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 best [person] to take care of crises,” says the 55-year-old chief government of Athens-based luxurious hospitality group Electra Accommodations & Resorts.
Retsos sees himself as a part of a misplaced era of Greek businesspeople whose ambitions had been crushed as they grappled with the worst financial stoop in a developed nation for the reason that Despair. “You be taught to be defensive,” he says. “You cease dreaming.”
However following the tip of the pandemic, Retsos and plenty of of his friends are going through a completely new problem. Unexpectedly, they must deal with an surprising financial increase 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 previously — the tables have turned.
Ireland, the first to emerge from the crisis lengthy earlier than the arrival of Covid-19, has just lately been joined by the opposite hard-hit international locations as Europe’s greatest drivers of development. 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 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 economic system — however, on common, the 4 economies are practically 6 per cent bigger than they had been initially of the pandemic.
In the meantime, Europe’s largest economic system Germany had no enhance in financial exercise at all around the previous 4 years, and the Bundesbank has warned that this stagnation might drag on effectively 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 constructive information from the south is likely one of the few causes “to be extra optimistic on the Eurozone than the present gloomy consensus”.
As a result of Mediterranean international locations are much less uncovered to potential US tariffs, “extra delicate to charge cuts” and nonetheless benefiting from giant 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 comparable to 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 great distance as a result of tourism disperses very deep within the economic system,” 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 at the least a fifth of financial output in Greece.
However the Euro space international locations bordering the Mediterranean — specifically 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 increase has additionally led to issues about overtourism in some in style 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 international locations 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 worth 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 international locations, a lot of which as soon as obtained huge bailouts, have now became an “anchor of stability” for Europe, says Schulz, at a time when the bloc is trailing the US by way of development 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 in the course of the pandemic.
Via the so-called NextGenerationEU, member states are being supplied with funds to spend money on transportation and digital infrastructure, inexperienced vitality era, analysis and improvement amongst different areas, in trade 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 means of the programme, in keeping with ECB knowledge. The scheme is presently 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 much 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 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 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 vital than the cash itself, argues Yannis Stournaras, the governor of the Financial institution of Greece.
“If carried out, the reforms will enhance the fundamental features of the state as they may cut 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 may elevate 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 international locations, it’s Spain that has risen to turn out to be one of the best performing giant European economic 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 rising 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 yr 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.
In consequence, 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 Might, Amazon Net Providers introduced that it could make investments practically €16bn to develop its current knowledge centres in Spain.
Madrid-based Moeve — previously often called Cepsa and owned by Abu Dhabi’s sovereign wealth fund and US personal fairness agency Carlyle — has earmarked greater than €3bn to speculate into hydrogen infrastructure in Andalusia, an autonomous area in southern Spain.
Certainly one 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 unit making isopropyl alcohol.
Different firms may comply with swimsuit, fuelling a brand new period of prosperity for southern Europe because the vitality transition gathers tempo.
Vitality-intensive firms previously 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. “For those who settle for that business 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 possible choices.
Development 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 economic system as the corporate hires design, engineering and building corporations. Masa, an industrial service group, stated it had received a contract to put in 525 tonnes of structural metallic and 1,486 metres of piping for the isopropyl alcohol manufacturing unit, which is already being constructed.
“Clear vitality at aggressive costs is a good alternative to industrialise Andalusia,” says Jorge Paradela, business 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 economic 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 drive, 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 stated in October. “There’s a want for labour. Due to this fact it’s crucial that Europe builds a constructive discourse on migration.”
Although many economists are excited concerning the development 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 increase that was unleashed by lavish subsidies for energy-efficiency-enhancing renovations.
Dubbed the “superbonus scheme”, householders 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 price the general public exchequer €220bn since its launch. Whereas it boosted the development sector, critics argue it inspired fraud, put public funds beneath extreme pressure and led to extreme spending.
“Italy spent an enormous amount of cash, 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 business and crowded out “numerous different work that was because of be carried out.” “It’s a horrible legacy,” Codogno provides.
One other widespread worry is that the disaster in German business will drag down the southern international locations. 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 temporary stint as Italian prime minister, who warns that “the demise of the German auto-sector” will likely be “an enormous shock” for Italian producers.
In Greece, regardless of the years of development, financial output remains 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 economic system nonetheless doesn’t have the depth to supply 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 employees — a development 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 building business 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, each day wages for unskilled building employees are actually 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 expertise” did a number of years in the past.
Demand is so excessive that provide chains have reached a breaking level, Konstantinou says. “For those who order [building materials] at the moment, they may inform you it’s going to be delivered in a single month however in actuality it would take six months,” he provides. “It’s a multitude.”
Retsos, who operates six upmarket resorts throughout Greece, is going through related issues within the hospitality business. New worldwide luxurious lodge operators, who’re investing closely in Greece, are attempting to poach his finest workers.
“You need to continuously improvise,” says Retsos, who has determined to maintain investing and is presently constructing a seventh lodge in Greece.
However after the lasting trauma of the disaster, and given the uncertainty stemming from the struggle 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] may occur.”
Extra reporting by Malcolm Moore, Alex Irwin-Hunt and Carmen Muela
Knowledge visualisation by Keith Fray
