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Fewer worries but big problems remain for Europe

Dieter Spanniknebel | Stockbyte | Getty Images

The year has been one where everyone in the euro zone breathed a little easier. True, unemployment is worryingly high and businesses and families still seem reluctant to spend their way out of the doldrums, but the 17-country group of countries that use the single currency no longer appears on the brink of the abyss. The coming year should see the euro zone slowly start to improve. But the big question remains: what took it so long?

European Central Bank

Super Mario lives to fight another day. Mario Draghi,the president of the European Central Bank, struggled to retain his credibility through 2013. In spite of offering both help to buy up the bonds of struggling countries and long-term cheap-rate loans to banks in 2012, lending and the euro zone economy remained resolutely sluggish in 2013. However a surprise rate cut to 0.25 percent in November shows Draghi is still ready to act. As the region's main interest rate can't go much lower, and the economy bounces along the bottom, investors and banks should be prepared for extraordinary measures in 2014 – negative interest rates for banks' overnight deposits seem a safe bet.

Euro zone recovery

The meager 0.1 percent growth seen in the euro zone in the third quarter, a slowdown from the second quarter, gives little reason for optimism. It was greeted on Twitter, with some irony, as "truly dynamic" and "tasty" by Stephen King, HSBC's chief economist. Still, it should be onwards and upwards from here. After exiting thelongest contraction in continental Europe in over 40 years in the second quarter of 2013, the EU Commission expects the region's economy to expand by 1.1 percent in 2014. Given that forecast has already been scaled back once, we're putting our faith in the outlook. Fiscal consolidation aimed at reducing debts should also ease a little in 2014, paving the way for growth. But expect unemployment to remain stubbornly high at around 12 percent.

Greece:

Get ready for more plot twists from the ancient home of drama. After nearly three years of bated breath as the world waited for Greece to crash out of the euro, things finally appeared to be looking upfor the stricken country in 2013: a budget surplus is predicted and sky-high unemployment is set to head downwards. However further turmoil is never far away. After swingeing cuts and tax hikes for the private sector, the government is finally turning to the state to trim some fat – and workers there are certain to not go quietly. Also the rock-bottom ratings of the fragile coalition government could mean another election in 2014. The party currently leading the polls, the left-wing Syriza party, has pledged to roll back many of the austerity measures already introduced. Meanwhile on the right wing, Golden Dawn's popularity has withstood a police clampdown and its members being involved in the murder of a left-wing rapper in the autumn.

France speeds downhill, veers right:

While most euro zone countries are on the road to recovery, France will act as a drag on the region. The French economy contracted 0.1 percent in the third quarter, and there has been further evidence of a renewed downturn in the country. Unpopular socialist President Francois Hollande has promised to bring down unemployment, but with the economy faltering he is open to attacks from the right-wing Front National. Marine Le Pen's party could capitalize on voter anger in the European parliament elections in May. An October poll found her winning more votes than any other French party in the elections.

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