Riots in the streets of France over jobs laws; a near stalemate in Italy’s general election; Germany forced into a grand coalition – and still no EU constitution. Eurozone politicians seem to be doing their damnedest to ensure that the world’s largest trading bloc cannot function.
Fortunately, what the politicians do seems to make little real difference. Eurozone equity markets are now at an all-time high in dollar terms. And they are outperforming those of the US in local currency and dollar terms.
Since the recession of 2001, growth in the core of Europe has been led by exports and investment. Now domestic demand, particularly consumer demand, is starting to show the way.
There are two big reasons why the eurozone economy is starting to work. Its households are asset-rich while corporate Europe is profitable and cash-rich with the firepower to invest.
Household wealth is equivalent to that in the US, at around 500% of personal disposable income. But there are important differences in the composition and thus the volatility of that wealth. Both regions have increased the share of real estate in their wealth portfolios since the stock market bust in 2000, but the eurozone’s remains much bigger.