The UK's political ties with Europe may have soured – but a strong economic relationship will continue

At a time when there is a surplus of money washing around the world seeking a home, it would be mad not to place some of those resources in the eurozone, writes Hamish McRae

Europe, for all its long-term problems, is still a place where investors want to put their money (Getty/iStock)

Germany is manifesting an extraordinary disconnect between politics, the economy, and the financial markets. The government is in disarray, with Angela Merkel’s expected successor, Annegret Kramp-Karrenbauer, no longer seeking to take the job. Germany manufacturing has had the worst year for a decade and the January numbers show no signs of recovery. And yet the DAX, the main German share index, hit a record high yesterday morning.

This is part of a wider puzzle, for similar contrasts are evident in the other two largest eurozone economies, France and Italy. France has a deeply unpopular president, an economy that shrank in the final quarter of last year – and the CAC index is close to its all-time high, reached four weeks ago. As for Italy, the governing coalition is fragile, the economy is in recession, and the main share index, the MIB, while not quite at an all-time high was the highest since 2008. What’s up?

There is certainly a temptation to think that markets are nuts, or perhaps they play a game by rules that are different from those that the rest of us play by. But there is, I think a rational explanation that tells us a lot about Europe’s future.