Europe’s real dilemma: Demand

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A shopping street in Steglitz district in Berlin, Germany.

It has become something of a cliché to argue that no real decisions will be taken which affect the unfolding of the euro zone debt crisis until after the German election in September, but this may be a red herring.

Without improved demand, the stock market rally which has followed the euro zone's return to growth could be based on a false premise, analysts warned.

"There is the problem of effectively no demand in the global economy because most of the demand was debt-driven," Satyajit Das, author of "Extreme Money" and a well-known pessimist about the recovery, told CNBC.

(Read more: ECB may have to cut rates: Bini-Smaghi)

"The rally is driven by three things: faith in the austerity package; the ECB's (European Central Bank) magnificently empty statement about doing whatever it takes; and third, the banking union, which stabilized the banking sector, except the Germans have just taken the guts out of that. These three things have all gone."

Das argued that those buying into the rally are mistaking a "stabilization of the rate of descent" for improvement.

The key concerns in coming months include potential refinancings for Portugal and Ireland, and possible further writedowns of Greece's debt.

Greece is meeting the objectives of its bailout program, but there is still a "very long slog" ahead, Julian Callow, chief international economist for Barclays, warned. "You're dealing with an extraordinary episode in economic history here," he said.

(Read more: Merkel: 'No fear' ahead of crucial election)

Even in Germany, there are increasing calls to look beyond its borders.

Markus Kerber, director general of German business group the BDI, told CNBC: "Our campaign so far has been terribly domestic and almost neglecting the key issues that everyone wants to have solved in Europe."

He added: "There is a certain tension, between what people think is necessary, i.e., redistribution in a domestic sense, and what everyone else in Europe expects the center of Europe to supply, which is some sort of economic guidance of where the continent will have to go."

(Read more: Berlusconi 'remarkably responsible': Mario Monti)

Yet there is plenty of optimism that Europe has turned a corner. "What we have seen over the summer is very interesting and not a one off," Patrick Legland, global head of research, Societe Generale said.

He argued that early economic indicators suggested the shape of the economy was changing, which could be confirmed over the next two quarters.

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