The Freedom Curtalis
Southern Europe has achieved an impressive recovery in the last decade, wider and more durable than many expected, as Allianz Research notes. Spain, Portugal and Greece have 11% higher production than before the pandemic, while Germany has remained stagnant for four consecutive years.
The 2008 global financial crisis and the ensuing Eurozone public debt crisis caused a division of historical dimensions, the house notes. Between 2008 and 2013, Spanish GDP fell by about 9%, unemployment peaked at 28% and youth unemployment exceeded 55%. Greece suffered the most severe shrinkage of production in peacetime in a developed economy in the post-war era. Italy and Portugal followed orbits almost equally destructive, although with somewhat better access to external support. In the years that followed, the Mediterranean economies experienced only a slow recovery, while the countries of the Eurozone core (Germany, France, the Netherlands and Belgium) continued to expand, led by the competitiveness of Germany's exports and the recovery of processing, fueled by increasing global demand for cars and machinery in emerging markets.
The recovery after 2021 marked a clear shift in the geography of the Eurozone's development, with the economies of the South moving from years of underperformance to circular leadership. This shift reflects three strengthening mechanisms, points out Allianz:
Firstly, reforms implemented after the public debt crisis – often under EU and IMF conditions – improved the competitiveness, flexibility of the labour market and external adaptation, laying the foundations for stronger employment and export performance.
Secondly, the recovery was strongly sectoral, with services – especially tourism – benefiting disproportionately. In the economies of the South, tourism usually contributes between 10% (in Italy) and 20% of GDP (in Greece and Portugal) when including indirect and impacted effects.
Third, the capital utilisation of the Next Generation EU (NGEU) supported public investments and credit conditions, strengthening domestic demand and speeding up the upgrading of structures, including through infrastructure and digitisation.
At the same time, Germany's development model, based on cheap energy inputs and external demand, has been structurally disrupted. The loss of Russian gas, combined with the weaker demand from China, has revealed vulnerabilities associated with subinvestment and slower technological adaptation, contributing to prolonged stagnation between 2022 and 2025. The resulting convergence combines the coverage of lag and compression – a critical distinction. The reduction in income differences reflects not only structural improvement in the region but also an adjustment of relative growth across the Eurozone.
The strong stories of the Southern stock and bank bonds
Moreover, as Allianz points out, the spreads of Southern government bonds that culminated during the debt crisis have declined vertically, and the stock markets of these countries have overturned.
The spreads of the 10-year Italian bonds were compressed by the peak of 250 basis points in 2022 to an average of about 70 base points in early 2026. The spreads of Greek state bonds are steadily negotiated under those of Italy. NGEU is also a key factor in this compression, with its combined impact on growth, budgetary balances and the credibility of policy being responsible for a significant share of the observed convergence. And stock markets reflect this: Italian, Spanish and Greek indicators have overturned the pan-European Stockx Europe 600 since 2022, with profits due to value rotation and bank restoration rather than a fundamental adjustment of the rating.
At the same time, as Allianz points out, the banking systems of the South, once the focus of the risk of fragmentation of the Eurozone, have largely completed the resolution of unperforming loans, with German and French banks being the ones now under increasing pressure on the quality of assets.
About a decade ago, the NPLs index was 17% in Italy, 18% in Portugal and 50% in Greece. Today they have retreated to 2.7%, 2.4% and 2.8%, respectively, the house points out.
All these developments reflect the successful shift through reforms to the labour market, fiscal consolidation and the investment boost of NGEU – the largest coordinated public investment programme the Eurozone has ever developed. The development of renewable energy sources has added a further dimension: an advantage of industrial energy costs which did not exist before 2021 and which has no equivalent in the North. The reversal is real, but is increasingly reflected in market pricing.
The thorn of productivity and the great test of NGEU
However, as Allianz points out, although the development model has brought about a convergence of production, productivity – the driving force to cover permanent income – remains an unfinished case in the countries of the South. Employment-based recovery has completed its course as the main lever. Greece remains below its level of per capita income in 2008. Maintaining the narrative in the next phase requires a more difficult set of structural changes: efficiency of justice, deepening the capital market, intensity of Research and Development and an integrated Banking Union.
The disbursements of the NGEU ending in 2026 sharpen this test: what is phased out is not just a budgetary push but a mechanism of discipline in reforms and where implementation has been guided by compliance rather than institutional integration, the risk of slippage is increasing.
As Allianz explains, Italy, Spain, Portugal and Greece together account for almost 60% of the total EU budget, making the transition after 2026 a critical test at system level. The main question is whether convergence gains are incorporated structurally – in the administrative practices, legislation and behaviour of businesses – or are largely guided by compliance. Where the application remains compliance-driven, the risk of policy slippage increases sharply once the external anchor is weakened.
This creates a double risk. Firstly, the withdrawal of support policy can expose the underlying dynamic growth which is still largely dependent on work rather than productivity. Secondly, the loss of a binding reform framework could make policy slip more likely, especially in the high debt economies facing new budgetary constraints as funding conditions are normalised.
Political risk
At the same time, the political risk is increasing, points out Allianz. The political sustainability of reforms is not guaranteed. France, Italy, Spain and Greece face national elections in 2027, placing budgetary discipline and commitment to reforms in a simultaneous political test in all the economies of the European Union.
The populist movements in Italy and Greece remain a danger to the continuation of reforms. Spain's political fragmentation – governance with a minority coalition dependent on regional nationalist parties – adds procedural uncertainty even when policy direction is generally positive for reforms.
The benefits of reforms have not come without social costs: fiscal consolidation in the early stages included significant cuts in health care, education and social transfers that crushed the standard of living for the lower half of income distribution, and this political heritage has not been fully weakened.
The attitude of investors
Με βάση όλα τα παραπάνω, όπως καταλήγει η Allianz, το γεγονός είναι ότι η πρώτη φάση της αναδιάρθρωσης του Νότου – συμπίεση των ασφαλίστρων κινδύνου της εποχής της κρίσης, αποκατάσταση των τραπεζικών συστημάτων, αποκατάσταση της δημοσιονομικής αξιοπιστίας – έχει σε μεγάλο βαθμό ολοκληρώσει τον κύκλο της, χάρη σε έναν συνδυασμό προσπάθειας εσωτερικής πολιτικής και αρχιτεκτονικής σε επίπεδο ΕΕ.
Από μακροοικονομικής άποψης, η κάλυψη της υστέρησης είναι πραγματική αλλά ημιτελής: η ανάπτυξη που καθοδηγείται από την απασχόληση έχει επιφέρει σύγκλιση της παραγωγής χωρίς να κλείσει το χάσμα εισοδήματος, και η απόσυρση του σημείου αναφοράς NGEU μετά το 2026 θα δοκιμάσει κατά πόσον η βελτίωση είναι δομικά ενσωματωμένη.
Για τις αγορές, τα spreads που είναι σε χαμηλά δεκαετίας και οι ομαλοποιημένες αποτιμήσεις μετοχών αφήνουν ελάχιστα περιθώρια για περαιτέρω re-rating η μόνο με βάση την ανάκαμψη της οικονομίας και μόνο: Η υπεραπόδοση απαιτεί πλέον μια διαφοροποιημένη άποψη για το ποιες οικονομίες μπορούν να μετατρέψουν τα θεσμικά κέρδη σε ανάπτυξη που καθοδηγείται από την παραγωγικότητα. Συνεπώς, οι αποδόσεις θα προκύψουν για τους επενδυτές που κάνουν διακρίσεις ανά χώρα, τομέα και τροχιά μεταρρυθμίσεων αντί να αντιμετωπίζουν τη Νότια Ευρώπη ως σύνολο.
