Rabobank’s Michael Every says Europe is settling into a roughly 1.5% growth track. He also points to rising political division and a weak economic model. He argues that German deindustrialisation is being partly offset by rearmament, while broader EU reforms remain hard to deliver. In Germany, Bosch plans to cut 20,000 jobs as deindustrialisation continues. Rearmament is helping GDP, but the outlook depends on whether other industries rebound—and whether Europe can actually produce the weapons it expects to use.

European Policy Reform Gridlock

Reports cited say the EU is not delivering key economic fixes as the single market weakens. They also note calls for European payment alternatives to Visa and Mastercard, debate over “Made in Europe,” and pushback against plans to weaken the carbon border tax. The text also highlights that the US is handing two key NATO command posts to Europeans. It adds that French domestic politics are tense, linked to the Bank of France governor’s planned departure. Europe is weighing more Eurobonds to support Euro stablecoins and a plan to challenge the dollar’s global role. It notes how hard it is to change third-country systems built around the dollar, and says the Commission wants to map barriers to wider Euro use while respecting national monetary choices. Europe is still stuck in a slow-growth pattern and is struggling to move much beyond the 1.5% path that became clear in 2025. New Eurostat figures show Q4 2025 growth at a weak 0.2%, reinforcing the view that the bloc’s economy is losing momentum. This ongoing softness suggests any major upside for the Euro is limited, which can make strategies like selling out-of-the-money EUR/USD call options appealing.

Market Volatility And Hedging

Germany’s economic model is clearly shifting. The deindustrialisation that accelerated last year is now showing up in the data. Defense spending is supporting GDP, but German factory orders fell 1.2% in January, led by weakness in autos and chemicals. Traders may try to capture this split by using options to go long aerospace and defense stocks while considering puts on indices with heavy exposure to German manufacturing. Political fragmentation is still blocking a clear European “grand strategy,” a pattern that has continued since the 2025 debates on carbon taxes and payment systems. The EU’s push to promote the Euro is making limited progress, with EUR/USD struggling to hold gains above 1.07. This lack of unity creates steady pressure on the currency, suggesting the current range is more likely to break down than break higher. With high uncertainty and low growth, volatility is critical to watch. The VSTOXX index (Euro Stoxx 50 volatility) has edged up from its 2025 lows and is now around 18.5. Buying protective puts on major European indices like the DAX or Euro Stoxx 50 may be a sensible hedge against a sudden drop triggered by political or economic headlines. The mass layoffs announced by major industrial firms in 2025 were a clear warning for manufacturing. That trend has continued, with the latest Eurozone manufacturing PMI at a contractionary 47.1. This supports pair trades that short industrial-sector ETFs while taking long positions in less cyclical areas—or in sectors supported by government spending, such as defense. Political infighting inside EU institutions, including around the Bank of France, makes the European Central Bank’s job harder. With Eurozone inflation down to 2.1%, the ECB has little reason to sound hawkish. That limits policy support for the Euro and strengthens the case for bearish currency-derivative positions in the weeks ahead. Create your live VT Markets account and start trading now.

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