The euro zone has faced significant political and economic turbulence over the past year, particularly impacting its largest economies, Germany and France, which currently lack a budget for 2025.

Germany is preparing for a snap federal election in February 2025, following the collapse of Chancellor Olaf Scholz's coalition government over budgetary disagreements.

Both Germany and France are operating under provisional budgets, having rolled over their 2024 financial provisions due to political infighting and uncertainty about future budgets.

In France, the budget deficit is projected to reach 6.1% with a national debt of 112% of GDP in 2024, complicating efforts for Prime Minister Francois Bayrou's new government to establish a budget.

Germany's economic challenges stem from excessively tight fiscal policies leading to low investment and growth, contrasting with France's issues of overspending.

Despite these obstacles, there are some expectations for limited fiscal support from the upcoming German elections and potential consumer spending boosts, though significant upside surprises are deemed unlikely.

The European Central Bank (ECB) has cut interest rates four times in 2024, with modest growth expectations of 0.7% in the euro zone for 2024 and 1.1% for 2025, while inflation is projected at 2.4%.

ECB President Christine Lagarde has warned of potential risks to economic growth, including global trade frictions and low consumer and investment confidence.

Neil Shearing, Chief Economist at Capital Economics, emphasizes that Europe's most significant issues are now concentrated in its largest economies rather than in smaller ones like Greece.

Shearing cautions that without fundamental reforms, Europe risks facing very low growth and ongoing fiscal sustainability concerns, particularly amid the U.S.-China superpower rivalry.

Economists express concern that the absence of growth, fiscal imbalances, and political stalemate in these countries could threaten Europe's overall economic standing.

Goldman Sachs predicts a challenging 2025 for Europe, estimating growth at 0.8%, significantly lower than the U.S. forecast of 2.5% for the same period.