Europe's bankers and economic policy makers have lurched from one crisis to the next during 2011, but they should expect no respite this year. More likely, in fact, is the chance of yet greater shocks to the system as leaders wrestle with fiscal and currency problems on an unprecedented scale. They must also square up belatedly to the consequences of past indecision and misplaced optimism.
Michael McDonough, Bloomberg senior economist in Hong Kong and a speaker at the HKUST/NYU Stern Global Finance Seminar on Europe's sovereign credit risk, says the time for talk and a well-engineered solution is running out. He thinks the 'half life' between successive crises in the euro zone is shortening - Ireland, Greece, Italy and so on - leaving analysts and investors bracing for a potentially messy fallout.
'Officials in Europe are quickly losing credibility,' McDonough said. 'People need to see action, and the longer they wait, the stronger that action needs to be.'
A big cause for concern is that, since 2008, private institutions have in effect transferred huge risk to government balance sheets through bailouts and support mechanisms. Old patterns and assumptions about volatility must therefore change. And many measures of economic standing that draw a line from the 'pre-Lehman' era are now of very limited value.
'The new 'normal' is volatile, which traders say is here to stay,' McDonough said. 'The global deleveraging cycle is like an avalanche which is still pressing on banks and, looking at [relevant 90-day indices], Europe is now more volatile than emerging markets. We are probably talking about this continuing for two years.'
With the overriding imperative being to restrain and rebalance, McDonough said Europe's financial system should instead prepare for its own 'death by a thousand cuts'.
Each mini-revival along the way will only serve to bring the continent another step closer to fiscal union. And in the meantime, businesses will have to contend with uncertainties that inevitably will delay investment decisions and cast a shadow over any expansion hopes.