Rabobank’s Michael Every describes Europe as nearing a 1.5% growth path, alongside political division and a weak growth model. He links this to German deindustrialisation being offset in part by rearmament, while wider EU reforms remain hard to deliver.
In Germany, Bosch is set to lay off 20,000 workers as deindustrialisation continues. German rearmament is supporting GDP, but the outlook depends on whether other industries recover and whether Europe produces the weapons it plans to use.
European Policy Reform Gridlock
Reports cited say the EU is failing to implement economic fixes as the single market weakens. They also cite calls for European payment alternatives to Visa and Mastercard, debate over “Made in Europe”, and opposition to plans to weaken the carbon border tax.
The text also notes the US handing over two key NATO command posts to Europeans. It adds domestic French political tension linked to the Bank of France governor’s planned exit.
Europe is considering more Eurobonds to support Euro stablecoins and a plan to challenge the dollar’s global role. It notes difficulties in changing third-country practices that are built around the dollar, and that the Commission wants to map obstacles to wider Euro use while respecting national monetary choices.
Europe remains stuck on a slow growth trajectory, struggling to push much beyond the 1.5% path that was becoming clear in 2025. The latest Eurostat data confirmed Q4 2025 growth was a sluggish 0.2%, reinforcing the view that the bloc’s economic engine is sputtering. This persistent weakness suggests that any significant upside for the Euro is capped, making strategies like selling out-of-the-money call options on the EUR/USD attractive.
Market Volatility And Hedging
The German economic model is visibly changing, with the deindustrialization we saw snowballing last year now reflected in the data. While defense spending provides some GDP support, recent German factory orders for January fell by 1.2%, driven by weakness in the automotive and chemical sectors. Traders can play this divergence by using options to go long on aerospace and defense stocks while considering puts on indices heavily exposed to German manufacturing.
Political fragmentation continues to prevent a coherent European grand strategy, a theme that has persisted since the debates over carbon taxes and payment systems we saw in 2025. The EU’s ambition to promote the Euro is making little headway, with the EUR/USD exchange rate struggling to hold gains above 1.07. This lack of unity and direction creates headwinds for the currency, suggesting its recent range is more likely to break to the downside than the upside.
This environment of high uncertainty but low growth makes volatility a key factor to watch. The VSTOXX index, a measure of Euro Stoxx 50 volatility, has been creeping up from its 2025 lows, currently trading around 18.5. Buying protective puts on major European indices like the DAX or Euro Stoxx 50 could be a prudent way to hedge against a sudden downturn driven by political or economic news.
Looking back, the large-scale layoffs announced by industrial giants in 2025 were a clear warning sign for the manufacturing sector. This trend has continued, with the latest manufacturing PMI for the Eurozone coming in at a contractionary 47.1. This supports pair trades that short industrial sector ETFs while taking long positions in less cyclical areas or those benefiting from government spending, such as defense.
The political maneuvering within EU institutions we saw last year, such as at the Bank of France, complicates the European Central Bank’s mission. With the latest inflation figure for the Eurozone dipping to 2.1%, the ECB has very little incentive to adopt a hawkish tone. This policy constraint will likely weigh on the Euro, reinforcing the case for bearish derivative positions against the currency in the coming weeks.
