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By Stuart Burns

Continued from Part One

According to Jean-Claude Juncker, who leads the group of euro-area finance ministers, the strength of the euro is posing a great threat to the economic recovery of the eurozone.

The euro has gained nearly 8.5 percent against the weakened U.S. dollar in the past 6 months, and that is bound to weigh on those recovering export sales.

Across the pond, the U.S. fiscal cliff negotiations have merely been postponed, allowing breathing space for further partisan posturing. As a result of the politicians’ failure to reach a meaningful agreement, the U.S. will almost certainly lose its AAA rating this year (not that such a loss has done any harm to France’s borrowing costs, but it will be another nail in the coffin of the dollar’s pre-eminence as the world’s No. 1 currency).

Speaking of France and sovereign risk, it is interesting to see that Germany has decided to repatriate all the gold it was holding in Paris.

The Bundesbank holds the world’s second-highest reserves at some 3,396 tons, worth about $115 billion. According to the Telegraph, 11 percent of that is in Paris and will shortly be shipped back to Frankfurt as Germany seeks to combat future currency crises – do they not trust the French?

The Bundesbank also holds gold in London and New York, some of which will also be repatriated, leaving enough for trading purposes. If 2012 was the year in which the euro area was the source of most market tension, 2013 could be the year in which the U.S. fiscal negotiations come back again and again to unsettle investors.

Merely delaying the decisions is, if anything, making the situation worse.

Back to Davos: the pre-Forum report also highlights longer-term risks, seen as taking place over the next 10 years.

Issues such as income inequality, both in developing and recently in developed economies, feature high on the list of flash points. As does water shortages, particularly if another of the perceived risks, environmental changes, continues to increase the volatility of weather patterns with areas of drought and flood – although rarely in the same locations – meaning disruptions of growing seasons and yields.

It will be the short-term financial and fiscal issues that will most occupy the minds of business people trying to cope with flat markets and volatile prices in the year ahead.

Unfortunately, there does not appear to be much the great and the good of Davos are going to be able to offer by way of good news on that front.

Source: World Economic Forum Distills Risks For European, U.S. Business