The outlook remains bright in Europe as both soft and hard data remain strong. Performance in the external sector coupled with a strong domestic economy have underpinned Europe’s recovery.
The euro fell as German coalition talks came to a dramatic end on Sunday. Disputes over migration led the Free Democratic party to end negotiations with Merkel’s party, the Christian Democratic Union of Germany.
Merkel’s Christian Democratic Union has led Germany since 2005, however the summer election showed the majority was sharply reduced.
Other key areas of conflict which helped breakdown the coalition were climate change and tax policy.
Investors could become increasingly concerned in the event of a repeat election, as the right-wing Alternative for Germany party could gain increased support.
The deadlock is particularly worrying to investors as Germany has represented stability for the eurozone post the second world war.
Across the border, Marcon’s triumph over anti-eurozone candidate in the French presidential campaign was a turning point for the European Union. Following his win, Macron laid out a reform agenda which promises increases finance and an injection of growth.
The most highly leveraged counties in the region known as PIIGS; Portugal, Ireland, Italy, Greece and Spain, are recovering after years of recessionary pressures.
Greece has obtained support from the IMF for its third bailout programme accompanied by a hefty loan to the Mediterranean country. Meanwhile, Ireland is on track to be the fastest growing country in the eurozone.
Still, risks remain; Italy’s looming election is at the forefront of investor’s concerns. The region suffers from political instability and is one of the euro’s biggest political hurdle to overcome.
Overall, Euroscepticism appears to be reducing, leaving a clearer path for the European Union.
With risks largely contained, attention has turned to the ECB’s historically loose monetary policy stance. ECB president Mario Draghi noted that risks to eurozone growth are largely balanced. However, did note that the bond-purchasing programme could expand in size or duration if forecasts were to turn unfavourable.
The energetic economic backdrop has provided a much more stable political stage for the eurozone.
The central bank has already entered into a new phase of monetary policy. On October 26th, the ECB decided to reduce its assets purchases, although leaving substantial stimulus in place in order to stimulate lagging inflation.
The eurozone has enjoyed robust growth over the past four years, reaching GDP and business investment levels above that of 2007, lowering unemployment and borrowing costs, while expanding business confidence.