A couple of points on recent posts.
The figures for debt as a percentage of GDP ignore the guarantees given by governments in respect of the various bail out arrangements and very significantly, in the case of Spain, domestic banks. Should those contingent liabilities turn into debt, the figures get much worse very quickly. The UK recognised and absorbed its domestic bank issues very early. Spain has still not done so, though recent activity makes it clear this is now imminent. Don’t forget the Spanish (and French) banks took the money from the last ECB bail out and used it to buy domestic bank debt, so this has elements of a very big Ponzi scheme.
And secondly, as for deflation – I doubt it. As the The Economist would have it, the Germans have effectively waved the white flag and indicated they see average inflation across the EU of 2 to 3% as acceptable, which implies a higher figure than that in Germany. Inflation is what we are in for and as in the seventies it will rob the retired and the prudent to support the profligate.
Falls in asset values are not material to the inflation/deflation equation. It is only the cost of occupying the property, whether by way of rent or mortgage repayment that counts.
Normally real estate (remember the point of this forum) would be fine as an asset in this scenario, but not when that asset entered the period of inflation at an over value relative to other assets. We may well see further falls in the absolute value of property (though I suspect inflation will staunch the absolute falls soon) but that will not signal deflation. Keep your eye on the price of loaf of bread, not the price of a Madrid apartment.