Politics, not economics, could undo the European recovery
A toxic combination of political risks in Europe pose the greatest threat to businesses across the continent, Standard and Poor’s (S&P) has warned today.
Despite strong underlying fundamentals including robust consumer confidence and buoyant M&A prospects, the ratings agency said firms could be knocked off course by any number of political disruptions over the next few months.
Brexit, elections in Spain and a reemergence of the Greek debt crisis were the three biggest risks to European corporates, according to S&P.
Read more: Greece is running a multi-billion euro budget surplus
“Political strains ranging from Greece, to southern Europe, to Brexit have the potential to trigger a crisis and exert significant downward pressure on credit quality of the European corporate sector."
S&P also warned that the extraordinary monetary policy environment was forcing firms to rethink their business models.
"The [monetary] stimulus is welcome, but longer-term risks loom large." S&P's Gareth Williams warned.
"There are tangible outcomes from current monetary policies that are making life difficult for the corporate sector," he added, pointing to the stress pension schemes were coming under in the low interest rate environment.
Read more: The refugee crisis could be a boon to EU economies
Analysts also suggested that the possibility of the refugee crisis re-emerging this summer meant there was plenty for European economies, business and politicians to be worried about.
"If the migrant crisis does intensify this summer, the EU could face something of a perfect storm of political risk in the coming weeks, with the UK's referendum on EU membership, a repeat general election in Spain, and potentially difficult talks on debt relief between Greece and its creditors ahead," Peter Ceretti, an analyst at the Economist Intelligence Unit, told Morning Wire