Having survived greater than a decade of upheaval, Greek hotelier Yiannis Retsos believes he has honed the flexibility to face up to any type of adversity. “I’m the best [person] to cope with crises,” says the 55-year-old chief government of Athens-based luxurious hospitality group Electra Resorts & Resorts.
Retsos sees himself as a part of a misplaced technology of Greek businesspeople whose ambitions have been crushed as they grappled with the worst financial droop in a developed nation for the reason that Melancholy. “You be taught to be defensive,” he says. “You cease dreaming.”
However following the tip of the pandemic, Retsos and lots of of his friends are going through a completely new problem. Abruptly, they must take care of an sudden financial increase of their area.
The identical is true for different European nations whose excruciating debt crises as soon as pushed the euro space near breaking level. Now, some 15 years later, for Portugal, Italy, Eire, Greece and Spain — ignominiously labelled the ‘PIIGS’ by some analysts up to now — the tables have turned.
Ireland, the first to emerge from the crisis lengthy earlier than the arrival of Covid-19, has lately been joined by the opposite hard-hit nations as Europe’s largest drivers of development. In a stark reversal of fortune, the once-ailing “periphery” nations have stolen the lustre of its beforehand dominant “core”, together with Belgium, the Netherlands, Austria and, on the centre, Germany.
Within the 15 years to the pandemic, German GDP on common grew by 1.5 per cent a yr whereas the 4 southern states eked out simply 0.3 per cent on common. Since 2020, Spain, Italy, Portugal and Greece have on common expanded by 1.3 per cent a yr — underwhelming in comparison with the booming US financial system — however, on common, the 4 economies are practically 6 per cent bigger than they have been at the beginning of the pandemic.
In the meantime, Europe’s largest financial system Germany had no improve in financial exercise at everywhere in the previous 4 years, and the Bundesbank has warned that this stagnation might drag on properly into 2025. Against this, the EU fee expects that Spain and Greece will develop by 2.3 per cent this yr, Portugal by 1.9 per cent and Italy by 1 per cent.
For Davide Oneglia, an economist at macroeconomic forecasting consultancy GlobalData TS Lombard, the optimistic information from the south is without doubt one of the few causes “to be extra optimistic on the Eurozone than the present gloomy consensus”.
As a result of Mediterranean nations are much less uncovered to potential US tariffs, “extra delicate to price cuts” and nonetheless benefiting from giant EU switch funds, Oneglia predicts that the outperformance will proceed.
Europe’s south has a far greater publicity to service sectors and is much less reliant on struggling manufacturing than “core” nations resembling Germany, the place the automotive and chemical sectors have been dominant forces.
One other brilliant spot is tourism, which was boosted by pent-up demand for journey and better financial savings in the course of the pandemic. In Spain and in Greece, vacationer arrivals are up at double-digit charges in 2024 on an annual foundation.
“This has gone a good distance as a result of tourism disperses very deep within the financial system,” says Tasos Anastasatos, chief economist at Greek lender Eurobank, including that hospitality depends on native staff and produce. Together with such oblique results, tourism accounts for at the least a fifth of financial output in Greece.
However the Euro space nations bordering the Mediterranean — particularly Italy and Greece — proceed to be burdened by excessive authorities debt, ossified labour markets, an abundance of purple tape and a quickly ageing workforce. The journey increase has additionally led to issues about overtourism in some standard areas.
That is main some economists to query whether or not the present development is an indication of a extra everlasting shift or merely a short-term aberration. Commerzbank’s chief economist Jörg Krämer is “sceptical” that the “above-average improvement of the nations within the south of the financial union will proceed for for much longer”, arguing that structural issues stay largely unresolved.
However Christian Schulz, Euro space economist at Citi, says “the upper development charges . . . are pushed by actual enhancements”, pointing to years of below-average value and wage will increase in addition to some restricted reforms of the labour market. “A 30 per cent drawback in unit labour prices that existed over the primary decade of the forex union has been offset,” he provides.
For these causes, he’s adamant that the upside-down efficiency displays one thing extra vital than simply German weak spot.
Southern nations, lots of which as soon as acquired large bailouts, have now became an “anchor of stability” for Europe, says Schulz, at a time when the bloc is trailing the US when it comes to development and competitiveness.
The newfound financial fortunes of Europe’s debt disaster nations can partially be traced proper again to Brussels itself: A €800bn debt-funded funding programme that the EU launched in the course of the pandemic.
By way of the so-called NextGenerationEU, member states are being supplied with funds to spend money on transportation and digital infrastructure, inexperienced power technology, analysis and improvement amongst different areas, in change for enterprise productivity-enhancing structural reforms.
Portugal, Italy, Spain and Greece are the principle recipients. Although the 4 nations account for simply 28 per cent of the Euro space’s GDP, they’re anticipated to obtain 78 per cent of all funds by way of the programme, in response to ECB information. The scheme is at present set to run till mid-2026.
In Italy, round €25bn of NextGenEU funds is getting used for a serious improve of the railway community, together with new high-speed practice strains into the nation’s south, the place journey is way slower than within the affluent north.
Billions of euros in infrastructure funding are producing much-needed employment in a area that has traditionally been wanting jobs. Rome-based WeBuild, the engineering firm finishing up among the tasks, has even arrange particular coaching programmes to show related technical experience to unskilled staff.
To unlock the funds, Italy has needed to undertake main reforms of its public administration and judicial methods, with the intention of streamlining, simplifying and accelerating procedures and decision-making to spice up effectivity and the nation’s long-term competitiveness.
The structural reforms demanded by Brussels are extra essential than the cash itself, argues Yannis Stournaras, the governor of the Financial institution of Greece.
“If carried out, the reforms will enhance the essential capabilities of the state as they’ll scale back paperwork and inefficiency and enhance the justice system,” he says.
Stournaras factors to research by the Greek central financial institution suggesting that these measures alone might raise GDP as much as 10 per cent by 2040. “That’s an enormous and distinctive alternative,” he provides.
Out of all the previous debt disaster nations, it’s Spain that has risen to turn into the most effective performing giant European financial system of late. In 2024, its GDP grew 3.1 per cent and its central financial institution predicts 2.5 per cent this yr.
The increase is partly being fuelled by growing funding in wind and photo voltaic parks. Spain attracted $33bn of overseas direct funding between January and November 2024, matching the quantity it acquired in the entire of 2023, in response to fDi Markets, an FT-owned database that tracks greenfield bulletins. In renewable power, Spain welcomed 54 new tasks in the identical interval of 2024, rating third behind the US and UK, after rating joint first with 77 new tasks alongside the US in 2023.
In line with Spanish grid operator Purple Eléctrica, renewables in 2024 accounted for 56 per cent of all electrical energy manufacturing — the second yr in a row that they generated extra electrical energy than fossil and nuclear gas mixed. At its disposal are its pure benefits: an abundance of solar, loads of wind and a comparatively thinly populated countryside.
Because of this, electrical energy prices are decrease than in lots of different EU nations — a profit that’s more and more wooing energy-hungry companies. In Might, Amazon Net Companies introduced that it might make investments practically €16bn to broaden its current information centres in Spain.
Madrid-based Moeve — previously often called Cepsa and owned by Abu Dhabi’s sovereign wealth fund and US non-public fairness agency Carlyle — has earmarked greater than €3bn to speculate into hydrogen infrastructure in Andalusia, an autonomous area in southern Spain.
One in every of its landmark tasks is a plant in Huelva province, an Atlantic Ocean-facing nook of southern Spain, that can use wind and solar energy to generate inexperienced hydrogen for use in close by chemical crops, together with a Moeve manufacturing facility making isopropyl alcohol.
Different corporations might comply with swimsuit, fuelling a brand new period of prosperity for southern Europe because the power transition gathers tempo.
Vitality-intensive corporations up to now selected bases in “northern Germany and the Netherlands the place the pure gasoline was the most cost effective,” says Maarten Wetselaar, chief government of Moeve. “In the event you settle for that trade might want to eat inexperienced molecules, then over time it might want to transfer to the place inexperienced molecules are the most cost effective,” provides Wetselaar, singling out southern Spain and Portugal as doubtless choices.
Building of Moeve’s hydrogen plant is because of begin within the first half of the yr, however funds from the tasks are already flowing into the native financial system as the corporate hires design, engineering and building companies. Masa, an industrial service group, mentioned it had gained a contract to put in 525 tonnes of structural steel and 1,486 metres of piping for the isopropyl alcohol manufacturing facility, which is already being constructed.
“Clear power at aggressive costs is a good alternative to industrialise Andalusia,” says Jorge Paradela, trade adviser for the Andalusian authorities, including that Moeve’s hydrogen funding might generate greater than 10,000 jobs for the area.
However job creation requires discovering individuals to fill these vacancies. To maintain its financial system shifting, Madrid is counting on overseas staff. Over the previous three years, 700,000 working-age migrants, many from Spanish-speaking Latin America, have entered Spain’s labour power, in response to Funcas, a financial savings financial institution basis.
Prime Minister Pedro Sánchez stands out as one of many few EU leaders who’s celebrating the significance of migration.
“There are 150,000 job vacancies in Spain,” he mentioned in October. “There’s a want for labour. Due to this fact it’s crucial that Europe builds a optimistic discourse on migration.”
Although many economists are excited in regards to the development of Europe’s southern nations, some sceptics warn that the drivers of the outperformance could be non permanent.
Particularly, they level to Italy’s frenzied, post-pandemic house enchancment increase that was unleashed by lavish subsidies for energy-efficiency-enhancing renovations.
Dubbed the “superbonus scheme”, householders between 2020 and 2023 might deduct 110 per cent of the price of the work from their tax payments. The controversial programme is estimated to have value the general public exchequer €220bn since its launch. Whereas it boosted the development sector, critics argue it inspired fraud, put public funds below extreme pressure and led to extreme spending.
“Italy spent an enormous sum of money, and the affect was fairly small in development phrases,” says economist Lorenzo Codogno, a former senior official on the Italian treasury. He argues that the subsidies artificially inflated Italy’s building trade and crowded out “lots of different work that was on account of be carried out.” “It’s a horrible legacy,” Codogno provides.
One other widespread concern is that the disaster in German trade will drag down the southern nations. For instance, Italy’s northern industrial heartland is house to many producers supplying parts to German manufacturers. “Italy relies upon to a really giant extent on demand from the German automotive sector,” says Francesco Giavazzi, a former adviser to Mario Draghi throughout his transient stint as Italian prime minister, who warns that “the loss of life of the German auto-sector” might be “an enormous shock” for Italian producers.
In Greece, regardless of the years of development, financial output continues to be a fifth under its peak in 2008 as soon as adjusted for inflation. Wages and pensions additionally stay far under pre-crisis ranges, with the common month-to-month wage 22 per cent under dwelling prices in Athens, the capital. A staggering 67 per cent of Greeks contemplate themselves “poor”, and analysts warn that the nation is producing a brand new class of “working poor”, those that have full-time jobs, however are struggling to make ends meet, particularly in costly cities like Athens the place housing prices have skyrocketed.
“Many Greeks have levels and postgraduate training and are in search of high-skilled jobs. However the financial system nonetheless doesn’t have the depth to provide sufficient of them,” says Eurobank’s Anastasatos.
On the identical time, the Greek increase is so intense that employers are more and more determined of their quest for staff — a pattern that’s replicated throughout Europe. In Portugal, this has been exacerbated by a mind drain of younger expertise to richer European nations, which the conservative authorities is attempting to reverse with tax incentives.
In Greece, it’s the buoyant building trade feeling the sharp finish of labour shortages. Orestes Konstantinou, managing associate of Athens-based building firm Stepsis, says that constructing tasks on Greek islands have became a “nightmare”.
In vacationer hotspots, day by day wages for unskilled building staff at the moment are greater than within the capital. “We ship [labour] from Athens to the islands,” he says, including that unskilled staff now earn as a lot per day “as a technician with 30 years of expertise” did a number of years in the past.
Demand is so excessive that provide chains have reached a breaking level, Konstantinou says. “In the event you order [building materials] at the moment, they’ll let you know it’s going to be delivered in a single month however in actuality it’s going to take six months,” he provides. “It’s a large number.”
Retsos, who operates six upmarket lodges throughout Greece, is going through related issues within the hospitality trade. New worldwide luxurious lodge operators, who’re investing closely in Greece, try to poach his greatest workers.
“It’s important to always improvise,” says Retsos, who has determined to maintain investing and is at present constructing a seventh lodge in Greece.
However after the lasting trauma of the disaster, and given the uncertainty stemming from the warfare in Ukraine and the Center East battle and the numerous unresolved structural issues in Greece, the businessman says he stays cautious and vigilant: “[I] have a sense that possibly from someday to a different, one thing [bad] might occur.”
Further reporting by Malcolm Moore, Alex Irwin-Hunt and Carmen Muela
Knowledge visualisation by Keith Fray