There is a palpable sense of hope at the annual Davos World Economic Forum that the euro zone is edging away from the brink of catastrophe but business leaders say Europe's woes are still holding 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 meet 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 agreement to avoid a starker default, although an agreement 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.
There is an increasing sense that Greece is different from the others and that the contagion elsewhere could be contained, Giles Keating, head of private banking research at Credit Suisse, said ahead of the Forum's first full day on Wednesday.
There is a sense of political will and mechanical capability to do so, he added.
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.
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.
Former U.S. Treasury Secretary Lawrence Summers wrote in a Reuters column this week that anxiety about the future remains a major driver of economic performance.
That feeling is echoed among the U.S. investment community.
People are not sure what's priced in, said Sassan Ghahramani, CEO of U.S.-based SGH Macro Advisors, which advises hedge funds. There is a Europe fatigue in markets.
Part of the growth problem is that Germany insists other euro zone states must pursue the kind of structural reforms that helped it regain competitiveness in the last decade, even if these risk sending weaker economies into a deflationary spiral.
To overcome the crisis, there is no way around strict consolidation and structural reforms in the member states, Bundesbank President Jens Weidmann said late on Tuesday.
Many senior euro zone officials, busy trying to fix the crisis, can only afford to spend one day at the conference. In the past, they - or their predecessors - came for several.
One such official is European Central Bank President Mario Draghi, who takes part in a panel discussion on Friday themed: Europe's Economic Outlook: What steps are needed to restore growth and confidence across the euro zone?
Under Draghi, who took the ECB helm in November, the central bank has funnelled almost half a trillion euros in cheap, 3-year loans -- called LTROs -- 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 & Poor's downgrading the credit ratings of nine euro zone countries this month.
Yet this measure has not dispelled the growth concerns.
Financial market participants say they are more concerned about the absence of growth in the euro zone than about budget deficits and public debt levels now, because growth is what will enable countries to service and repay their debts over time. It looks like the LTRO is having a positive contribution. Does it solve all of the problems sustainably? Probably not, said Andrew Bosomworth, a senior portfolio manager at Pimco.
At the end of the day, it comes down to growth -- that's what these countries need to keep their debt sustainable.
The latest forecasts suggest Greece and Portugal are stuck in deep recessions, reducing their revenues and hence their ability to meet fiscal targets. Spain and Italy are expected to be in recession this year and next, raising the same concerns.
Even Germany, the euro zone's locomotive economy, faces a growth dent. The economy contracted by about a quarter of a percentage point in the last quarter of 2011 and many officials see little growth in the first three months of this year.
LOOKING FOR GROWTH
At a closed-door dialogue between policymakers, economists and investors this week, one senior market participant said the current relative easing of euro zone markets had nothing to do with an emerging fiscal compact for stricter enforcement of budget discipline, and everything to do with the ECB's move to flood parched banks with 3-year funds at low interest rates.
Markets are looking very much for growth, the executive at a leading hedge fund added. They are not looking for a better enforced Stability and Growth Pact, but at whether this is a viable currency area, which depends on growth.
A senior EU policymaker agreed the major economic threat was stagnation or recession but argued that the fiscal pact would help restore lost confidence among both investors and citizens.
EU leaders will hold a summit next Monday devoted to putting forward a growth strategy. But it will be largely about pledging labour market reforms, shifting taxation from labour to consumption and better targeting existing and unspent EU funds, with no new public money on the table.
Given Europe's very limited resources, the growth strategy risks being seen as largely declaratory wishful thinking.
The euro zone crisis is hurting the bloc's neighbours.
Erik Berglof, chief economist at the European Bank for Reconstruction and Development (EBRD), said a requirement for European banks to increase their core capital buffers was having an impact to the east of the 17-country bloc.
A lot of measures are being taken by governments in the euro zone to protect their own interests, Berglof said. All this is leading to a very rapid deleveraging in Eastern Europe.
He was working on a move similar to the 2009 Vienna Initiative to maintain west European banks' exposure to eastern Europe: The basic objective of achieving a more coordinated deleveraging is the same.
In the worst scenarios where we have a further deterioration in Europe, Russia looks quite vulnerable and would suffer a significant impact, Berglof added.
For others, the euro zone crisis poses a buying opportunity.
A survey of 800 business leaders in Asia, the Middle East and North America by FTI Consulting found that 45 percent of companies in Asia are either executing or looking to make acquisitions in Europe in the next 12 months, compared with just 14 percent in the Middle East and 7 percent in North America.
In the absence of a long-term growth plan for Europe, financial investors remain wary.
Europe has not yet reached an equilibrium where we can wake up each morning and worry about some other region of the world, said Pimco's Bosomworth.
(Additional reporting by Lisa Jucca; editing by Janet McBride)