Having survived greater than a decade of upheaval, Greek hotelier Yiannis Retsos believes he has honed the power to face up to any type of adversity. “I’m the ideal [person] to deal with crises,” says the 55-year-old chief government of Athens-based luxurious hospitality group Electra Motels & 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 learn to be defensive,” he says. “You stop dreaming.”
However following the tip of the pandemic, Retsos and lots of of his friends are dealing with a wholly new problem. Impulsively, they need to cope with an sudden financial growth of their area.
The identical is true for different European international locations 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 prior to now — the tables have turned.
Eire, the primary to emerge from the disaster lengthy earlier than the arrival of Covid-19, has not too long ago been joined by the opposite hard-hit international locations as Europe’s largest drivers of progress. In a stark reversal of fortune, the once-ailing “periphery” international locations 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 12 months 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 12 months — 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 in the beginning of the pandemic.
In the meantime, Europe’s largest financial system Germany had no enhance in financial exercise at everywhere in the previous 4 years, and the Bundesbank has warned that this stagnation might drag on nicely into 2025. Against this, the EU fee expects that Spain and Greece will develop by 2.3 per cent this 12 months, 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 likely one of the few causes “to be more optimistic on the Eurozone than the current gloomy consensus”.
As a result of Mediterranean international locations are much less uncovered to potential US tariffs, “more sensitive to rate cuts” and nonetheless benefiting from massive EU switch funds, Oneglia predicts that the outperformance will proceed.
Europe’s south has a far increased publicity to service sectors and is much less reliant on struggling manufacturing than “core” international locations reminiscent of Germany, the place the automotive and chemical sectors have been dominant forces.
One other shiny spot is tourism, which was boosted by pent-up demand for journey and better financial savings throughout 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 long way because tourism disperses very deep in the economy,” says Tasos Anastasatos, chief economist at Greek lender Eurobank, including that hospitality depends on native employees and produce. Together with such oblique results, tourism accounts for a minimum of a fifth of financial output in Greece.
However the Euro space international locations bordering the Mediterranean — particularly Italy and Greece — proceed to be burdened by excessive authorities debt, ossified labour markets, an abundance of pink tape and a quickly ageing workforce. The journey growth has additionally led to issues about overtourism in some well-liked areas.
That is main some economists to query whether or not the present progress 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 development of the countries in the south of the monetary union will continue for much longer”, arguing that structural issues stay largely unresolved.
However Christian Schulz, Euro space economist at Citi, says “the higher growth rates . . . are driven by real improvements”, pointing to years of below-average worth and wage will increase in addition to some restricted reforms of the labour market. “A 30 per cent disadvantage in unit labour costs that existed over the first decade of the currency 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 international locations, a lot of which as soon as obtained huge bailouts, have now become an “anchor of stability” for Europe, says Schulz, at a time when the bloc is trailing the US when it comes to progress and competitiveness.
The newfound financial fortunes of Europe’s debt disaster international locations can partially be traced proper again to Brussels itself: A €800bn debt-funded funding programme that the EU launched throughout the pandemic.
Via the so-called NextGenerationEU, member states are being supplied with funds to spend money on transportation and digital infrastructure, inexperienced vitality technology, analysis and growth amongst different areas, in alternate for enterprise productivity-enhancing structural reforms.
Portugal, Italy, Spain and Greece are the primary recipients. Although the 4 international locations 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 keeping with ECB knowledge. The scheme is at the moment set to run till mid-2026.
In Italy, round €25bn of NextGenEU funds is getting used for a significant improve of the railway community, together with new high-speed prepare 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 in need of jobs. Rome-based WeBuild, the engineering firm finishing up a few of the tasks, has even arrange particular coaching programmes to show related technical experience to unskilled employees.
To unlock the funds, Italy has needed to undertake main reforms of its public administration and judicial techniques, with the purpose 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 necessary than the cash itself, argues Yannis Stournaras, the governor of the Financial institution of Greece.
“If implemented, the reforms will improve the basic functions of the state as they will reduce bureaucracy and inefficiency and improve the justice system,” he says.
Stournaras factors to analysis by the Greek central financial institution suggesting that these measures alone may elevate GDP as much as 10 per cent by 2040. “That’s a huge and unique opportunity,” he provides.
Out of all the previous debt disaster international locations, it’s Spain that has risen to develop into the most effective performing massive 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 12 months.
The growth 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 obtained in the entire of 2023, in keeping with fDi Markets, an FT-owned database that tracks greenfield bulletins. In renewable vitality, 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 response to Spanish grid operator Crimson Eléctrica, renewables in 2024 accounted for 56 per cent of all electrical energy manufacturing — the second 12 months in a row that they generated extra electrical energy than fossil and nuclear gasoline mixed. At its disposal are its pure benefits: an abundance of solar, loads of wind and a comparatively thinly populated countryside.
Consequently, electrical energy prices are decrease than in lots of different EU international locations — a profit that’s more and more wooing energy-hungry corporations. In Could, Amazon Net Companies introduced that it could make investments practically €16bn to increase its current knowledge centres in Spain.
Madrid-based Moeve — previously often known as 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 among its landmark tasks is a plant in Huelva province, an Atlantic Ocean-facing nook of southern Spain, that may 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 firms may comply with go well with, fuelling a brand new period of prosperity for southern Europe because the vitality transition gathers tempo.
Power-intensive firms prior to now selected bases in “northern Germany and the Netherlands where the natural gas was the cheapest,” says Maarten Wetselaar, chief government of Moeve. “If you accept that industry will need to consume green molecules, then over time it will need to move to where green molecules are the cheapest,” 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 12 months, however funds from the tasks are already flowing into the native financial system as the corporate hires design, engineering and development corporations. Masa, an industrial service group, mentioned it had gained a contract to put in 525 tonnes of structural metallic and 1,486 metres of piping for the isopropyl alcohol manufacturing facility, which is already being constructed.
“Clean energy at competitive prices is a great opportunity to industrialise Andalusia,” says Jorge Paradela, trade adviser for the Andalusian authorities, including that Moeve’s hydrogen funding may generate greater than 10,000 jobs for the area.
However job creation requires discovering folks to fill these vacancies. To maintain its financial system shifting, Madrid is counting on overseas employees. Over the previous three years, 700,000 working-age migrants, many from Spanish-speaking Latin America, have entered Spain’s labour power, in keeping with 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 is a need for labour. Therefore it is imperative that Europe builds a positive discourse on migration.”
Although many economists are excited concerning the progress of Europe’s southern international locations, some sceptics warn that the drivers of the outperformance may be momentary.
Particularly, they level to Italy’s frenzied, post-pandemic house enchancment growth that was unleashed by lavish subsidies for energy-efficiency-enhancing renovations.
Dubbed the “superbonus scheme”, owners between 2020 and 2023 may 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 a huge amount of money, and the impact was pretty small in growth terms,” says economist Lorenzo Codogno, a former senior official on the Italian treasury. He argues that the subsidies artificially inflated Italy’s development trade and crowded out “a lot of other work that was due to be implemented.” “It’s a terrible legacy,” Codogno provides.
One other widespread concern is that the disaster in German trade will drag down the southern international locations. For instance, Italy’s northern industrial heartland is house to many producers supplying elements to German manufacturers. “Italy depends to a very large 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 death of the German auto-sector” might be “a big shock” for Italian producers.
In Greece, regardless of the years of progress, financial output continues to be a fifth beneath its peak in 2008 as soon as adjusted for inflation. Wages and pensions additionally stay far beneath pre-crisis ranges, with the typical month-to-month wage 22 per cent beneath dwelling prices in Athens, the capital. A staggering 67 per cent of Greeks take into account 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 degrees and postgraduate education and are seeking high-skilled jobs. But the economy still doesn’t have the depth to produce enough of them,” says Eurobank’s Anastasatos.
On the identical time, the Greek growth is so intense that employers are more and more determined of their quest for employees — a pattern that’s replicated throughout Europe. In Portugal, this has been exacerbated by a mind drain of younger expertise to richer European international locations, which the conservative authorities is attempting to reverse with tax incentives.
In Greece, it’s the buoyant development trade feeling the sharp finish of labour shortages. Orestes Konstantinou, managing companion of Athens-based development firm Stepsis, says that constructing tasks on Greek islands have become a “nightmare”.
In vacationer hotspots, day by day wages for unskilled development employees at the moment are increased than within the capital. “We ship [labour] from Athens to the islands,” he says, including that unskilled employees now earn as a lot per day “as a technician with 30 years of experience” did a couple of years in the past.
Demand is so excessive that provide chains have reached a breaking level, Konstantinou says. “If you order [building materials] today, they will tell you it’s going to be delivered in one month but in reality it will take six months,” he provides. “It’s a mess.”
Retsos, who operates six upmarket motels throughout Greece, is dealing with comparable issues within the hospitality trade. New worldwide luxurious resort operators, who’re investing closely in Greece, are attempting to poach his greatest staff.
“You have to constantly improvise,” says Retsos, who has determined to maintain investing and is at the moment constructing a seventh resort in Greece.
However after the lasting trauma of the disaster, and given the uncertainty stemming from the battle 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 feeling that maybe from one day to another, something [bad] could happen.”
Extra reporting by Malcolm Moore, Alex Irwin-Hunt and Carmen Muela
Information visualisation by Keith Fray
