However, the struggling European countries find themselves in a particularly daunting position. That structural reforms have to accelerate in periods of low economic growth is not in itself anything new. But, during the previous wave of structural reforms in the early 1990s (Canada and Scandinavia), deep recessions were isolated. Reforming countries could count on decent world demand from 1994 onwards. This time it is the near entirety of Europe which is wallowing in stagnation/recession. This can increase the lag between the implementation of the reforms and economic recovery, thus reducing their political acceptability. In addition, the capacity for “fiscal wheel greasing” is very limited. Furthermore, the current dearth of credit in the peripheral countries could also increase the lag between the reforms' implementation and the materialisation of their benefits in terms of employment and economic growth. Indeed, structural reforms in one way or another tend to raise potential GDP growth by reorienting the allocation of capital and labour towards the most productive sectors. Such a process of “creative destruction” can be hampered by low access to leverage.

Eoin Treacy's view The Eurozone is comprised of some ancient civilisations so it is easy to forget that the nation building project is less than 20-years old. One might argue that the single currency was not originally designed to act as the cement for a federal Europe and its imperfect formulation attests to that. However, despite the sporadic creation of federal institutions the path towards a federal solution is likely over the medium term.

The implementation of the banking union, creation of a deposit insurance corporation and potential imposition of federal taxes and or transaction taxes are all likely outcomes as this process reaches its conclusion. Economic reforms, particularly within debtor countries, are likely to be a prerequisite if creditor nations are to be encouraged to continue to accept this evolution.

The Euro Stoxx 50 Index (P/E 16.92, DY 4.21%) remains in a four-year base formation and has been ranging with an overall upward bias for the last 18 months. Over the last three weeks it has pulled back to test the region of the 200-day MA but a break in the short-term progression of lower rally highs, currently near 2750, would be required to begin to suggest a return to demand dominance in the area of the trend mean.