Eurozone 'sleepwalking into a decades-long deflation trap Large parts of southern Europe are already in or close to deflation, according to Eurostat. Greece has the highest deflation rate in the eurozone, at 2.9pc. A deep period of deflation means Greece is likely to need more debt relief. Mr Amey said the eurozone was already half way through a lost decade of growth, and it was "quite possible" that if the bloc were pushed into deflation, it could remain there for "decades." "What you don't want is some countries pulling everyone else down into deflation," he said. That is a real risk. The eurozone's low inflation rate of 0.9pc, compared with respective figures of 1.2pc and 2.1pc in the US and UK, means the single currency is still an attractive investment despite sluggish growth. This is because while benchmark interest rates in all three currency zones are near zero, once inflation is taken into account, real returns in the eurozone are higher. "The euro is an attractive currency because it's yielding a zero or -1pc real yield, while everybody else is at -2pc," said Mr Amey. The eurozone's trade surplus also makes it a favourable place to invest. Mr Amey said the European Central Bank (ECB) had very few tools to combat deflation. He said the central bank would probably launch another Long Term Refinancing Operation (LTRO) towards the end of 2014 to pump more liquidity into system. He said while the ECB could also introduce a negative deposit rate and launch quantitative easing, the former would take the ECB further into uncharted territory, while the latter has been deemed illegal. PIMCO said deflation on the Continent could put downward pressure on UK inflation, currently the highest in the European Union. "There are risks that we import some price deflation from Europe," said Mr Amey. PIMCO also believes the Bank of England will not raise interest rates until 2016, as Britain's fragile consumer confidence forces it to maintain its loose monetary policy stance for years to come. The Bank has made it very clear that it will only raise rates when the economy is capable of withstanding it. It is not at all clear the economy is going to be capable of [this] for another couple of years," said Mr Amey. He said the Bank would be "mad" to hike rates pre-emptively, and would probably wait for real wages to increase first. "[By raising rates] you are tightening the purse strings of an already stretched consumer," he said. The thing you don't want to do as a central banker is pre-emptively tighten policy and get it wrong. At the moment you've got earnings growth at 1pc, and inflation at 2pc. So people's purchasing power is being eroded. If you go and hike rates on top, it will squeeze the consumer even more.. Mr Amey said the Government could also face trouble winding down the Help to Buy scheme, for home buyers with small deposits. He said it might leave consumers and banks addicted to subsidies. Once you put these products in place, it's quite tough to take them away. If you're a bank and can get somebody else to take the first loss, you'd be keen to do that. For this reason, it's going to be quite hard for them to get out of it.