The euro zone got through the holiday season in reasonable shape, and the optimists (and I am not one of them) suddenly began to feel the worst was behind them. But there are still awesome negative forces at work - and 2012 looks like it will be the year it all falls apart for the European economies.
With the interconnectedness of the modern global economy, this would be bad news for us all, from Shanghai to Mumbai to Dubai, as well as for New York. There are severe strains in the global credit markets that will pose a threat to capital flows and international trade.
But first, some good news. Europe did not fall apart in the first few days of the new year. The euro has held up quite well during the prolonged crisis, despite being stuck firmly beneath US$1.30. Many economists had predicted a steeper decline.
Sentiment in the bond markets was a little more benevolent. The French got away an €8 billion (Dh37.48bn) auction with some room to spare; the European Central Bank's multibillion-euro provisioning of cheap borrowing facilities obviously had a calming effect.
So EU policymakers were probably thinking "so far, so good", until they got another rude shock from Standard & Poor's, as the ratings agency took the much-forecast decision to downgrade French and Austrian sovereign debt on Friday. Cue for outrage in Paris, where the government's desire to retain its top-tier "AAA" status attained the level almost of a fetish, and much ranting about an Anglo-Saxon conspiracy.
But the S&P move will probably be seen in hindsight as a wake-up call to hammer home the message that euro-zone countries will permanently have to pay more to fund their sovereign debt. This will certainly be the case for Italy and Spain, while poor old Greece looks to be on the steepest stretch of a slippery slope that can only end in sovereign default. It will be almost a relief when it finally happens.
The biggest worry is that a failure by any of the bigger countries on international bond markets, or a Greek default, will trigger a big run on the euro, and lead the rating agencies to come out with further downgrades. Germany and the "core" euro-zone countries have so far avoided such speculation, but some experts believe it is only a matter of time before the agencies get around to them.
A recent research paper from Capital Economics, a London consultancy that had a consistently good track record last year, spelled out the dangers for the rest of the world from a euro debacle. "The euro zone is slipping into a recession which we expect to be deep and prolonged and to result in the break-up of the single-currency area.
"This will be a major drag on other European economies … Business surveys for the euro zone point to a very steep decline in output, beginning in late 2011."
Of course, the beating heart of the euro zone is Germany, whose economy grew by about 3 per cent overall last year. But the final quarter, when according to many analysts GDP actually went into negative territory, could be a portent of things to come.
Declining demand in eastern Europe, to say nothing of the Middle East and Asia, for German products will do nothing to help the German export machine pull the rest of the euro zone out of the ditch.
Capital Economics forecasts a 1 per cent shrinkage for euro-zone economies this year, worse than the 0.5 per cent fall seen for the austerity-blighted UK.
All of this is of deep concern to the Gulf economies. Though most are no longer such big traders with euro-zone countries or the UK, the threat of world recession prompted by a European meltdown is of direct importance via the oil price, still by far the most important economic indicator for the region.
Capital Economics says the price of oil has been kept up by the possibility of an escalation of the sanctions war against Iran, but believes this will fade to leave oil at $85 by the end of the year. That is close to the limits of regional policymakers' comfort zones.
The euro, and the euro zone, are still with us, holding on by their fingertips. When they finally lose their grip, it will be a moment of reckoning for the world economy.