   Let me elaborate a little bit. If the balance tilts against
the euro zone, investors will shift the composition of their
portfolios and deteriorate its credit channel. Whether or not
this triggers deflation of euro-zone prices depends on the role
of euro‐denominated assets for collateral and in facilitating
commercial transactions. Typically, when EMs are faced with an
episode of similar characteristics, there is a portfolio shift
in favour of foreign‐exchange-denominated assets triggering
maxi‐devaluations and inflation.   However, the euro area is a
large currency zone where the euro is well-established as a unit
of account, and a central bank which is strongly averse to
inflation; therefore, the “flight to quality” may produce
opposite effects, namely, strengthening of the euro and price
deflation. This will be a kiss of death for the euro-zone real
sector because, to the weaker competitive conditions triggered
by currency appreciation, price deflation may add two lethal
factors: (1) debt deflation (i.e