Even as economic confidence in the euro area reaches historic highs, a series of political risks simmering across the European Union still threaten to undermine the bloc’s fragile recovery.
The euro-area economy, aided by more than 2 trillion euros ($2.3 trillion) of bond purchases by the European Central Bank, has been gathering pace with an index of industry and consumer sentiment registering its strongest reading this month since January 2001.
But a worse-than-expected electoral performance by Angela Merkel’s party in Germany and Emmanuel Macron’s waning popularity in France have stacked the cards against a rejuvenated Franco-German core at the heart of the EU. Looming elections in Italy and a crackdown in Catalonia that fails to resolve the underlying push for greater autonomy risks affecting the euro area’s No. 3 and No. 4 economies respectively, putting the EU’s nascent recovery in doubt.