The European market has risen about 25 per cent this year and a growing number of professional and private investors have been increasing their allocation to the continent.
Year-to-date performance of index
Source: FE Analytics
However, Warner says that markets have become far too complacent about a resolution to the eurozone crisis, which is still likely to require the splitting of the zone in two at the very least.
While monetary policy is set for Germany’s benefit, the poorer countries of the south are doomed to depression and will eventually rebel, he warns.
"The MSCI Europe ex UK index has risen 25 per cent since the start of the year to the end of October," he said.
"It would be easy to conclude that the inherent problems of the euro single currency have gone away. However, all is not well in Europe, and the failure of politicians to take action while the ECB kept markets happy is likely to come back and haunt us."
"Ever since Draghi's famous 'we will do whatever it takes' comments, markets have taken him at his word," Warner added.
"So far, markets have not tested to see whether he is capable of producing the necessary actions when required to do so."
"The intransigence of the German economy and politicians, coupled with the deflationary forces in the peripheral countries, will eventually give markets cause for concern."
"Unless a political will evolves, the current status quo will either commit the peripheral economies to perpetual semi-depression, or eventually there will be grass root pressures through the ballot box for action, which will be for a breakup of the euro."
Warner’s comments chime with those of Antony John, chief executive of currency specialist ECU Group, who told FE Trustnet on Monday that he expected the currency zone to break up within the next three to five years.
The ECU Group recently published a report authored by chief investment officer Michael Petley in which it argues the same point.
"We should not be deluded by recent upticks in European economic data – they represent a rally in a bear market for all but Germany, where no matter how hard other eurozone constituents try, Germany’s competitive advantage in the single currency union just will not seem to go away," Petley said.
"So, in examining the global outlook on a macro-economic basis over the coming years and the lack of many of the primary drivers of growth, it is hard to see a sustained eurozone economic recovery of the calibre and duration needed to avert a euro break up," he added.
Warner says that the recent rate-cut by the ECB is a sign that the authorities are genuinely worried about deflation, an economic disease that would exacerbate the divisions on the continent, perhaps irrevocably.
"There are reasons why deflation should be feared," he said.
"When prices are persistently falling, consumers put off buying things because they will be cheaper in the future and this weakens the economy."
"Any debt becomes more burdensome since, rather than eroding debt away like inflation, deflation does the opposite and adds to the cost."
"This highlights the deep divisions within Europe. On the one hand you have the German economy, which has grown back above the peak of 2007, and the peripheral economies that are still in a state of adjustment."
"So from a German perspective, the spectre of a Japanese-style deflationary era looks a long way off, whereas from a Greek or Spanish perspective, deflation is already here, or in Spain's case almost."
In fact, he continues, the recent press and political attention has been on German culpability for the economic troubles of the currency union. More and more blame is being ascribed to Germany, he explains, which is not a recipe for a healthy union.
"Strange as it may seem, Germany is a major part of the problem," he said. "Firstly it was German policy to push the eurozone members into fiscal austerity."
"A recent paper written for the European Commission said these measures effectively knocked 18 per cent off Greek GDP, 9.7 per cent off Spanish GDP, and 9.1 per cent off French GDP. Even German GDP was hit by 8.1 per cent."
"As the US Treasury noted, the other thing is Germany has maintained a large current account surplus throughout the eurozone financial crisis."
"Most people think that having export surpluses is a good thing and reflects the competitiveness of the countries’ industries. However, it also reflects an excess of output over demand."
"This means that surplus countries like Germany import demand not generated by themselves. It’s not just the US that has effectively pointed out that Germany is part of the problem rather than the solution."
"Being in a fixed currency means the peripheral countries don't have the ability to become more competitive by having a lower currency."
"When Germany's inflation rate is at 1.3 per cent, peripheral companies have to adjust by either cutting wages or by cutting costs through increased unemployment."
"This is why Spain has an unemployment rate of 26.6 per cent and France of 11.1 per cent. Compare this with the US's unemployment rate of 7.2 per cent."
"Some might think that this is purely a European problem. However, as the peripheral countries get hit by austerity and high unemployment, their internal demand also shrinks."
"This means that Europe as a whole will move towards a greater surplus that requires demand from the rest of the world."
"Not only is this a ‘beggar thy neighbour’ policy, it does have a deflationary/disinflationary impact on the global economy."
"It’s not dissimilar to the impact of Chinese exports in the last decade. The Chinese however have recognised that exports alone are not the way forward and are trying to rebalance their economy."
"If Draghi can continue to defy the pressure from the German contingency (reports suggest that the ECB was split in voting just for this reduction in interest rates, with the German contingency leading the no vote), he may be able to introduce further measures to help the European economy, which could eventually lift inflation."
Warner suggests that a solution to the eurozone’s problems would be to split the currency into a northern "neuro" and a southern "seuro".
"It would be up to individual countries as to which euro they would use in the future. The split of existing euros into neuros and seuros would be worked out on a percentage of either GDP and/or borrowing of the participating countries in each block."
"If all existing euros were to be split in that way it would avoid people moving their euros from one part of the block to another. The Brussels machinery would then have the ability to set interest rates more sensibly to the differing economic outlooks."
"The cause of the eurozone’s problems is that the peripheral economies went on a binge when their interest rates were set at a level appropriate for the sluggish German economy. Now we have rates being set at levels appropriate for the peripheral economies, which are too low for Germany."
"So while markets are focusing on US tapering and the implications of Chinese economic re-balancing, it could well be Europe that brings reality back with a jolt next year."
Petley says that some such division is most likely. He says the European political authorities are likely to be pushed into some reorganisation of the currency zone the next time the crisis blows up, as a growing number of non-European IMF countries are growing tired of supporting the zone through bailouts while Germany is not willing to do the same.
