There is a palpable sense of hope at the annual Davos World Economic Forum that the euro zone is pulling back from the brink of catastrophe but business leaders are equally worried that Europe?s woes will hold back a global recovery.
A growth strategy is the missing ingredient in the policy cocktail that euro zone leaders are mixing to save the currency bloc from break-up. Without economic recovery, re-election will be tough for presidents in Europe and beyond this year.
The 2,600 political and business leaders attending the five-day Davos Forum met against a backdrop of improved market sentiment driven by signs the euro zone may escape recession and that intense market pressure on Italy and Spain is easing.
Greece is clinging to hope of a bond swap to avoid a starker default, although a deal is far from assured. But markets seem relatively unconcerned at the prospect of an enforced Greek default, seeing the problem increasingly as a one-off event divorced from developments elsewhere in the euro zone.
?I think we are on the verge of putting the acute phase of the crisis behind us,? said billionaire investor George Soros, adding that he believed Italian sovereign bonds represent a ?very attractive? speculative investment.
?If we pass the Greek potential default, if we put that behind us, I think we will be past that phase where the financial markets are on the verge of a possible meltdown,? he said. Concerning Soros more than a possible Greek default were the austerity measures demanded by Germany. These, he said, would cause a ?deflationary debt spiral?.
Germany insists other euro zone states must pursue the kind of structural reforms that helped it regain competitiveness in the last decade. Opening the meeting, German Chancellor Angela Merkel said Europe?s leaders had shown by their actions in 2011 that they were committed to the success of the European project.
?Europe will be a more attractive place to invest and do business when we get through this crisis, and we will get this crisis. I?m certain,? Merkel said.
The prevailing mood among delegates was that the bloc had made progress – aided by European Central Bank liquidity and tighter fiscal rules – but that growth was still missing.
Markets have rallied on promising signs from Europe – the broad MSCI world equity index is up some 5 percent for the year so far – but this rally appears to be losing steam and masks underlying concerns about growth.
?I think Europe has moved a long way in the last two or three months in the direction of actually getting to policies which could stabilise this situation,? said Stanley Fischer, governor of Israel?s central bank.
But only 40 percent of chief executives worldwide are ?very confident? of revenue growth for their companies in the next 12 months, down from 48 percent in 2011, a PricewaterhouseCoopers (PwC) survey of 1,258 CEOs showed on Tuesday.
Even if growth returns to Europe, the politics on the way out of the crisis have opened up divides between North and South, Germans and Greeks, Britain and the rest of Europe, said Oxford Professor of European Studies Timothy Garten Ash.
?The scale of resentment is a huge political problem. We won?t come out with a sense of optimism of surging forward,? Garton Ash said.
The ECB – rather than government leaders – won widespread praise at the Forum for acting decisively to stem the crisis.
Under ECB President Mario Draghi, who took the job in November, the central bank has funnelled almost half a trillion euros in cheap, 3-year loans to banks in an effort to head off a credit crunch and give them the means to buy sovereign bonds.
There are signs the ploy is working, with investors flocking to buy Spanish bonds and Italian yields well below the 7 percent level that alarms markets, despite Standard