Having survived greater than a decade of upheaval, Greek hotelier Yiannis Retsos believes he has honed the power to resist any type of adversity. “I’m the ideal [person] to deal with crises,” says the 55-year-old chief govt of Athens-based luxurious hospitality group Electra Inns & Resorts.
Retsos sees himself as a part of a misplaced era of Greek businesspeople whose ambitions have been crushed as they grappled with the worst financial hunch 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 plenty of of his friends are dealing with a wholly new problem. Swiftly, they need to deal with an surprising 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 prior to now — the tables have turned.
Eire, the primary to emerge from the disaster lengthy earlier than the arrival of Covid-19, has just lately been joined by the opposite hard-hit nations as Europe’s largest drivers of progress. 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 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 economic system — however, on common, the 4 economies are almost 6 per cent bigger than they have been in the beginning 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 could drag on effectively into 2025. In contrast, 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 constructive information from the south is among the few causes “to be more optimistic on the Eurozone than the current gloomy consensus”.
As a result of Mediterranean nations 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” nations corresponding 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 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 at the very 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 crimson tape and a quickly ageing workforce. The journey increase 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 point.
Southern nations, a lot of which as soon as acquired large bailouts, have now changed into an “anchor of stability” for Europe, says Schulz, at a time when the bloc is trailing the US by way of progress 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 era, analysis and growth amongst different areas, in trade for endeavor 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 line with ECB information. 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 practice 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 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 programs, 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 might 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 nations, it’s Spain that has risen to change into the perfect performing massive 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 12 months.
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 line with 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 keeping with Spanish grid operator Pink 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 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 could make investments almost €16bn to develop 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 take a position 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 may use wind and solar energy to generate inexperienced hydrogen for use in close by chemical vegetation, together with a Moeve manufacturing unit 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 prior to now selected bases in “northern Germany and the Netherlands where the natural gas was the cheapest,” says Maarten Wetselaar, chief govt 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.
Development 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 economic system as the corporate hires design, engineering and building companies. Masa, an industrial service group, stated it had gained 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.
“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 might generate greater than 10,000 jobs for the area.
However job creation requires discovering folks to fill these vacancies. To maintain its economic system transferring, 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 line 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 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 nations, some sceptics warn that the drivers of the outperformance may be short-term.
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 beneath 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 building 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 worry 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 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” can 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 think about 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 similar 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 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 accomplice of Athens-based building firm Stepsis, says that constructing tasks on Greek islands have changed into a “nightmare”.
In vacationer hotspots, every 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 experience” did just a few 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 lodges throughout Greece, is dealing with comparable issues within the hospitality trade. New worldwide luxurious lodge operators, who’re investing closely in Greece, are attempting to poach his finest staff.
“You have to constantly 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 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.”
Further reporting by Malcolm Moore, Alex Irwin-Hunt and Carmen Muela
Information visualisation by Keith Fray
