World Economic Forum Special Report

Europe Not Out of the Woods: Axel Weber

Yousef Gamal El-Din
Axel Weber
Source: World Economic Forum

The euro zone economy is not out of the woods yet, UBS Chairman Axel Weber told CNBC at the World Economic Forum in Davos on Wednesday, pointing to the Italian elections and Spain's ability to tap financial markets for funding as significant risks.

"Sovereign spreads have come down, they look much more sustainable. But of course they're subject to political concerns. This year there are two, or three, major political events in Europe that could lead to a challenging environment," Weber, who is also a former head of the German central bank, said.

"Take the Italian elections, the debt ceiling across the Atlantic, or whether Spain can continue to have market access at the current rate given the sizable amount of debt they need to reissue in the market."

"Any indecisiveness about some countries, like Italy on the way forward, any lingering doubt that the core will stand behind the periphery will cause a challenge in the environment, the current risk-on environment could easily switch into a risk-off environment," Weber added.

He also cited the German elections as a risk for Europe.

"We'll see how prepared German taxpayers are to back the system up. This will not be unanimous, there are those who will voice their concern during the elections, basically showing that Germans are still divided over this issue. And again, in such an environment, as Europe depends on German taxpayer support, that could cause the market to switch from a benign risk perception to a much more pronounced of risk in Europe."

(Read More: Why the Euro Zone Crisis is Over... Till September)

China would continue to play an instrumental role in driving global economic growth, Weber said, and that would help other economies move from the middle of their growth range "to the upper part of that growth."

As for asset classes, Weber maintained that corporate debt and equities would perform better in 2013 and he expected the U.S. to swing back to around 3 percent growth in next year.

"I'm much more bullish on the U.S. economy than many others. I'm very bullish on Asia and emerging markets, having been there, and seen the dynamics, and seen an increasingly affluent middle class. That's where we put UBS's focus".

Pause for Breath?

Axel Weber, who became chairman of Switzerland's largest bank last year, pointed to a more challenging international playing field for banks. "You can't have different rules in the U.S. versus Europe. That really changes the competitive landscape for banks," he said.

Weber argued that different rules across jurisdictions unnecessarily added to the complexity of the system.

"What concerns me is that we operate in all of these jurisdictions as UBS, we'll have to comply with different models in different jurisdictions. There's just no way, that I'm seeing at the moment, that what started off as regulators creating a global level-playing field for large, complex global banks is going to emerge at the end of the regulatory transition," Weber said.

Financial regulators needed to "get their heads together" to overcome the disparities in standards between countries.

(Read More: JPMorgan CEO Hits Back at Policymakers in Davos)

He cited attempts to separate retail banking from investment banking activities. The proposal, known as the Vickers report in the U.K., the Volcker Rule in the U.S., and a Liikanen proposal for the European Union, served as an example of how it was counterintuitive to global standardization.

Commenting on the recent relaxation of Basel III regulations, the future global capital standard, Weber said the move was "reasonable".

"I think what the regulators did they just changed the time plan and the type of assets that banks use for liquidity in order to match the changing environment that we are facing".

ast year, the Swiss bank admitted to fraud and bribery after efforts to influence benchmark interest rates known as Libor, and agreed to pay $1.5 billion in fines to regulators in the U.K., the United States and Switzerland.