European Financial Markets – Is There Finally Light At The End Of The Tunnel?

Since the fall of 2009, European banking has been dominated by the massive financial crisis in the Euro-Zone. This crisis was the result of huge government debt, bank undercapitalization, and a lack of competitiveness in Europe. The crisis not only introduced adverse economic effects for the worst hit areas, but also had a major political impact on the ruling governments in 8 out of 17 Euro-Zone countries. As an example of the social impact, consider that unemployment stood at 27% in both Spain and Greece in mid-2013 and has not improved much since then. The 18-country Euro-Zone may have technically emerged from recession last year, but that has done little good for the jobs market, with unemployment still stuck near record highs. The situation varies wildly from country to country. Germany continues to enjoy a low jobless rate of 5.1 percent while countries that had to make drastic spending cuts to reduce debt are still suffering. Estimates are that there are almost 19 million people still out of work.

The good news - despite setbacks to emerging markets in early 2014 and the crisis in Ukraine, the European recovery still looks intact. Across the 28-strong European Union, GDP will expand by 1.5% this year and by 2.0% in 2015, according to new forecasts from the European Commission on February 25th. Across the 18-strong Euro-Zone GDP will rise by 1.2% in 2014 and by 1.8% in 2015. The main impetus behind the Euro-Zone’s recovery this year will be Germany, which makes up nearly 30% of the collective output, and which is predicted to grow by 1.8%.