In February, when the European Union released economic data for the last quarter of 2023, the numbers revealed something extraordinary: The GDP of Italy, the bloc’s perennial economic basket case, had grown at four times the rate of Germany’s. Though unprecedented in the annals of recent European economic history, it is also reflective of a wider trend. While large economies like Germany, France and the U.K. have been mired in stagnant growth and even recession over the past few years, in Southern Europe, the so-called PIGS of Portugal, Italy, Greece and Spain have managed to flip the economic script.
In 2023, GDP across the entire EU grew at an average rate of about 0.4 percent, while Greece, Spain and Portugal all posted rates comfortably in excess of 2 percent. The larger Mediterranean economies of Italy and Spain are now among the principal contributors to the EU’s return to—very modest—growth. Meanwhile, as Sophia Busch and Philip Meng put it, Germany, “Europe’s traditional juggernaut, has become its laggard.” This represents an astonishing turnaround from the 2010s, when the Mediterranean region endured an extended period of severe recession and austerity in the aftermath of the 2008 financial crisis, which left Spain, Portugal and Italy close to bankruptcy and Greece on the verge of crashing out of the EU.
Much of Southern Europe’s overperformance relative to the rest of the EU can be explained by developments in energy and tourism, in particular how these sectors have been shaped by recent global events such as the war in Ukraine and the COVID-19 pandemic. A massive spike in European energy prices following Russia’s full-scale invasion of Ukraine in February 2022 brutally exposed the EU’s overreliance on Russian energy, which supplied more than 40 percent of the bloc’s pipeline gas imports in 2021. While not completely immune to these price hikes, Spain, Portugal and Italy were much less reliant on Russian gas than Germany or France, having increasingly sourced supplies from North Africa over the past decade. Spain in particular has invested heavily in energy partnerships with Algeria through private Spanish energy companies such as Repsol.