Source: AFP
Mocked as ‘Club Med’ nations during the European debt crisis 15 years ago, the economies of Spain, Greece and Portugal are now outperforming their northern economies thanks to a recovery in tourism.
The three nations had to endure harsh austerity measures in the early 2010s imposed by their European Union partners, who were quick to blame their fiscal laxity and lack of competitiveness for their economic woes.
But “the situation has changed” since the Covid-19 pandemic ended, said Zolt Darvas, an economist at Bruegel, a Brussels-based think tank.
“Today, these countries are growing faster than the European Union average, they are no longer seen as black sheep.”
Spain’s gross domestic product (GDP) grew by 2.5 percent last year, while Portugal’s economy grew by 2.3 percent and Greece’s by 2.0 percent.
That compares with 0.4% growth for the entire 27-member European Union, weighed down by Germany’s 0.3% contraction, making it the world’s worst-performing largest economy in 2023.
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The International Monetary Fund expects the three nations to continue to outperform this year, albeit at a more modest pace.
He sees growth this year of 2.4 percent in Spain, 1.7 percent in Portugal and 2.0 percent in Greece.
Spain’s economy is taking off “like a rocket,” Spanish Prime Minister Pedro Sanchez said recently. The country is “the engine” of job creation in the EU, he added on Thursday.
“Great efforts”
Source: AFP
Economists say that recovery is largely due to a strong recovery in tourism, which reached record levels last year after pandemic travel restrictions were lifted.
The sector is key to the three nations, accounting for nearly 25 percent of the Greek economy and 12 percent in both Portugal and Spain.
The three nations also benefit from the EU’s massive pandemic recovery fund, whose mix of grants and loans in exchange for structural reforms will go largely to southern countries.
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Spain — the biggest beneficiary of the fund after Italy — has so far received 38 billion euros, Greece 15 billion euros and Portugal eight billion euros.
The three nations also made “great efforts to improve their economic attractiveness” with structural reforms that boosted their competitiveness and improved their labor markets, Darvas said.
The reforms have helped attract foreign investment, particularly in renewable energy and cloud computing.
Amazon’s cloud computing division AWS announced last month that it will invest more than 15 billion euros to expand its data centers in Spain.
Many carmakers such as Volkswagen and Stellantis, whose brands include Peugeot, Fiat and Jeep, have chosen to assemble their new electric vehicles in Spain, Europe’s second-largest carmaker after Germany.
Challenges remain
Source: AFP
The pick-up in growth in the three countries, however, is partly catching up after GDP fell sharply during the financial crisis. Greece’s GDP, for example, fell by 25%.
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Economists warn they still face challenges.
While everyone has seen unemployment falling, the unemployment rate in Greece and Spain is above 11%, well above the EU average of 5.9%.
And Europe’s former economic and monetary affairs commissioner Olli Rehn told AFP that “deficits and debt levels remain large in some cases”, even though “disparities between euro area countries have narrowed compared to before 10 years”.
Portugal ran a budget surplus of 1.2% of GDP last year, while Greece’s public deficit fell to 1.6% in 2023 from 2.5% the previous year. The EU average is 3.5 percent.
That helped its 10-year lending rate drop to 3.5% from 13% during the financial crisis.
Darvas said the “convergence” of southern European nations with the north “is likely to continue” but at a “slower pace”. Spain, Portugal and Greece still have “work to do”, he added.
Source: AFP