Once mocked as the “Club Med” nations during the major European debt crisis 15 years ago, the economies of Spain, Greece and Portugal now appear to be outperforming their northern peers thanks to a resurgence 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 Zsolt Darvas, an economist at Bruegel, a Brussels-based think tank.
“Today, those countries are growing faster than the European Union average, they are no longer seen as black sheep.”
Spain’s gross domestic product (GDP) expanded by 2.5% last year, while Portugal’s economy grew by 2.3% and Greece by 2.0%.
That compares to growth of 0.4% for the entire 27-member European Union, which was weighed down by Germany’s 0.3% contraction, making it the world’s worst-performing major economy in 2023.
The International Monetary Fund (IMF) expects the three nations to continue to outperform this year, although at a more modest pace.
It sees growth this year of 2.4% in Spain, 1.7% in Portugal and 2.0% in Greece.
Spain’s economy is taking off “like a rocket,” Spanish Prime Minister Pedro Sanchez said recently. The country is “the locomotive” of job creation in the EU, he added on Thursday.
‘Great efforts’
Economists say this turnaround is largely due to a strong rebound in tourism, which reached record levels last year following the lifting of pandemic travel restrictions.
The sector is key for the three nations, accounting for almost 25% of Greece’s economy, and 12% in both Portugal and Spain.
The trio of nations are also benefiting from the EU’s massive pandemic recovery fund, whose mix of grants and loans in exchange for structural reforms will largely go to southern countries.
Spain – the biggest beneficiary of the fund after Italy – has so far received 38 billion euros (around $41 billion), Greece 15 billion euros and Portugal 8 billion euros.
The three nations have also made “great efforts to improve their economic attractiveness” with structural reforms that have boosted their competitiveness and improved their labor markets, said Darvas.
The reforms have helped draw foreign investment, especially in renewable energy and cloud computing.
Amazon’s cloud computing division AWS announced last month it would invest over 15 billion euros to expand its data centers in Spain.
Many automakers 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 automobile producer after Germany.
Challenges remain
The growth spurt in the three countries, however, is partly catching up after the steep falls in GDP during the financial crisis. Greece’s GDP for example plunged 25%.
Economists warn they still face challenges.
While they have all seen joblessness fall, the unemployment rate in Greece and Spain sits above 11%, way above the EU average of 5.9%.
And former European economic and monetary affairs commissioner Olli Rehn told Agence France-Presse (AFP) that “deficits and debt levels remain large in some cases” even though “divergences between euro area countries have decreased compared to 10 years ago.”
Portugal swung to a budget surplus of 1.2% of GDP last year while Greece’s public deficit declined to 1.6% in 2023 from 2.5% in the previous year. The EU average is 3.5%.
This has helped its 10-year borrowing rate to drop to 3.5% from 13% during the financial crisis.
Darvas said the “convergence” of southern European nations with northern ones “is likely to continue” but at a “slower pace.”
Spain, Portugal and Greece still have “work to do,” he added.
