Macroscope | The euro-zone is living on borrowed time bought by Mario Draghi’s ‘super stimulus’
‘Economic and political tensions are still lurking under the surface, threatening to return with a vengeance’
Crisis! What crisis? Not more than a few years ago, Europe seemed to be going to the wall. The end of the euro, economic disintegration and financial disaster were all being widely bandied about. Now confidence seems to be returning, investors are flocking back and the euro-zone economy is on the road to recovery. So what is going right?
In the past few years, European policymakers have done a good job putting the economy back together again. Most credit is due to the European Central Bank, flooding the markets with a glut of free money and interest rates dropping to negative levels. Economic confidence has soared, growth is bouncing back and unemployment is retreating.
The best bellwether of the market’s newfound conviction about “Europe back on the mend” is the relative strength of the euro after the recent French presidential elections. It has bounced close to US$1.13 from its US$1.04 low at the start of the year. Fears of euro-zone break-up have proven unfounded and the bulls are gaining the upper hand.
It is not just the euro, but equity investors have been flooding back into European stocks, citing low market valuations compared with US and British stocks. It seems as if global investors are starting to have a major rethink about economic recovery while European unity is showing better chances of staying intact.
The big question is whether the European economy can stand on its own feet, once the ECB pulls the plug on super-stimulus
Without doubt, the economic fundamentals are looking a lot better. The latest gross domestic product growth data provides good ground for optimism, with output in the euro region rising 0.6 per cent over the first quarter. Growth was in positive territory for all 28 European Union members, including hard-pressed Greece, which saw output rising 0.4 per cent over the quarter.