Although the impasse around Germany's election negotiations alarmed markets, the eurozone's strong showing has calmed nervous investors. But the FT's Roger Blitz argues that Europe needs reforms before the next recession.
Produced by Filip Fortuna. Filmed by Rod Fitzgerald.
Here's a question, which eurozone data matters most to investors? Is it rising core inflation, a ballooning current account surplus, soaring German exports, or impressive business service across the region?
Or does it matter which one? Because compared to trying to understand the coalition difficulties of German Chancellor Angela Merkel, investors would much rather focus on the economy, particularly when that data is turning out such good numbers. In the eyes of investors, data is trumping political noise.
And to illustrate this, look at the euro. The day after Germany's coalition negotiations collapsed, the euro fell half a percent against the dollar. That was understandable after all of the many political risk events of 2017 threatening markets, Germany's election impasse, and the breakdown of coalition talks were first, the least expected and second, the most alarming.
But since the breakdown, the euro has risen nearly 2%. Indeed, investor speculation is now about how the euro rally - that surprise market event of 2017 - is back on. And yet, Mrs Merkel is by no means assured of forming her grand coalition. The euro is again threatening to breach the $1.20 level. This time it looks like a springboard for a bigger push higher.
So markets might look like they are oblivious to Germany's impasse and its implications. Namely, the influence of the migration debate on German politics and the growing threat of populism in Europe. But eurozone strength is more than compensating for any investor nervousness about politics.
Even if Mrs Merkel fails to form a government, says one investor, the economic backdrop is strong and should support the euro. But just imagine if the economy was weaker. Then we would be seeing an entirely different euro reaction to these German political tensions and therein lies the reason why some investors remain sceptical about Europe and the euro's resilience.
Today, economic strength looks all-conquering, capable of making all other problems go away. But the economic cycle will turn and by the time that happens, will Europe have sorted migration and laid to rest the scourge of the far right? Europe is in a good position now, says another investor, but it needs reforms to make itself less brittle and there is not much time to do that before the next recession. Complacency is Europe's biggest enemy.