Get your house in order, Europe — or face 'ongoing decline,' economists warn

It's been a topsy-turvy last year for the euro zone with its largest economies, Germany and France, seeing political and economic turbulence that means neither has a budget in place for 2025.

Economists say the trajectory for both countries is worrying, warning that the absence of growth, fiscal imbalances and political intransigence could lead to decline and a loss of standing for Europe, as a whole.

"The situation today is different from the earlier [sovereign debt] crisis insofar as Europe's most acute problems are no longer concentrated in smaller economies like Greece. Instead, it is Europe's two most important economies that are struggling," Neil Shearing, group chief economist at Capital Economics said in analysis in December.

"Europe faces ongoing decline without fundamental reform at its core," Shearing said, noting that if this is not carried out, "it is difficult to escape the conclusion that Europe's future is one of very low growth, continuing concerns about fiscal sustainability and a dwindling sense of standing in a world increasingly characterised by a superpower rivalry between the U.S. and China."

As it stands, neither France nor Germany has a 2025 budget in place amid political infighting that ultimately brought down their governments.

New elections are set to take place in Germany in February, and analysts are placing bets on new parliamentary elections in France next summer. The countries are now operating with provisional budgets, after rolling over their 2024 taxation and spending provisions into this year, and it's uncertain when either will agree a 2025 budget.

France and Germany contend with different economic challenges, reflecting both the dangers of overspending and of underspending.

France had a