Folks from my generation fondly remember the classic Saturday Night Live phrase from Gilda Radner's Roseanne Roseannadanna character, "It just goes to show ya. It's always somethin'. If it's not one thing it's another."

She could have been talking about Europe. Just as the EU has gotten its sovereign debt problems under control, it's facing a new threat in deflation.

The European Central Bank (ECB) met this week to consider solutions to this emerging problem. Economic activity has slowed to the point where inflation for March came in at 0.5% and is clearly on a downward trend. The ECB has a mandate to keep inflation "below, but close to" a 2% target, but the slowing of price movements seems to be getting out of hand.

Falling prices may sound like a good thing, but watching prices slide can have a devastating effect on the economy. Former Fed Chairman Alan Greenspan described it as an economy going off a cliff. When consumers expect prices to decrease, they tend to wait on their spending, which soon spirals into a virtual halt of the economy.

The core issue that the ECB faces is the same one it confronted in the middle of the sovereign debt crisis. Policy decisions that are right for some Euro zone countries are not right for others. Healthier economies such as Germany have inflation running 0.9%, while prices in some of the peripheral countries like Spain are already falling. Easing up on monetary policy to push inflation higher would require lowering interest rates or even instituting some sort of quantitative easing program such as the one employed by the U.S. Fed. But this requires agreement among the member states in Europe, and that can get very tricky.

However, ECB President Mario Draghi has demonstrated that he can navigate these treacherous waters. Back in 2011, when Europe was experiencing 3% inflation, Draghi won wide acclaim by putting in the strong backstop with the ECB’s Outright Monetary Transaction program. That strengthened the European economy, and also kept the markets from abandoning the financing of peripheral countries.

My View: Draghi’s considerable skills are again being put to the test. He has shown remarkable capability to pull competing interests together, and I believe he will be successful again.

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