Low inflation a threat to fiscal policy in the euro-zone and Japan

Continued very low inflation is likely to have anegative impact on debt ratios in both Japan andthe euro-zone during the coming years. Insouthern euro-zone countries real interest rateswill probably remain high due to the differencebetween inflation rates in the core and peripheralcountries. Meanwhile, Japan may need many yearsof much higher inflation – and negative realinterest rates – in order to get its debt ratio on asustainable path.