Why investors are not buying Europe’s revival

Yet this optimism may be misplaced. It is, ultimately, based on two things. One is a better economic situation. After a year of stagnation, GDP across the European Union grew by 0.3% in the second quarter, against the previous one, while annual inflation fell to 2.8% in July—not far from the European Central Bank’s target of 2%. ECB policymakers felt sufficiently confident to cut interest rates in June and are expected to do so again in September. The second thing is the cheapness of European stocks. The Stoxx 600 trades at a price-to-earnings ratio of 15, against 26 for America’s S&P 500 index. In other words, European shares trade at a 40% discount.