Europe is experiencing an anomaly: the North is on the decline, while the South is on the rise. The continent is moving at two different speeds, with the closure of 2023 confirming the trend that began to be detected a few quarters ago. While the wealthy core states of old Europe survived the Great Recession of 2008-2012 relatively unscathed, now the opposite is happening: GDP contraction, with Germany on the brink of recession; declining consumption and domestic demand, and shrinking exports. The triangle of Germany-Austria-Netherlands is leading this trend, which is unevenly spreading to other “wealthy” countries like Belgium, Luxembourg, and some Scandinavian ones.
On the other hand, the Southern countries, which suffered intensely during the financial crisis and sovereign debt crisis, have seen a remarkable recovery in recent years. The countries formerly known as PIGS (Portugal, Italy, Greece, Spain) are now experiencing significant growth rates, with countries like Ireland also performing well. The economic success of these countries can be attributed to factors such as their resilience during the COVID crisis, recovery from the Ukraine war, and inflation. Spain and Italy have seen significant growth in their export sectors, contributing to their overall economic performance.
The root of the dramatic comparison lies in the paralysis of the German economy, which has been struggling since before the pandemic. Germany’s slow growth has been attributed to factors such as slow infrastructure renewal, the loss of competitive advantage in supply chain disruptions, and declining ties with Moscow. The Southern periphery, on the other hand, has gained momentum through fiscal and monetary expansion post-pandemic, as well as increased debt and cohesion strategies. Countries like Spain, Portugal, and Greece have seen growth rates outpacing that of Germany since 2017.
The Southern countries have benefited from a shift in European policy from austerity to expansion, learning from the costly mistakes of past strategies. The relaxation of fiscal restrictions after the start of the pandemic allowed for increased deficit and public debt, fueling economic recovery. The Southern countries have also received significant support from EU programs and entities, enabling them to access funds at minimal cost and boost their economies. This support has been crucial in helping these countries navigate challenges and drive growth.
While the Southern countries have made significant progress, sustaining their growth will require continued efforts and adaptation to changing conditions. The positive economic dynamics driven by EU support must be supplemented by strong internal management and sustainable growth strategies. As the European Central Bank begins to tighten its policy and the temporary relief measures introduced during the pandemic phase out, countries in the South will need to carefully navigate these transitions to prevent setbacks and sustain their economic success.
