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5 political crises hampering Europe's recovery

Europe has never fully regained its footing since the global financial crisis that began in 2008, and the Great Recession that followed. Today, a series of political and social crises is hampering the recovery of the euro zone. And even though they may have risen separately, they're increasingly interlinked.

Migrant crisis

A mounted policeman leads a group of migrants near Dobova, Slovenia October 20, 2015.
Srdjan Zivulovic | Reuters
A mounted policeman leads a group of migrants near Dobova, Slovenia October 20, 2015.

Europe is facing its largest refugee crisis since World War II, and policymakers are struggling to cope with it. Divided opinion on how to handle the influx of migrants — averaging 8,000 a day — has slowed decisionmaking. In the meantime, migrants from Syria and Iraq are caught in a bottleneck as Hungary and Croatia tighten restrictions at their borders. Other countries, including Germany and Greece, are quickly trying to create refugee camps, but German Chancellor Angela Merkel faces rising anger within the country.

Some economists say the crisis could potentially slow European's economic recovery as leaders focus more on migrants and less on growth. This month, a senior European commissioner told CNBC that the migrant crisis could allow some countries wiggle room in terms of their budgetary commitments.

VW emissions scandal

Aside from global recalls and management shakeups, industry experts say the scandal around Volkswagen could tarnish the "Made in Germany" brand. And it's a possible change in consumers' mindset that worries the country. ING Bank says the VW crisis could have a larger effect on Germany than the Greek debt crisis did, given the importance of the Lower Saxony-based automaker to Germany's economy.

There are signs that the emissions scandal at Volkswagen has already dented business confidence at home. The latest ZEW Economic Sentiment survey, which measures morale among German analysts and investors, fell to 1.9 points in October, far below the consensus forecast of 6.0.

In August, German exports were down 5.2 percent. Within Europe, Germany is the main economic powerhouse. When it stumbles, Europe stumbles with it.

Greece

Sharp intensification of the Greek crisis over the summer may seem like a distant memory, but the consequences are profound and the story is certainly not over yet. Greece is implementing strict reforms at the request of European creditors and trying to restore confidence in Greek businesses — a difficult effort to say the least. While Alexis Tsipras won the most recent national election, providing continuity in the country's leadership, political uncertainty persists.

"The key is how the debt restructuring will be handled: Greece needs a very long extension," said Alberto Gallo, head of macro credit research at RBS. As Greece tries to restructure mountains of debt, leaders are also dealing with the migrant situation. The total number of migrants that have entered Greece just topped 500,000. All of that means Greek leaders are busy organizing shelter and aid for new migrants while also focusing on reforming their own country.

Spanish cohesion — or the lack of it

The outcome of early October elections in Catalonia indicated that more citizens in the region are in favor of independence from Spain. While it's hard to predict what will happen, market participants expect talks between the pro-independence camp under Artur Mas and the Madrid central government to intensify ahead of upcoming national elections.

"Even if there is a clear victory, the Catalan question is not going to go away, any more than the Scottish one is in the U.K.," said Marc Ostwald of ADM Investor Services. "As with so much of the EU, nationalism (including secessionist nationalism) is as much on the rise as an anti-austerity mood, which makes the prospects for any much needed substantive EU or euro zone reforms very bleak."

An aggressive Russia

It's not just Russia's involvement with Crimea that worries European leaders. Now it's Syria, too. As Boris Schlossberg of BK Asset Management put it: "Its just serving to reinforce the notion that it has become a military threat to the euro zone rather than a potential economic partner. So instead of further integration and cooperation of the Russian market, we now have clear separation of ties, and that dynamic is not likely to change any time soon."

Russia had been an important trading partner for Europe — especially Germany. But the recent airstrikes in Syria make it even more difficult for European leaders to lift sanctions. And that, in turns, means lower chances of doing business with Russia in the near future.