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Are the basket-cases of Europe finally on the mend? German finance minister Wolfgang Schauble has pronounced the euro stable and says the risks of contagion gone. Given economists' recent warnings about the possibilty of deflation, the continent's economic health remains up for debate. But if the bedraggled, badgered and bewildered members of the euro club haven't hit bottom yet, they're getting closer. The proof? The vultures are circling.

The signals so far have been decidedly mixed. Greek prime minister Antonis Samaras assures that his country is done with bailouts and will manage to crawl its way out of recession next year. Spain's central bank chief Luis María Linde says his country is headed toward its first current account surplus since 1986 and the economy pulled out of a nine-quarter tailspin, with decidedly minimal growth of 0.1 per cent in the third quarter. Bad as that seems, it beats France and matches the growth rate for the 17-country euro zone. Portugal's battered economy did better than that, managing to grow 0.2 per cent. Italy still remains locked in its worst downturn since the Second World War, with contraction of 1.8 per cent forecast for this year.

And yet, even amid low or no growth from the embattled sovereigns, Capital is flowing back into bonds, equities and real estate. Even resurgent French banks are attracting the equity crowd again, easily outperforming the European bank sector as a whole. Crédit Agricole's shares alone have climbed by about two-thirds in the past nine months.

Meanwhile, the private equity heavyweights are scouring the euro zone for other undervalued corporate assets, most notably in previously shunned Spain and Italy.

No fewer than 15 groups are beating the investment bushes to raise more than €4-billion ($5.7-billion) in new funds to capitalize on the bargain bonanza, the Wall Street Journal reports. These include the leading buyout outfits in Italy and Spain, as well as such global players as Blackstone Group LP, Carlyle Group and Bain Capital. The latter has just launched its fourth fund targeting Europe and is aiming to raise about €3.5-billion.

One attraction is rock-bottom rates for raising or refinancing debt. Through the first nine months of this year, private equity players completed €12.3-billion worth of refinancings for three dozen European companies. That surpasses the high-water mark in 2007, when Europe and much of the rest of the world were caught up in an epic credit bubble.

A unit of Kohlberg Kravis Roberts & Co. that specializes in distressed assets last week picked up a French maker of industrial abrasives, noting that it is looking for "good companies whose capital structure is under pressure." That leaves a wide field of opportunities across the euro zone.

The combined value of buyout deals in the region in the first half of the year amounted to 87 per cent of the total worth for all of 2012, according to deal data compiler Prequin. German and French companies accounted for nearly 60 per cent of the transactions. But Italy ranked third in the number of deals, at 14 per cent, up from 10 per cent for all of the previous year.

As the buyout houses are quick to note, none of this means the euro zone is about to embark on a strong recovery. At best, the region faces years of subdued growth and persistent structural imbalances that pose continuing risks to the weakest members. But the opportunists wouldn't be hovering if they didn't detect an improving pulse.

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Blackstone Inc
0%130.89
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The Carlyle Group
0%46.78

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