Enjoyed an impressive rally

European share indices enjoyed an impressive rally following the global economic crisis of 2008 to 2009, but there was always a precarious feel to the recovery.

The sharp rise in indices came on the back of large stimulus spending programmes that will at some point have to be reined back, most probably through tax increases and public expenditure cuts.

In mainland Europe, the situation is complicated by the fact that most major economies use the euro as their currency, meaning that there is even greater interdependency between economies than elsewhere.

So while the headlines for much of the summer have been dominated by worries over the debt situation in Greece and other southern European economies, this has been a huge worry for Germany and France, despite their economies being in better shape.

And despite having its own currency, Britain’s economy is closely interconnected with mainland Europe.

If Greece is the country most in need in need of help from fellow eurozone countries, Germany is the one best placed to provide that help. This has caused some consternation among Germans, resentful at having to pay for the Greeks’ apparent profligacy.

However, they may need to temper this indignation with the need to prevent the euro unravelling, something that, at least in the short-term, would be hugely damaging for German equities.

So far, the possibility of contagion appears to have been averted. Investors breathed a sigh of relief late in April when only seven out of 91 banks failed EU ‘stress tests’ to determine how well they would perform in the event of a banking crisis.

But there may still be clouds on the horizon. The UK has begun outlining plans to cut public spending – which has hit the share prices of some public sector exposed companies.

A fierce debate is raging on whether the coalition government plans threaten the recovery. In Germany and the other big eurozone economies, how to deal with Greece and its fellow strugglers continues to dominate the debate.