NEW YORK (TheStreet) -- The European crisis is far from over, with significant structural reform needed to sidestep prolonged deflation and ensure sustainable economic growth.
That's the warning from economists, as expectations rise that the European Central Bank will act to further stimulate growth next month. They hesitate to predict any stimulus or boost to sharemarkets will have a trickle-down wealth effect to the real economy, noting the widening wealth disparity in the United States following the credit crisis.
"European (equities) are undervalued and may have some way to go, but the rally is mature, and growth is still fragile and divergent -- unemployment is high, domestic demand is depressed and credit is dysfunctional," ING chief economist Mark Cliff told the European American Economic Forum at the New York Stock Exchange late on Monday.
Both Cliff and Michala Marcussen, Societe Generale's global head of economics, described the European Banking Union as "timber framed" and said they doubted it would be able to withstand another crisis.
Marcussen said she was concerned about external threats to the recovery, such as Federal Reserve tapering potentially pressuring Europe or a hard landing for China.
She said a raft of structural reform was key to avoiding a situation similar to Japan, which has suffered from decades of deflation. The economist called for more flexible markets in labor, products and services. "If we could do all, that it would add about 20% to GDP over a decade," she said, noting the risk that individual governments may be less motivated to make structural reforms if the ECB tried to shoulder the burden of action.