Calm year predicted but fringe parties circling ahead of elections
LAST year was the least tumultuous for the eurozone since Greece revealed a vast hole in its books back in 2009.
The consensus is that 2014 will be just as calm -- a view held by some who were predicting the currency bloc's demise little more than a year ago.
The political will to keep the show on the road has held firm, the ECB's pledge to underpin the euro continues to stave off bond market pressure and there is the prospect of economies growing at least a little.
Spain, Italy and Portugal are all emerging from recession and Greece should follow suit this year.
Yet there are plenty of reasons to be cautious. High unemployment, austerity fatigue and still anaemic growth offer the perfect backdrop for fringe parties to prosper at May's European parliamentary elections.
Some pundits predict a group of anti-euro parties including the National Front in France, Britain's UKIP, Syriza in Greece and the Dutch Freedom Party could capture 20pc or more of the seats.
That could pressure the EU's main party groups to challenge Europe's ability to integrate further given new powers the parliament will have to rule on the majority of EU legislation.
And then there's bank stress tests. That the EU has fallen short of its initial plans for a banking union to prevent future financial crises is plain.
For several years at least, the buck for a failing bank will ultimately stop with national governments, leaving the "doom loop" ensnaring weak banks and indebted sovereigns unbroken.
The ECB will publish health tests of Europe's biggest banks prior to taking over their supervision in November.
The scope for a major shock is limited given the extent to which banks have already recapitalised. Still, lending is likely to remain constrained until the tests are complete -- hampering economic recovery -- and the structure of the banking union as it now exists could allow a future crisis to blow up.
The main reason to be cheerful about the eurozone is the markets' unwillingness to test the ECB's safety net. Any hole in that would change the terms of the game at a stroke.
Germany's Constitutional Court will rule soon on the ECB's bond-buying programme, its as yet unused mechanism to protect the eurozone. The history of the Karlsruhe-based court has not rejected outright any crisis-fighting measures though it has bestowed greater levels of scrutiny upon Germany's Bundestag.
But if it did take the nuclear option, the bond market could declare open season on the currency bloc's weaker members once more, pushing it back into crisis.
The ECB has consistently said it is buying time for countries to put their houses in order by curbing debts and enacting economic reforms needed to thrive in the 21st century.
The main flashpoints are Italy, which has stagnated for a decade and has a coalition government which may lack the cohesion to respond, and France, which is teetering on the edge of a new recession.
"France remains the only major European economy which is beset by serious health problems and has not yet done much about it," Berenberg Bank said in its annual review of the eurozone.
President Francois Hollande used his New Year address to offer companies lower labour taxes if they hire more workers. But with his popularity levels at record lows, a radical leap is unlikely. (Reuters)