The euro is under increasing pressure as the continent moves towards 2025. economic, political and financial tensions that Europe is going through They do not question the stability of the common currency, but they do question the economic future of the bloc due to the difficulties of its two main economies, Germany and France, and due to the growing differences between the monetary policies of the eurozone and the United States.
The global scenario aggravates this situation. The arrival of Donald Trump to the presidency of the United States has introduced a series of additional risks for Europe. Promises of tariffs on European exports, especially in sectors such as automobiles and luxury, could seriously affect the continent’s competitiveness. Furthermore, the increasing institutionalization of digital assets under the support of favorable US policies is generating volatility in global financial markets.
The shadow of a debt crisis
In this environment, the internal problems of the eurozone they get worse. The spread between European GDP-weighted sovereign bonds and short-term rate indices has reached its highest level since 2014, according to Commerzbank. This indicator, which measures the relative cost of financing debt in Europe, has historically been a precursor to market tensions. During the debt crisis of 2011-2012, similar behavior warned about the unsustainability of public finances in several countries.
Although the current situation is not identical, the warning signs are evident. France, with a projected fiscal deficit of 6% of GDP in 2025shows a worrying trend towards stagnation, while its public debt exceeds 110% of GDP, which places it as one of the most vulnerable countries in the bloc. According to the European Commission, this lack of fiscal control translates into a growing differential in its sovereign bonds, which reached 3.045% in the last measurement, a level higher than that of peripheral economies such as Spain (1.811%) and Italy (1.91). %).
Germany, although fiscally more solid with a public debt of 62% of GDP, in turn suffers from deep industrial crisismarked by the fall in profitability and the contraction of its export sector. Its 10-year bond maintains a relatively low yield of 2.28%, but remains high compared to its historical average.
The ECB has indicated in its latest financial stability report that “the greatest political and geopolitical uncertaintycoupled with weak fiscal fundamentals, increases risks to the sustainability of sovereign debt in Europe.” Although programs such as the Transmission Protection Facility (TPI) are designed to mitigate these risks, analysts warn that the success of these tools will depend largely on the ability of governments to implement structural reforms.
According to data from Scope Ratings, the general picture shows a eurozone with an average debt of 88% of GDP, but with strong internal disparities. Greece continues to lead with a ratio of 163%, while countries like Spain stand at 104%, and the Netherlands and Germany maintain much more manageable levels of 43% and 62%, respectively.
The ECB responds by adjusting its monetary policy
Aware of this panorama, the ECB has been adjusting its monetary policy since last June to try to stabilize the situation with a drop of 100 basis points in the interest rates. According to Generali AM, the central bank will cut interest rates in January and March 2025, including a 50 basis point adjustment in March, followed by two additional 25 basis point cuts in April and June. These movements would take the terminal rate to 1.75%, well below the range considered neutral (2%-2.5%).
This more aggressive stance contrasts with Federal Reserve policywhich will be more cautious. According to Bank of America, the Fed will only make three rate cuts in 2025, keeping them in a range of 3.5%-4%. This divergence widens the gap between both economies and puts additional pressure on the euro.
2025 enters pending politics
Politics also plays a central role in the eurozone. Germany is preparing for early general elections in February, after the fall of Olaf Scholz’s government. According to analysts, the political fragmentation and structural problems of its economy, with a automobile industry in crisiswill complicate the formation of a stable government.
In France, the motion of censure that brought down Prime Minister Michel Barnier in December 2024 has left the country in a precarious political situation. With economic growth forecast at just 0.8% in 2025, the eurozone’s second-largest economy remains a source of concern for investors. New legislative elections in the summer are not ruled out, which could further aggravate the instability.
The impact on the EuroStoxx 50
The European financial markets will reflect these tensions. According to Bank of America, the EuroStoxx 50 will see limited growth of 3%-5% in 2025, affected by weak demand in sectors such as automobiles and luxury, and by uncertainty arising from possible US tariffs.
In contrast, the European market valuations They are still more attractive than those in the United States. According to La Financière de l’Échiquier, the price-earnings ratio of the EuroStoxx 50 is 13.5 times, which represents a 40% discount compared to the S&P 500, whose multiple is 22.5 times. However, this differential has failed to attract international investors, who continue to opt for US equities driven by technology sectors.
In the case of the Ibex 35, the Spanish index stands out as an exception. According to Renta 4, the Ibex could reach 14,000 points in 2025backed by a 15% discount compared to its historical average and by Spain’s economic leadership in the eurozone, with a projected growth of 2.1% for next year.
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