What could drive down the equity risk premium in the euro zone?

Despite the decline in risk aversion in late 2019, the risk premium remains abnormally high on euro-zone equities and their valuation remains abnormally low. This is true even if one adjusts for euro-zone banks. What could cause a significant fall in the equity risk premium and therefore a significant rise in share prices in the euro zone? An improvement in the growth outlook and the disappearance of the risk of recession; Confirmation that long-term interest rates are going to remain very low; A decline in investors’ preference for bonds. We believe that all three developments are going to take place and therefore that share prices will rise markedly in the euro zone.