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Weakest eurozone economies on long road to recovery

Jean-Claude Juncker’s hailing of Europe’s economic recovery came in terms that would have been unimaginable at the height of the eurozone debt crisis in 2010. Back then, the focus of concern was on a handful of countries that ultimately required bailouts – Greece, Portugal and Ireland – or hovered on the edge of needing rescue, in the case of Spain and Italy. Here is the current state of play with those countries’ economies.


As it leaves behind the painful memory of its €78bn bailout in 2011, Portugal is on the brink of the fastest economic expansion for two decades. For the centre-left government of prime minister António Costa, economic success came after relinquishing the austerity straitjacket imposed by the EU and International Monetary Fund between 2011 and 2014. Public sector wages and pensions have been restored to pre-crisis levels but the government is likely to face future conflict with the EU, as Brussels seeks action to reduce Portugal’s debts.


Despite the storm clouds of Brexit on the horizon, the Bank of Ireland continues to forecast growth for the Irish economy, albeit at a lower rate. Under the bonnet, however, not everyone is convinced by this growth story. The centre-right former prime minister Enda Kenny was voted out of office this year because not enough voters sensed a recovery. A growth spurt of 26% in 2015 was branded “leprechaun economics”: large multinationals seeking to protect their profits moved intellectual property into Ireland, with no change in the real economy. Ireland’s exchequer remains highly dependent on a few large companies, leaving the economy in a vulnerable position.


Take a snapshot of Greece and it might appear the economy is on the mend: factories are expanding production, people are finding jobs. But a closer look reveals the country is scarred by the economic crisis that saw its economy contract by 25%. More than a fifth of working-age adults and 45% of young people are out of work. Greece’s colossal debt burden weighs on the economy, while creditors’ demands for high budget surpluses are deemed unrealistic by many economists. Despite hopes of light at the end of the austerity tunnel, true recovery looks set to remain elusive.


Spain is one of the brightest spots in the eurozone: in July 2017 the bloc’s fourth-largest economy returned to its pre-crisis size. Unemployment is falling rapidly, although at 17% it remains high. Some economists cite Spain as a model for France, after the centre-right prime minister Mariano Rajoy introduced reforms that made it easier to fire workers (seen as a stimulus for hiring by some experts). But Spain still has the highest unemployment rate in Europe barring Greece. Inequality has risen and wage growth remains depressed.


The eurozone’s third-largest economy is benefiting from the upswing across the continent, but concerns have not disappeared. In Italy, unemployment is falling and factories are stepping up production, thanks to stronger demand. Meanwhile, the bailout of Italy’s oldest bank and the rescue of two lenders has boosted confidence. The economy, however, is still weighed down by bad debts: the total of non-performing loans amounts to €174bn (£153bn), according to Bloomberg. A bigger question is whether Italy, facing elections in 2018, can forge a political consensus to undertake long-sought reforms, such as improving productivity, reducing debts and increasing funds for universities.


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