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Southern Europe dares to dream of a new destination after lost decades

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Southern Europe dares to dream of a new destination after lost decades

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(Bloomberg) – Southern European countries can now claim the brightest collective outlook since the creation of the euro, once the final hurdles of the coronavirus are overcome, in a dramatic turnaround after two decades of unrest and crisis.

With nearly half of the European Union’s € 800 billion recovery fund ($ 942 billion) flowing into them, officials and businessmen from Athens to Madrid are preparing for an unprecedented investment period that could be successful in alter their economic destinies.

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“If you look at the sums of money that will be invested in countries like Spain, Greece and Italy, these are extraordinary opportunities to change the path of long-term growth,” Philipp Hildebrand, vice president of BlackRock Inc. Television at the beginning, told Bloomberg. of this month. “That is the real historic opportunity that Europe now has.”

Both during the coronavirus crisis and during the sovereign debt tower of the last decade, the southern countries of the region have proven to be the weakest link in the delicate structure of the euro, putting the entire monetary union project in jeopardy.

The legacy is overwhelming. Nine of the top ten areas of youth unemployment in the region are in southern Europe, reaching 71% in Ceuta, an enclave of Spain. Greece is still marked by a debt crisis that cost citizens a fifth of disposable income.

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Then there are also more recent damages to repair from the pandemic. Spain suffered a contraction of more than a tenth of production in 2020 alone. For Italy, accumulated damage from the coronavirus and years of government stagnation mean that real gross domestic product is lower than it was when it joined. to the euro.

That danger has yet to pass, with variants of the virus threatening a new wave of infections during the summer that will hit tourism-dependent nations the hardest. The Greek island of Mykonos is one example, forced by the government to impose a night curfew and a total ban on music in restaurants, bars and shops.

Greek idyll

Mykonos Mayor Kostas Koukas has attacked the latest restrictions, but is optimistic about the future. The planned spending for green and energy projects there heralds the possibility that many islands will be able to connect to the mainland’s grid for the first time.

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“The importance for growth and society of guaranteeing an uninterrupted electricity supply and not depending on oil is evident,” said Koukas. “Our islands will turn the page.”

Greece will receive € 30.5 billion of EU money, which is equivalent to almost a fifth of the economy.

Italy will receive 192 billion euros in grants and loans, the largest outlay of all. Completed by national spending, about 40% of the money will go to the poorest regions in the south. The administration of Prime Minister Mario Draghi estimates that economic output will increase by 3.6% by 2026.

“Europe needs Italy to regain speed to succeed, due to the size of its economy, and Italy needs its south to accelerate to succeed,” said Eugenio Mazzarella, a professor at the Federico II University of Naples. “Everything is inextricably linked in a historical bet.”

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Spain will receive around 140 billion euros in funds, about half of which are grants that do not need to be repaid. With these staggering sums in mind, the 23-member National Association of Independent Builders are preparing to tender to work on contracts that focus on sustainable transportation, offsetting years of underinvestment.

“We need new infrastructure and maintain the existing one,” said Concha Santos, president of the group. “This package is key to the recovery of the member states.”

While Moody’s Investors Service warns that Italy, Spain, Greece and Portugal will likely have difficulties fully disbursing EU grants and cheap loans, it estimates that public investment in those countries will still double over the next five years compared to the previous half decade.

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The rating company projects that the EU package will boost economic expansion in southern Europe by around 0.5 percentage points annually on average between 2021 and 2027, a boon that could reach 0.7 percentage points if governments succeed. spend it all.

The benefit could be even greater if countries deliver on promises of broad pro-growth and administrative reforms, which are tied to disbursements of EU funds. They range from fixing Spain’s troubled labor market to streamlining Italy’s creaky bureaucracy.

The danger is that some of the money will go to waste, becoming another wasted moment for a region beset by challenges ranging from huge public debts to low population growth.

“This is a once in a generation opportunity because of the amounts of money that are of concern and because it is an integrated package of not just money but reform as well,” said Sarah Carlson, an analyst at Moody’s. “The question we have is, will they make the most of that?”

In any case, even the creation of the recovery fund brings with it the hope that one day it will become a permanent cushion against growth shocks, or something even more ambitious.

“This could be a first step towards a joint fiscal capacity and ultimately a fiscal union,” said Alexander Kriwoluzky, economist at the DIW Berlin think tank. “That could be a game changer for future generations.”

© 2021 Bloomberg LP

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