German Chancellor Angela Merkel reacts during the CDU's annual party meeting in Hanover, December 4, 2012. In her end-of-year greetings, Merkel stressed that Europe has a long road ahead to recover economic growth. (KAI PFAFFENBACH/REUTERS)

After more than three years of global market turmoil, political upheaval and nail-biting summits, European leaders are declaring that the worst of the continent’s debt crisis is behind them.

In New Year’s speeches and congratulatory comments, leaders across the region are crediting fresh rounds of painful austerity, a hard-fought new role for the European Central Bank and steps toward deeper integration with achieving a breakthrough.

Borrowing costs for troubled nations, they note, have come down steadily from last year’s dangerously high levels, pulling a string of countries back from the brink of imminent financial collapse and defying naysayers who predicted a quick breakup of the euro zone last year.

Yet any suggestion of victory in Europe may be viewed as the economic equivalent of President George W. Bush’s “Mission Accomplished” speech on Iraq aboard the USS Abraham Lincoln in 2003. Though market panic is subsiding, the region appears to be simply trading a crisis of financial markets for one rooted in its ailing economies.

Confronting the reality of deep budget cuts, higher taxes and piles of debt that have hindered any prospect of recovery, Italy, Spain and Greece are battling what economists predict will be yet another year of brutal recession. Spain, in fact, may face a downturn even worse than the one seen in 2012, with its still-troubled regions and banks potentially prompting a bid for fresh bailout assistance. Even mighty Germany and France, the anchors of the 17-nation euro zone, potentially face weaker growth or stagnation this year.

Economists say those issues are set to once again make Europe the biggest drag on the fragile global economy, dampening, for instance, demand for U.S. exports in the world’s single-largest trading bloc and home to 500 million consumers.

Europe is in a similar position as the United States, which avoided its own “fiscal cliff” last week but must confront larger questions of how to stimulate growth and bring down unemployment — unchanged at 7.8 percent in December, according to data released Friday — while addressing the longer-term peril from high levels of national debt.

Analysts are also closely watching a string of triggers that could quickly reignite a market panic, including Greece’s implementation of reforms this year and the deepening social crisis in Spain.

Indeed, rather than getting to the roots of Europe’s debt problems, the region’s politicians have largely put off a day of reckoning, economists say. Some argue, for example, that the biggest basket case in Europe — near-bankrupt Greece — could be forced out of the currency union by mid-2014, if not earlier.

“A couple of things have happened that have taken away the immediate big breakup risk of the euro,” said Juergen Michels, senior economist at Citibank in London. “But the underlying problems and the huge debt in Europe are not yet solved. This crisis is not over. We see further problems ahead.”

The financial woes that started in Greece in October 2009 engulfed one heavily indebted European country after another, roiling global markets, worsening social conditions in hard-hit nations and prompting a voter backlash that saw leaders swept out of office in Ireland, Spain, France and Greece, among other nations.

To be sure, there are signs of fiscal improvement. Excluding the massive interest payments on their debts, both Italy and Greece are posting budget surpluses after gutting spending and raising taxes, and Spain saw a surprise improvement in December unemployment, though the jobless rate remains at about 25 percent.

Possible turning point

The crisis has raised issues of European integration that will take years to work out and will test the willingness of nations to cede more national powers to build the dream of a united Europe. But regional leaders think they may have reached a turning point, with markets calmed by two events in particular.

An agreement in December between Greece and its creditors in the European Union to release bailout funds appeared to answer the question, at least for now, of whether the region would stand behind its most troubled member. That came after a landmark pledge by the ECB to stage massive purchases of the bonds of ailing countries should they apply for aid from Europe’s rescue fund, creating an important safety net from harsh market forces.

French President Francois Hollande, in a New Year’s Eve greeting from Paris, warned his countrymen that 2013 looks to be a difficult year, with almost no economic growth in the first half and an unemployment rate that is likely to climb before it gets better. But echoing others in the region, he said the threat to the euro seems to be under control despite last year’s dire predictions.

“The euro zone has been safeguarded, and Europe has at last put into place the instruments of stability and growth that it lacked,” Hollande said. “Even six months ago, this result seemed out of reach. It has been achieved.”

In recent comments, Spain’s Prime Minister Mariano Rajoy said, “I am totally and absolutely convinced that the worst has passed.” Germany’s influential finance minister, Wolfgang Schaeuble, used almost the exact same words in an interview with the Bild newspaper.

But German Chancellor Angela Merkel, Europe’s champion of fiscal discipline, has been decidedly less upbeat. In her end-of-year greetings, Merkel stressed that Europe has a long road ahead to recover economic growth. Leaders also have some heavy lifting to do: Markets are waiting for clarity about how and when much-lauded agreements — such as a plan to make the ECB the region’s banking overlord, able to overrule national regulators and take over troubled financial institutions — will come to fruition.

“The reforms we have decided on are beginning to produce their effects,” she said. “But we still need a lot of patience. The crisis is far from overcome.”

Key elections ahead

The potential land mines are many, with the most immediate being elections in Italy next month pitting the technocrat interim Prime Minister Mario Monti — whose tough reforms were seen as preventing disaster in the country last year — against Silvio Berlusconi, Italy’s former longtime leader and its most infamous playboy. Berlusconi has assailed Monti’s austerity measures as diktats from Germany. But leading the polls there is the center-left’s Pier Luigi Bersani, a 61-year-old former Communist whose current stated support of Monti’s austerity measures will probably be opposed by his own rank and file.

Europe’s fate is also caught up in another national election — in Germany this September, when the domestically popular Merkel will seek another term.

The “Iron Chancellor” is loath to be seen as soft on Greece, a country whose bailout has stung German taxpayers. But many also say that Merkel will hesitate to go as far as cutting off bailout funds from Greece — an act that would effectively force it out of the euro zone — if that country once again misses its fiscal targets, as some predict.

“You have to think [Greece’s creditors in Europe] are going to be willing to turn a blind eye to certain shortfalls this year,” said Diego Iscaro, senior economist with IHS Global Insight in London. “With their elections, the Germans especially are going to want to avoid the risk of creating more contagion.”

Cody reported from Paris. Eliza Mackintosh contributed to this report.