Let's talk about Europe's economy. It's been a bit of a slog, right? High energy costs, inflation, the whole post-pandemic hangover. But this week brought a genuinely interesting data point: German factories are making stuff again.

For the first time since the middle of 2022, Germany's manufacturing sector expanded in February. The HCOB Flash Manufacturing PMI, a key gauge of factory activity, rose to 50.7 from 49.1 the month before. That might not sound like a huge jump, but crossing the 50-point threshold is a big deal—it's the line between contraction and growth. The broader Composite PMI, which includes services, climbed to 53.1, its highest since October.

Why should you care? Germany is Europe's industrial engine. When it sputters, the whole continent feels it. A sustained move above 50 for German manufacturing would be a strong signal that the region's industrial downturn is finally finding a floor. It's the kind of news that makes economists start penciling in a slightly stronger growth outlook for the second quarter. It's not a boom, but after a long winter, it feels like a thaw.

The Consumer Bellwether: Nestlé's Mixed Bag

While factories were humming, Europe's consumers were sending their own signal through Nestlé (NSRGY). The Swiss food and drink giant reported full-year 2025 organic sales growth of 3.5%, which was a touch ahead of what analysts were expecting. The market liked it—shares popped 3.8% on the news, their biggest single-day gain in months.

But dig into the numbers, and it's a classic tale of pricing versus volume. Real internal growth (that's basically the volume of stuff sold) was a modest 0.8%. Net profit actually fell 17% to CHF 9.0 billion. So, the top-line beat was driven more by Nestlé's ability to raise prices than by people suddenly buying a lot more KitKats and Nescafé. The board did propose a slightly higher dividend of CHF 3.10 per share.

CEO Philipp Navratil is also busy reshaping the company. He's reorganized it around four core divisions: coffee, pet care, nutrition, and food and snacks. He merged the nutrition business with Nestlé Health Science and is selling off the remaining ice cream businesses in several countries, including Canada and China.

Here's the finance nerd take: In Europe, Nestlé is a bellwether. Its results are a direct read on how European households are navigating cost-of-living pressures. If Nestlé can hold pricing power and show even a slight volume recovery, it suggests consumers aren't completely tapped out. These are exactly the two variables—consumer demand and corporate pricing power—that the European Central Bank watches like a hawk when deciding how fast to cut interest rates. So, a slightly-beat from Nestlé is a small positive data point for the broader economic picture.

This Week's Data: The Sentiment Test

The tentative green shoots in the hard data now face a test from the soft data—surveys that measure how confident businesses and consumers feel. This week brings a bunch of them.

In Germany, we get the Ifo Business Climate index on Monday (last reading 88.6), the GfK Consumer Climate survey on Wednesday (previously improved to -24.1), and unemployment figures on Friday (last at 6.3%).

Over in France, the INSEE Business Confidence survey is out Tuesday (last at 105) and Consumer Confidence on Wednesday (last at 90, which is below the long-term average of 100).

The "why it matters" here is straightforward. These surveys will show if the tentative improvements we're seeing in things like manufacturing PMIs are actually filtering through to the mood on the ground. Are business leaders feeling more optimistic about hiring and investing? Are consumers feeling less gloomy about their finances? A rebound in sentiment would strengthen the case that Europe is on a path to a gradual, if unspectacular, recovery as we move into mid-2026.

Geopolitics: Trade, Bases, and Summons

Meanwhile, the geopolitical backdrop is getting noisier, particularly in Europe's relationship with the United States. A few developments are worth noting because they create uncertainty, and markets hate uncertainty.

First, trade. European Central Bank President Christine Lagarde said on Sunday that former President Donald Trump's latest tariff moves risk upsetting the "equilibrium" between the EU and the US. After the US Supreme Court struck down Trump's use of an emergency-powers law to impose worldwide tariffs, Lagarde called for clarity. "You want to know the rules of the road before you get in the car," she told CBS's Face the Nation. "It's the same with trade." In a related move, a key European Parliament trade official urged the EU to halt ratification of its trade deal with the US until there's legal clarity, calling the situation "pure tariff chaos."

Second, security cooperation. The Times reported that the UK has refused to allow the US to use British bases—specifically Diego Garcia and RAF Fairford—to launch potential airstrikes against Iran. In response, Trump reportedly withdrew support for a UK agreement to return the Chagos Islands to Mauritius. It's a reminder that even among the closest allies, security partnerships have conditions.

Third, diplomatic friction. France is summoning the US Ambassador after the US reposted a message describing "violent radical leftism" as a rising threat, a comment Paris argues mischaracterizes recent domestic incidents and could inflame tensions.

The bottom line: Europe-US relations are entering a more volatile phase. When trade, security, and political signaling are all under strain, it increases the risk of policy missteps or misalignment on everything from sanctions to crisis management. That's a background risk for businesses and investors.

On a separate, regional note, Greece is reportedly considering a hardball move in its long-standing tensions with Turkey. According to reports, future Greek defense contracts might include clauses preventing Turkey from buying the same weapons systems. It's a sign of hardening deterrence strategies within NATO that could complicate alliance cohesion.

The Week Ahead: EU Diplomacy on Ukraine

Adding to the busy calendar, EU foreign ministers are meeting Monday in a Foreign Affairs Council chaired by High Representative Kaja Kallas. The agenda is expected to focus on additional military and financial support for Ukraine. They may try to finalize a 20th package of sanctions against Russia ahead of the February 24 anniversary of the full-scale invasion. Discussions will also likely cover Ukraine's energy security and the tricky question of how to use frozen Russian assets.

This meeting is a test. It will show the level of EU cohesion, particularly given Hungary's past resistance to certain measures. The outcomes could influence not just the war effort but also global energy markets and the broader transatlantic coordination strategy.

So, there you have it. Europe's week: a hopeful sign from German factories, a resilient signal from a consumer giant, a crucial check-in on economic sentiment, and a reminder that the path of recovery is never just about economics. It's navigated through a landscape of trade disputes, diplomatic spats, and ongoing war.