Contradicting optimism at the World Economic Forum in Davos, Switzerland, that the worst of the Eurozone debt crisis is over, U.S. economist Barry Eichengreen warned that it would "heat up again in 2013."
While the pledge of European Central Bank (ECB) head Mario Draghi to buy short-term debt from struggling EU members has eased worries of an imminent Eurozone meltdown, Eichengreen contends it hasn't fixed the problem.
"None of the underlying problems have been solved. There is no economic growth in Europe. Germany itself is on the verge of recession," Eichengreen told The Associated Press while attending the Davos conference.
One flash point in particular, he said, is the lack of progress toward a banking and fiscal union.
"The banking union doesn't exist. There's less consensus on completing it than we thought last year, so the markets are going to lose patience at some point and the crisis will be back," said Eichengreen, who has written books on international finance, the European Union and the Great Depression.
Efforts of EU leaders to tame the Eurozone debt crisis succeeded in calming European stock markets in the later part of 2012, and have given some bond market relief to such debt-plagued nations as Greece, Ireland, Italy and Spain.
But as Money Morning Global Investing Strategist Martin Hutchinson pointed out in December, the bond market isn't always the best judge of a nation's fiscal health.
"Don't be fooled by those bond yields," Hutchinson said. "In 2006, after all, they were trading Greek bonds at less than 0.5% yield above German bonds. So much for rational markets."
Eichengreen Has the Numbers on His Side
The answer to whether the Eurozone debt crisis is really behind us or simply in temporary remission lies in the numbers.
The EU must have economic growth to escape its debt trap, and more and more it looks like that growth isn't coming in 2013.
Eichengreen actually understates the case when he says there's no economic growth in Europe -
This week the International Monetary Fund (IMF), in its World Economic Outlook, changed its 2013 forecast for the Eurozone from growth of 0.1% to a contraction of 0.2%. The Eurozone economy contracted 0.4% in 2012.
And despite crippling austerity programs, government debt in the Eurozone countries actually rose over the past year from 86.8% of gross domestic product (GDP) to 89.9% of GDP.
What's more, unemployment in the Eurozone has reached record highs. Eurostat figures released earlier this month showed November Eurozone unemployment at 11.8%, with the actual number of unemployed rising by 2 million from a year earlier.
Unemployment in several of the troubled nations was particularly alarming. Portugal's rate was 16.3%, Greece's was 26%, and Spain's was 26.6% - all significantly higher than a year ago.
"The Draghi plan may have bought time, but that is all it has done - it is clear that the economic implosion of several member states continues at a troubling pace," said Graeme Leach, chief economist at the UK's Institute of Directors.
Looking at the "shockingly bad" youth unemployment figures - 56.5% in Spain, 57.6% in Greece and 37.1% in Italy - Leach's view echoed that of Eichengreen.
"This saga is far from over ... and it seems it is set to get worse in 2013," Leach said.
Political Fuses to the Eurozone Debt Crisis
Poor economic news isn't the only factor that could cause a Eurozone debt crisis blowup. Elections in Italy in February and in Germany in September also could stir up problems.
Hutchinson believes Italy's elections could be a catalyst for a renewed crisis.
Among other candidates: Beppe Grillo, a leftist, anti-authoritarian comedian running for prime minister.
"The return of (former Prime Minister Silvio) Berlusconi, whom the establishment forced out in 2011, would be a nightmare for the euro. That goes for the ascension of Grillo as well," Hutchinson said.
The German elections will also pose a risk.
"If the road between now and then has been too rocky, even German voters may decide giving the government a blank check for four more years of bailouts isn't too smart," Hutchinson said. "In that case, they will doubtless find a German equivalent of Beppe Grillo and throw the EU into even more confusion."
And even though France doesn't have any new elections scheduled, Hutchinson feels the high-tax policies of recently elected President Francois Hollande could tip France into a fiscal crisis that would quickly engulf the entire Eurozone.
With so many potential triggers on the horizon, the odds of a return of the Eurozone debt crisis in 2013 appear uncomfortably high - with dire consequences for markets on both sides of the Atlantic.
"Europeans will be shocked out of their complacency, I think, soon enough. There will be a relapse to the greater volatility of the first half of last year," Eichengreen warned.
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2013 Eurozone Forecast: Why A Eurozone Breakup Is Now More Likely Than Ever
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France May be the Domino that Causes the Euro to Collapse
The Associated Press:
Economist: Euro crisis could erupt again this year
The Telegraph UK:
Eurozone debt crisis: unemployment 'shockingly bad'
Eurozone forecast cut, but Lagarde is optimistic
Euro debt burden stuck at high 90 percent of GDP