Investors generally liked it - but the post-German election rally didn't last long.

Other factors soon got in the way.

That's pretty much what's expected to happen in relation to the euro zone crisis too.

Merkel's re-election was widely welcomed across the bloc.

But once she's sorted her new government she has some key issues to deal with outside Germany, including record euro zone unemployment, a troubled banking system and insolvent peripheral countries.

(SOUNDBITE) (English): OLLI REHN, EU ECONOMIC AND MONETARY AFFAIRS COMMISSIONER, SAYING:

"The fundamental issue is that of course, we need to have a stronger growth in Europe and that's where our policies are aimed at."

The European Union's top economic advisor Olli Rehn was attending a Reuters event in New York.

Banking and, in particular, funding for small and medium sized businesses is a priority

(SOUNDBITE) (English) OLLI REHN, VICE PRESIDENT AND EUROPEAN COMMISSIONER FOR ECONOMIC AND MONETARY AFFAIRS AND THE EURO AT THE EUROPEAN COMMISSION, SAYING:

"A very serious bottleneck of economic growth in Europe for the moment is still excessively tied to lending conditions of businesses, especially SMEs in southern Europe, in countries like Italy and Spain. So we have to finalize this work in order to restore credibility, restore confidence in the financial system."

The euro zone's econony has been showing signs of improvement recently.

But the challenges facing bailed out countries like Portugal, Ireland and Greece remain considerable, says Dominic Johnson from Somerset Capital Management.

(SOUNDBITE) (English) DOMINIC JOHNSON, PARTNER AND CHIEF EXECUTIVE, SOMERSET CAPITAL MANAGEMENT, SAYING:

"There are still huge pressures on these countries when it comes to engaging in the euro zone and they're not going to go away. The question is what sort of legacy does Merkel think she can leave? Is she going to go for a tighter, stronger more centralised Europe or is she going to let it go. I would have probably thought the former and that could be quite dangerous."

The bigger players - including France, Spain and Italy - also need stability.

Many in France are even looking to their neighbour for inspiration.

(SOUNDBITE) (French) PASSER-BY CIATTI BERNARDILO SAYING:

"It's not that we must follow Germany's model but we need to be a little more disciplined, and do things the way the Germans do."

Europe will now be watching and waiting to see if Merkel changes the way she does things in future.

 

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