Spanish Price Collapse Could Signal New Global Woes

Spain has suffered a major blow from the global economic crisis, with sky-high unemployment that could soon reach 20%, and merchants across the country are taking a drastic step: slashing retail prices. While lower costs in shops and restaurants might sound appealing, it's actually very bad news—the first sign of a deflationary spiral that can take years to end. As the New York Times reports, Spain's deflation may be showing the future for economies across Europe—and beyond.

Portugal and Ireland have both reported price drops, and just today Britain fell into deflation for the first time since 1960. But in Spain deflation has become front-page news, and one MIT economist described the country's economy as "like the front line of a new virus outbreak." In Valencia, where the main soup kitchen is feeding three times the number it did last year, one business owner said slashing prices wasn't helping: "It’s a question of survival for everybody." (More Spain stories.)