Pundits fear 'perfect storm' despite official optimism

Despite attempts by political and business leaders to suggest the eurozone has turned a corner, the prevailing view of pundits is things can only get worse and a "perfect storm" is brewing.

The five-day Davos forum which ended Sunday, was dominated by the sovereign debt crisis in the single currency zone and was held against a backdrop of frantic negotiations on a write-down deal between Greece and its creditors.

Some of the players most closely involved with the crisis since the 2008 financial meltdown insisted there was now light at end the tunnel with European Central Bank president Mario Draghi hailing "outstanding progress".

"Outlook Less Bleak From Alpine Retreat" was the assessment on the news pages of the Financial Times, suggesting the cool mountain air and pristine snow had raised the spirits of leaders more used to Brussels summits.

But, in an end of forum debate, experts predicted the break-up of the eurozone, economic malaise in the United States and a rise of militancy -- and then there are the consequences of a conflict over Iran's nuclear programme.

Nouriel Roubini, professor of economics at New York University, said the world might just about muddle through in 2012 but not much longer.

"2013 could be a perfect storm where you have a full eurozone crisis, where the fiscal problems of the United States come to a head and ... there is an investment bust and you have a hard landing in China as well," he said.

New York Times columnist Thomas Friedman had a similarly bleak forecast.

"I feel we will be back here next year and the hole will be that much deeper," he said.

Google executive chairman Eric Schmidt was among those who argued at Davos that globalisation had been a huge force for good, raising two billion people out of poverty.

But Friedman said the growing inter-connectivity meant the woes felt in one corner of the world impacted on everyone.

"If the world were a table with four legs -- the American economy, the European Union, the Arab world and China/India -- what strikes me right now is that all four legs are really shaking and they have never before been more interconnnected and interdependent," he said.

European leaders such as Germany's Angela Merkel and Denmark's Helle Thorning-Schmidt were among those who argued the eurozone crisis meant more integration was needed on the continent.

But Gideon Rachmann of the Financial Times warned of a potential backlash against the European Union and a rise of extremist parties as a consequence.

He raised the possibility that far-right wing leader Marine Le Pen could beat incumbent Nicolas Sarkozy in the first round of France's presidential election in March.

"You will see a radicalisation in politics," he said. "The potential for the unravelling, not just of the euro but the political structures which underpin the European Union, is really quite real."

Roubini said it was only a matter of time before the 17-nation eurozone started breaking up, warning starkly: "The eurozone is a slow motion train wreck. Not only Greece but other countries are insolvent.

"Probably not all members of the eurozone will be able to stay in the eurozone ... Greece (will exit) in the next 12 months, Portugal might take longer."

Perhaps second only to the eurozone, the issue that most exercised minds here was the possibility of Iran acquiring the nuclear bomb.

Friedman said Israel was "keeping its options open" as its leaders regarded a nuclear-armed Iran as an existential threat to the Jewish state.

He said the US government had made clear to Israel it did not want to see it launch any attacks on Iran as "the consequences could be so unpredictable".

"The deepest, deepest American fear is that Israel would start a war with Iran that America could be forced to finish," he said.

And Roubini said a war with Iran would have devastating consequences for the world economy.

"Oil prices would spike at least 50 percent and you would have a global recession," he said. "If we decide we are going to attack Iran let's think about the consequences."