation in the euro area is real , German daily Handelsblatt reported on Monday ( 10/3 ) .
IMF chief economist Olivier Blanchard warned in an interview with the Handelsblatt daily that portion of the site published in the newspaper , inflation remains positive but the risk of deflation in the euro area remains in compliance with the initial scenarios from the donor agencies .
He argued that deflation will increase the debt burden even in the southern periphery countries , such as Portugal and Spain due to increase competitiveness there .
The negative effects would outweigh the advantages and can make lower economic output , Blanchard cautioned .
Commenting on the monetary policy stance of the European Central Bank ( ECB ) , Blanchard believes that there is still room for expansionary monetary policy even though the central bank has lowered interest rates as far as possible .
Last week , the ECB decided to keep interest rates unchanged at the lowest level . ECB President Mario Draghi said at a press conference that inflation is likely to remain at current levels for a period but no signs of deflation in the euro area .
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