The economies of Spain, Greece and Portugal, derided as “Club Med” nations during the European debt crisis 15 years ago, are now outperforming their northern counterparts thanks to a rebound in tourism.
All three countries had to endure harsh austerity measures imposed in the early 2010s by their EU partners, who blamed their fiscal procrastination and lack of competitiveness for their economic problems.
But Zsolt Darvas, an economist at Brussels-based think tank Bruegel, said “the situation has changed” since the Covid-19 pandemic ended.
“Today, those countries are growing faster than the EU average, they are no longer seen as black sheep.”
Spain’s gross domestic product (GDP) grew 2.5 percent last year, while Portugal’s economy grew 2.3 percent and Greece’s grew 2.0 percent.
This compares with 0.4 percent growth across the 27-member EU, which was hit by Germany’s 0.3 percent contraction, making it the world’s worst-performing major economy in 2023.
The IMF expects all three countries to continue to perform well this year, albeit at a slower pace.
This year, Spain is expected to grow by 2.4 percent, Portugal by 1.7 percent and Greece by 2.0 percent.
Spain’s economy is “growing like a rocket,” Spanish Prime Minister Pedro Sanchez said recently. He said on Thursday that the country is the “engine” of job creation in the European Union.
– ‘Great effort’ –
Economists say the turnaround is mainly due to a strong comeback in tourism, which reached record levels last year after pandemic-induced travel restrictions were lifted.
The sector is important to all three countries, contributing around 25 percent to Greece’s economy, and 12 percent to both Portugal and Spain.
The three nations are also benefiting from the EU’s huge pandemic recovery fund, whose mix of grants and loans will go largely to southern countries in exchange for structural reforms.
After Italy, the biggest beneficiaries of the fund are Spain, which has so far received 38 billion euros, Greece 15 billion euros and Portugal 8 billion euros.
Darvas said the three countries have “also made great efforts to improve their economic attractiveness” through structural reforms that have increased their competitiveness and improved their labor markets.
These reforms have helped attract foreign investment, particularly in renewable energy and cloud computing.
Amazon’s cloud computing division AWS announced last month that it would invest more than 15 billion euros to expand its data centers in Spain.
Several automakers such as Volkswagen and Stellantis, whose brands include Peugeot, Fiat and Jeep, have opted to assemble their new electric vehicles in Spain, Europe’s second-largest automobile producer after Germany.
– Challenges remain –
However, growth in all three countries has recovered somewhat after the sharp drop in GDP during the financial crisis. For example, Greece’s GDP fell by 25 percent.
Economists warn they will still face challenges.
Although all of these countries have seen unemployment decline, Greece and Spain have unemployment rates above 11 percent, far higher than the EU average of 5.9 percent.
And former European Economic and Monetary Affairs Commissioner Olli Rehn told AFP that “deficits and debt levels are still large in some cases” even though “differences between euro zone countries have become smaller than they were 10 years ago”.
Portugal achieved a budget surplus equivalent to 1.2 percent of GDP last year, while Greece’s public deficit is set to fall from 2.5 percent last year to 1.6 percent in 2023. The EU average is 3.5 percent.
This has brought its 10-year lending rate down to 3.5 percent from 13 percent during the financial crisis.
Darvas said the “convergence” of southern European countries with northern ones “is likely to continue” but “at a slow pace.” He added that Spain, Portugal and Greece still “have work to do.”
