Various European officials expressed their belief that this year the debt crisis in the area should wane gradually. To you agree that 2013 is going to be a brighter year for the Euro-zone economy?

I think that this is the calm before the storm. The ECB’s OMT program announced in September (first rumored in July, when President Draghi said that he would do “whatever it takes” to save the Euro) has served as a very formidable safety net – one needs to look no further than Italian and Spanish 2-year bond yields, which have plummeted over the past several months. But there are a few very important lingering questions: will a Mario Monti-endorsed government retain power after the Italian elections in February; how will Spain keep its yields low once it stops looting public pension funds; is France becoming a periphery country; will Alexis Tsipras finally wrangle control of the Greek government and leave the Euro-zone; and if Germany remains opposed to lower interest rates, how will the ECB stoke growth in the region? The region remains a ticking bomb, and if liquidity is the best solution offered, a rude awakening could be around the corner.

Has the consistent drop in Spanish borrowing costs effectively removed the specter of a bailout request for the country?

Yes, but only for the time being. At the end of the day, it’s important to remember that Spanish Prime Minister Mariano Rajoy is still a politician vying for votes, tending to his electorate. Taking an international bailout would essentially be him waving the white flag: ‘we have lost control, we need help.’ That would not be a strong platform for retaining power. PM Rajoy has and will continue to stave off a bailout for as long as possible – but if Spanish yields rise in the middle of the year, I would expect a bailout to be on the table without question.

What consequences might delaying the debt ceiling decision have for the US?

Nothing. As we’ve already seen, global market participants have called US politicians’ bluff. The process is as follows: rhetoric from both Democrats and Republicans about wanting to find a solution together; political grandstanding to show voters that they are remaining true to their belief systems; and finally an eleventh hour compromise that narrowly misses a default. But in the true Keynesian sense of things, markets have shifted their mindset from ‘the US deficit is bad’ to ‘aggregate demand is low enough that running a deficit to support growth is necessary.’ In fact, because US growth is so fragile right now, the massive sequesters that are due to be triggered should the debt limit be breached would undoubtedly take -1.0% to -2.0% off the headline GDP figure this year. This is a, ‘out of sight, out of mind,’ scenario: delaying the debt ceiling decision just removes another potential hurdle down the road.