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.
Negative developments in the Eurozone debt crisis typically drag down U.S. markets, as the EU
is a chief U.S trading partner. Fresh problems in 2013 would be bad news for U.S. stocks.
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."