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While all eyes are focused on the Gulf Coast beaches, watching the oily stuff come ashore, there is a deflationary front forming across the Atlantic Ocean that the financial markets suspect might work its way here over time.

Both events are entirely unwelcome.

Let’s begin with the Greek debt crisis. It has uncovered a serious concern about the sovereign debt of several countries in Europe. Portugal, Ireland, Greece and Spain are making headlines. Italy and the United Kingdom are not far behind. With budget deficits being run by these governments far exceeding the limits allowed by treaty, fear of Greece defaulting on its debt, a plummeting euro and Greek and Portuguese bonds trading at subprime levels, the European Central Bank came out on May 9 with an enormous bailout package intended to stop the contagion.

There’s no free lunch, or at least that’s the plan. In return for the bailout, fiscal austerity measures are being leveled on the wayward economies. This has already sparked riots in Athens. Although strong medicine is needed, in the short run, it will likely hit hard the generally weak economic recovery in Europe, and ironically support the deflation that’s sprouting on the continent’s periphery. These events do not bode well for American companies. International trade represents around half of revenues for many corporations, and Europe accounts for 25 percent of that. So any material falloff in the euro zone will show up here.

In the United States, deflationary signs are beginning to flash. Prices of commodities are dropping. As for employment, although the April non-farm payroll report showed 290,000 new jobs, more than 8 million people are looking for work. Moreover, average hourly wages are running flat so far this year. As for prices, it’s more than Wal-Mart that’s rolling them back. The Producer Price Index for April declined 0.1 percent. On the consumer side, the Consumer Price Index for April fell 0.1 percent, and core prices (which exclude food and energy) dropped to their lowest year-over-year reading in 44 years.

If low or slight deflation takes hold, rest assured that official interest rates will remain low for a long period of time. Despite the occasional cry of an inflation hawk, Federal Reserve Chairman Ben Bernanke has made it crystal clear that the federal funds rate, which is near zero now, will remain there for “an extended period of time.” Without doubt the recent turmoil in Europe has boosted the prices of U.S. government debt and strengthened the greenback. However, the yield on 10-year U.S. Treasury notes could not break 4 percent earlier this year despite the strong gross domestic product report from the last two fiscal quarters. With it trading under 3.5 percent, that yield is signaling anything but inflation right now.

So, like waiting for oil to wash onto a beach, with deflation we merely wait and see.

Peter Percival is a registered investment adviser at Syverson Strege & Co. in West Des Moines.