Euro zone: The deterioration in the terms of trade compensated by the fiscal deficit

The euro zone is suffering a very sharp deterioration in its terms of trade (import prices have risen much faster than the GDP deflator in the recent period). This is impoverishing, since a higher proportion of the euro zone's income must be spent on imports. The choice has been made to protect households and companies from this impoverishment by using the fiscal deficit: it is governments that pay the additional price of imports. If this rise in import prices is temporary, this strategy makes sense. If it is permanent, it merely postpones the moment when private economic agents will bear the cost of the deterioration in the terms of trade.