France's market watchdog is bracing for a surge in global bond yields and a Wall Street crash as soon as this year, fearing that contagion will spread to Europe and snuff out the fragile recovery.
"The world has never been so indebted - even more than before the 2007 crisis - and this debt has never been so risky," said the Autorité des Marchés Financiers (AMF) in its -annual report."
The number one risk for 2018 is a brutal correction of stock prices. The current valuation levels look high both by historical standards, and in fundamental terms across a whole range of indicators, starting with American equities.
Any correction there would most likely spread to other stock markets," it said.
The market capitalisation of world bourses rose 18 per cent last year to US$82.5 trillion ($121.4t).
The French watchdog said inflated asset markets had so far weathered the first phase of monetary tightening by the US Federal Reserve but pressure is building.
Any number of geopolitical triggers could set off a scramble for safety, from the Italian drama to a cliff-edge Brexit.
The denouement might equally come from a jump in inflation as US fiscal stimulus - at the top of the cycle - drives up oil prices and unleashes inflation. The sheer level of "speculative debt" would amplify the effects of a cyclical downturn.
The Faustian pact of easy money since the Lehman crisis is closing in on the developed economies.
"Expansionary monetary policies have encouraged investors to hunt for yield by buying higher-yielding securities from lower-rated issuers whose solvency could be called into question quickly if rates rise or the macroeconomic environment worsens, " the AMF said.
The question for Europe, it added, is what will happen if a US asset crash or an emerging market crisis sets off a fresh global recession, before the eurozone has built up an adequate safety buffer against deflationary forces?
The warning was echoed yesterday by Clemens Fuest, head of -Germany's IFO Institute.
With interest rates stuck at minus 0.4 per cent until late 2019 and quantitative easing stretched to technical limits, the European Central Bank has scant ammunition for an emergency.
"The eurozone remains highly vulnerable to the next downturn. If nothing is done, it is going to be a very negative scenario, with massive bailouts and massive costs for Germany. Political conflict will get a lot worse and it has the potential to completely destroy the eurozone," he told the Munich Economic Conference yesterday.
"Italy, Portugal, Spain, and France have no fiscal space, or almost none, and if we go into the next crisis with debts levels anywhere near the current levels this is going to end in something close to Greece. We can't go the way of Japan. Debt levels can't get to 200 per cent of GDP because we are not Japan," he said.
The French regulator said Brexit could lead to a host of cliff-edge shocks. "The accord is conditional on a vote in the British Parliament and the European Parliament. The outcome of the talks risks remaining in doubt until the last moment, so actors must prepare for a no-deal scenario, a hard Brexit on March 29 2019, and develop appropriate contingency plans," it said.
It warned of "business continuity risks" for financial services.
Loss of EU passporting rights for British firms means that they will not be authorised to carry out the normal procedures that go with the life of a derivatives contract - "novation, position roll, compression, etc." It cited a potential snarl-up in euro clearing and central data repositories.
As expected, the AMF echoed the standard French line that third countries must not be allowed to carry out the clearing of euro contracts, arguing that they do not have the interests of the EU at heart.
"It is essential to ensure that the continuation of significant activities in British clearing houses does not create a risk for the financial stability of the European Union as a whole," it said.
Cynics might note that Paris is also -angling - a little too assertively - to capture the business.
The report acknowledged that Britain has taken temporary steps to -ensure that European banks and firms can continue operating in the City and serve UK clients after Brexit, even if there is a loss of passporting rights.
It skipped over the astonishing fact that the EU is not reciprocating despite the dangers that this could lead to the very recession that the AMF most fears.
Its bland assurance that "financial actors will have the choice of placing their on-going relations in the secure environment of an EU member state" is unlikely to cut mustard with veterans of global finance.
The comments suggest that the AMF remains insouciant about the acute risks for Europe - as well as Britain - if the transition mishandled.
Mark Carney, the Bank of England's Governor, warned last month that £29t ($56.4t) of derivatives and interest rate swaps face chaos unless urgent measures are taken.
The EU has told the banks to sort out the problem themselves, but this is impossible without a legal framework "This cannot be solved by the private sector," he said.
The UK lobby CityUK said 30 milion insurance policies held by European citizens are at risk if there is no accord to ensure "contract continuity".
Karin Dohm from Deutsche Bank and Alan Houmann from Citigroup - both experts on regulatory risks from Brexit - told a Brussels forum in late May that talks with EU officials had been a bitter disappointment.
Brussels did not seem to be interested in contract continuity.
"In conversations with the European Commission we get a very strong sense that they think it's "not our problem". Well, it is their problem," said Mr Houmann. "Hopefully common sense will come into play."
This story first appeared on the Daily Telegraph and was reproduced with their permission.