U.S. economist says European crisis can erupt again

PanARMENIAN.Net - Leading U.S. economist Barry Eichengreen warns that the debt crisis that has shaken Europe to its core could easily erupt again this year unless European leaders move faster to solve their problems, The Associated Press reports.

While European governments and markets have been breathing easier in recent months after years of turmoil, it's no time for complacency, said Eichengreen, who has chronicled the Great Depression and explored the consequences of a breakup of the euro currency used by 17 nations.

"Nothing has been resolved in the eurozone, where markets have swung from undue pessimism to undue optimism," Eichengreen told the AP in an interview at the World Economic Forum in Davos, Switzerland. "They said all the right things last year ... and they've been backtracking ever since."

He warns that the crisis over too much debt burdening governments and banks in the 17-country currency group "is going to heat up again in 2013."

He urged eurozone leaders follow up on its proposals to steady its banking system and keep failed banks from adding to government debt through expensive bailouts.

"Europeans will be shocked out of their complacency, I think, soon enough," Eichengreen said.

"There will be a relapse to the greater volatility of the first half of last year. None of the underlying problems have been solved. There is no economic growth in Europe. Germany itself is on the verge of recession. 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. "

Eichengreen, a professor at the University of California, Berkeley, studied the possibility of a eurozone breakup long before the crisis that started in late 2009 forced other people to consider what was once unthinkable. He concluded that leaving the euro would be disastrously expensive and cause widespread chaos for any country that tries it.