Martin Wolf on Germany and the European Union

This is what I heard from an Italian policymaker: "We gave up the old safety valves of inflation and devaluation in return for lower interest rates, but now we do not even have the low interest rates."

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For small open economies such as Latvia and Ireland, regaining competitiveness and growth through deflation might work. For a big country such as Italy, it is too painful to be credible.

How would deflation work for a small open economy?