The fact that interest rates are at near 0% in some countries because people are not borrowing money, so if 0% is a hard line, the next thing is for the govt to wear the pain and spend, but a few govts have near zero access to credit and if they use the Euro they cannot kill their currency, so basically these countries are phooked unless they can reduce their costs and make them selves cheaper to do business in which if you are waiting for inflation in the likes of Germany and France to make a difference will take for ever, so deflation me thinks has to occur?
The first lesson my high school economic teacher sprung on us was: "economics has nothing to do with money".
And it's very true. It's all about how resources are allocated to meet people's needs and wants. Money - who's significance which as an invention makes the wheel look like the popup toaster - is an arbitrary quantification we use to assign universally recognised values to things that make up an economy.
For fairly obviously reasons, people generally act in a way to maximise their money (or at least their use of it). To the extent to which money actually represents tangible things in an economy, the behaviour also tends to optomise the allocation of real tangible resources.
Where inflation or hyper inflation exists, the supply of money is increasing at a greater (perhaps substantially greater) rate than growth in actual productive capability. Over time it transfers control of resources (read wealth) from creditors to debtors. It's impact is very destructive because when people attempt to maximise their money in this environment, resources get allocated away from genuinely productive activities and into instruments that allow the acquisition of debt (like unwanted housing).
Even more destructive in deflation. Then, the supply of money is contracting. To maximise an individual's money the best thing to do is dispose of productive assets prices are decreasing in price and shift into cash (who's "value" is increasing). In a deflationary environment the financial signals are the exact opposite to those required for a real tangible economy to grow. We saw in 2008 nearly 10% of the productive capacity in the USA destroyed in less than 6 months, and it still hasn't really recovered from that. But the Great Depression is the textbook example.
So, in a post depression world the economic orthodoxy is inflation should be managed and kept low, but still positive. There needs to be an incentive for holders of money to put it into genuinely productive assets that generate a financial return because they generate a real economic return. To some extent the supply of money *needs* to grow ahead of the real economy to induce appropriate levels of *real* (tangible stuff) investment. Increasing the rate of growth of the money supply can - in some cases - precipitate greater investment and increase future real world growth to justify the expansion.
These days governments use monetary policy to try and maintain a low but slightly positive level of inflation. It's now usually done through an independent central bank (to keep the politicians out of the decision making process and in the hands of people who - hopefully - know what they are doing and why). Interest rates is but one tool central bank's have to control money supply, and in the USA they have been using "Quantitative Easing" as an alternative out of necessity to maintain the supply of money in their economy.
The main problem the GFC and the Euro crisis has demonstrated is the banking system has a substantial role to play in the actual money supply. Fractional reserve baking means changes - even small ones - to the willingness of banks to extend credit have a large impact on the total money supply. Central Banks around the world are struggling to retain control of their currency's money supply because of risk aversion issues in the banking sector precipitated by changes to the ratings of mortgage backed securities in the USA and government backs securities in Europe.
The other major problem the world now has is singe GAT & the formation of the WTO world trade as a portion of GDP has increased dramatically. No currency - not even the USD - is really big enough to stand in the way of the resulting capital flows from all this international trade. By and large this is a good thing, but the problem is it makes it very difficult for central bank to contain changes they try to make to their currency's money supply to just their currency. The increase in supply can easily flow across boarders.
Try to imagine what Australia would be like of each state had it's own currency. Imbalances in trade between WA and NSW would cause imbalances in real world production - where tourists go, where some things are manufactured, housing/borrowing costs in the different juridictions etc. OK, so probably no major drama. Now try and imagine what it would be like if each local government area had it's own currency, and it was tightly aligned with the fiscal responsibility of the local council! Prices of everything would be fluctating all over the place based on which council took the most garbage. It would make cross border business extremely difficult, and on such a scale that'd mean most SMEs rather than just a few big multi-staters. Councils would be competing with each other to offer the most attractive currency.
The latter is not unlike the current system we have in the world at the moment. Lots and lots of (relatively) small jurisdictions trying to independently maintain a constant supply of something that is fundamentally linked, while at the same time competing with their neighbours to see if they can grow their's just a little bit faster.
It's kinda/sorta working at the moment because most countries have the same goals and are attempting to achieve them by the same means - including China. But it's ultimately not sustainable, and I think we'll see either an eventual substantial reduction in world trade (not unlike that which followed the Great Depression), or we'll end up with some sort of global currency which we can all trade with each other in.