Europe gathers strength

We heard a lot about "divergence" at the turn of the year. This was the idea that US growth would surge ahead, leaving other regions, especially Europe, standing. But it hasn't quite worked out like that, says Richard Barley in The Wall Street Journal. US data have been a little soft of late, while China has faltered too. Yet Europe is doing surprisingly well.

In March, activity in the manufacturing and services sectors hit its highest level in almost four years. First-quarter GDP growth looks set to come in at around 0.3%, says Markit's Chris Williamson, with 0.4% growth in Germany and 0.2% in France (an improvement after three years of stagnation).

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The credit squeeze is easing too, says the Buttonwood columnist in The Economist. Two widely watched measures of the money supply are growing by 4%-9%, a big improvement on a year ago. It seems banks may be working off their hangovers. Now that their balance sheets are stronger, they are more inclined to lend.

This gradual uptick actually pre-dated the European Central Bank's (ECB) quantitative easing (QE) scheme, says Christian Schulz of Berenberg, a German bank. "Much of what the ECB wanted to achieve with QE" falling bond yields, a weaker currency, and looser credit "happened before it started."

But QE has helped to buoy confidence and inflation expectations, which means there's more chance of avoiding a deflationary slump. And by hoovering up government bonds, the ECB has "insured" Europe against the threat of a Greek exit the yields on other highly indebted states' bonds have remained low.

This suggests that, even if Greece does leave the eurozone, then shares could keep rising. Recent history suggests that liquidity (availability of money) trumps fundamentals, and QE will continue until at least next year.The pan-European FTSE Eurofirst 300's multi-year rally isn't over yet.