IT'S now more than six years since the Global Financial Crisis (GFC) rocked financial markets and most major economies, challenging governments and policy makers more than at anytime since the Great Depression of the 1930s.
While the US and the UK seem well on the way to recovery, who would have believed that Europe and Japan would still be teetering on the brink of recession, and grappling with deflation, even with near zero interest rates?
The pressures within Europe, and within the Euro zone, are very real, especially as the three major economies - Germany, France and Italy - now face significant challenges with each of their economies, while peripheral countries, especially Greece, Spain and Portugal, are in dire economic straits.
Germany is a particular surprise in all this, given its very disciplined approach to economic policy, and especially as its export-dependent growth strategy has benefited so significantly from the low Euro, relative to where the mark would have been.
However, this strategy is now very much at risk with the collapse of the Russian economy, where German exporters had developed a particular focus- especially the Mittelstand companies.
Greece stands out as key among the peripheral countries, as it has had the benefit of two bailout packages totaling some US$290 billion since 2010, yet it still has an unemployment rate of 25 per cent - more than double for youth unemployment- that is triple what it was in 2010, reflecting the fall in GDP by about 25 per cent over that period, with public debts still more than 170 per cent of GDP.
The Greek Government has been forced to call an early election (scheduled for January 25), having failed to elect a president in three attempts, and there is now widespread speculation in financial markets that Greece may be forced to leave the Euro - what is being referred to as "Grexit"- although few Greeks seem to want to do so.
The European Union, that required a significant "austerity" program in return for the bailouts, is still arguing that Greece must "honour the terms of the original bailout". Yet, the EU doesn't really want Greece to exit the Euro.
The new, Greek Government - undoubtedly a more left-orientated coalition, of some sort - is most unlikely to agree to further austerity - indeed, will fight strongly against it.
Hence, there is a very real prospect of brinkmanship, as the new government seeks to negotiate new terms, that is, to determine just how far the EU will go in giving ground to keep them in the Euro.
Clearly, further austerity would probably only further compound the Greek economic and social demise - many now believe that Greece has endured too much pain, with a poor social security system, and considerable emigration.
Moreover, it is hard to see how any sensible solution can avoid a significant degree of debt forgiveness.
In this regard, it is instructive to recall that German debt was significantly restructured back in 1953, with about half written off, and the remainder renegotiated to a term of some 30 years.
The key issue, from the point of view of the global economy, is just how disruptive this process may be to financial markets generally - specifically, could it trigger another Euro crisis, or even another GFC?
The optimists suggest that it wouldn't make much difference even if Greece left the Euro, as Greece has essentially been "uncoupled" from the rest of Europe, and most of its sovereign debt is now held officially.
Indeed, some analysts are now arguing that an exit would be "good" for Greece.
The pessimists predict a "financial armageddon".
From our point of view, expect much more volatility in financial markets and economies this year, that will further constrain our economic growth.