The reasons for this are legion and include concerns over the effects of Brexit, the health of the European banking system, upcoming elections in the Netherlands and France and, whilst perhaps not spoken out loud in Brussels, presumably the future of the EU and the euro.
The timing of Brexit and the length of the negotiations are among the larger unknowns, but the outcome is arguably more important for the eurozone countries than the UK itself. Large corporations in Europe will be keen to get a deal done quickly for obvious reasons and, given the sentiment against status quo thinking, inhabitants of the upper echelons within the EU commission may find that they will have to change their tune – or get found out at the polling stations. Not that the commissioners are subject to anything as undignified as an electoral process, but you get my gist…
There is some support for reform within the EU and any strengthening of this resolve will be well received by investors. They cannot go on pretending that all is well aboard the EU Titanic. The ECB will continue to support the economic edifice and its bond buying is scheduled to last well into 2017. If, and when, the “t” word is uttered (tapering), we may see some fall out, but until then the central bank has everyone’s back. Given this last line of defence, and the fact that central bank intervention in other countries has supported stock market rises, it is then perhaps surprising that European bourses are struggling as much as they are.
Banks are perhaps one area justifiably holding investors back. The Italian banks especially are basically all bust, but of course that’s not an issue until they write off loans – an action they seem to be avoiding admirably, with the phrase ‘lend and pretend’ coming to mind. Renzi’s recent defeat has done little to improve their lot.
