Europe: Markets shrug off risks amid fiscal challenges and diplomatic shifts – Rabobank

According to Rabobank, European markets have shown remarkable resilience this week, shrugging off France's fiscal woes and the European Commission's Excessive Deficit Procedure for eight countries.

A key development is the apparent removal of a controversial clause on using frozen Russian assets under US management, potentially leaving Europe with a crucial economic lever and funding source for Ukraine's reconstruction.

European markets resilient as diplomatic efforts intensify

"Despite the European Commission maintaining the Excessive Deficit Procedure for eight countries – including France – and adding Finland to the list, French 10-year spreads over Bunds this week tightened to near their lowest level since mid-September."

"This resilience reflects broader optimism across European government bonds, with Spain and Italy’s spreads falling to levels not seen since before the eurozone debt crisis."

"Since the US unveiled its 28-point “Peace Plan” for the Ukraine-Russia conflict – sidestepping both Kyiv and Europe – diplomatic efforts have accelerated."

"Rather than outright confrontation, Europe has sought to endorse the plan’s broader aims while reshaping it point by point."

"One major change: the provision on frozen Russian assets appears gone."

"If confirmed, Europe retains its most (only?) potent – and controversial – economic lever and a potential funding source for Ukraine."

"Euroclear warned yesterday that such a move could be seen as “confiscation” abroad, spooking investors and raising risk premiums on European financial assets."

"Slow and inconsistent decision-making, delayed efforts to strengthen defenses, and ongoing disputes over conscription suggest that the most realistic course for Europe is to continue supporting Ukraine, even as costs escalate."

(This story has been created with the assistance of AI.)