Europe's Fragility Is Exposed Again

Europe's Fragility Is Exposed Again

So much for the return to stability.

The euro-region economy grew at its fastest lick in a decade last year and unemployment dropped to the lowest since the global financial crisis. Summer has arrived early and the feel-good factor is set to continue with Europeans glued to the World Cup soccer competition starting in Russia next month. But you wouldn’t tell from the continent’s politics.

Italy is in chaos and facing another election that will likely only strengthen the anti-establishment parties. Spanish Prime Minister Mariano Rajoy’s opponents are mobilizing a no-confidence vote and plotting an early return to the polls.

Carlo Cottarelli, Italy’s premier-designate, attends a news conference at the Quirinale Palace in Rome on Monday. 

Photographer: Alessia Pierdomenico/Bloomberg

Then there’s Britain’s acrimonious Brexit talks, about to hit another critical juncture in June. French President Emmanuel Macron is pushing through economic reforms that have prompted a wave of strikes and hurt his popularity. And all while the European Union is trying to hold the line against U.S. trade tariffs, deal with a resurgent Russia and keep tabs on a potential meltdown next door in Turkey.

“Only three months ago the confidence concerning Europe was much more positive due to growth, but also the complacency about the general state of politics,” said Mujtaba Rahman, managing director for Europe at research firm Eurasia Group in London. “It’s again a testament to how quickly sentiment can change.”

It’s not that Europe is in a permanent state of crisis, but sturdy economic statistics and relative financial-market calm have served to mask disillusionment and division, especially in the south. The upshot is a sudden return of political risk for investors with the prospect of no let up in the coming weeks and months.