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Spain and Italy lead EU’s escape from low growth through economic restructuring

Published: 21 Jan. 2026, 00:03

An Pyeong-eok

The author is a professor of international relations at Daegu University.

During the European debt crisis that began in Greece in the early 2010s, Spain was forced to seek financial assistance from the International Monetary Fund and the eurozone. At the time, financial markets lumped struggling Southern European economies together under the derisive label “PIGS,” referring to Portugal, Italy, Greece and Spain.

People view an AI data center at the SK Networks stand during the Mobile World Congress (MWC), the world's biggest mobile fair, in Barcelona, Spain, on March 3, 2025. [AFP/YONHAP]

Spain has since rewritten that narrative. Its recent growth performance has drawn attention across the eurozone. Spain, the European Union's fourth-largest economy after Germany, France and Italy, is estimated to have grown by 2.9 percent last year. That figure is 0.9 percentage points higher than the United States' growth. Spain's rebound, aided by EU support, reflects not only a revival of tourism but also active efforts to attract data centers and other high-value investments.

Measured by visitor numbers, Spain is now the world’s second-largest tourism destination after France. In 2024, France welcomed about 102 million visitors, and Spain received roughly 94 million, around 8 million fewer. Visitor arrivals to Spain increased by 3 million from the previous year, driven by a surge in post-pandemic travel demand.

Wind turbines spin in a field near Casares, Spain, on July 12, 2025. [REUTERS/YONHAP]

Abundant renewable energy has also allowed Spain to ride the global boom in AI investment by attracting large-scale data centers. A prominent example is Amazon Web Services, which began investing modestly in Spain in 2012 but two years ago announced plans to invest 15.7 billion euros ($18.3 billion) by 2033. That commitment is six times larger than its earlier investment plans. The expansion reflects Spain’s growing share of renewable energy in power generation and its relatively solid electricity infrastructure. According to the Spanish Data Center Association, more than 140 data centers are currently operating in the country.

Notably, all newly built data centers are planned to run entirely on renewable energy. Operating power-hungry facilities solely on renewables remains rare globally. Spain’s advantage lies in its energy mix. Supported by its Mediterranean climate, 56 percent of the country’s electricity generation came from renewable sources last year, with solar and wind power each accounting for about 25 percent.

Another major driver of Spain’s growth has been funding from the EU’s economic recovery fund, established during the Covid-19 pandemic. In 2020, under German leadership, the EU created an 800 billion euro fund to support member states facing prolonged stagnation. From 2021, Italy received 200 billion euros and Spain 163 billion euros, equivalent to about 10 percent of each country’s 2021 GDP. Roughly half of the funds were provided as grants rather than loans.

Rapid economic expansion has also increased labor demand, prompting a rise in immigration. After recording net inflows of 700,000 people in 2022, Spain has continued to attract more than 600,000 net migrants annually. Many have arrived from former colonies such as Colombia and Venezuela, contributing to relatively lower social tensions than in Germany or France.

While Spain has posted striking growth, Italy’s economy has followed a steadier path. Like Spain, Italy benefited from a rebound in tourism after the pandemic. With support from the recovery fund, Italy increased investment in infrastructure and green industries. Its growth rate in 2023 was about twice the EU average, though momentum has since slowed.

Italian Prime Minister Giorgia Meloni has pursued pragmatic policies, including tougher enforcement against tax evasion and reductions in welfare spending. One key measure was the abolition of the citizen income program, introduced in 2019 to support low-income households, which saved about 9 billion euros annually. As a result, Italy’s fiscal deficit, which exceeded 7 percent of GDP in 2023, fell to around 3 percent by the end of last year. To address labor shortages, the government plans to increase skilled worker visa quotas by 10 percentage points over the next three years compared to the 2023 to 2025 period.

Improved economic fundamentals in Spain and Italy have also changed how foreign investors view both countries. As of Dec. 26, 2025, the spread between 10-year government bond yields in Italy and Spain and equivalent German bonds fell to the lowest level since 2009. The yield gap with Germany narrowed to 0.7 percentage points for Italy and 0.5 points for Spain. This year, spreads are expected to tighten further to 0.3 to 0.4 points for Spain and 0.5 to 0.6 points for Italy.

German government bond yields serve as a benchmark in European financial markets due to Germany’s economic stability and investor confidence. Smaller spreads relative to German bonds indicate that markets view a country’s economy as more stable. Although Italy’s growth rate remains below the EU average this year and last, markets appear to have rewarded Meloni’s sustained reform efforts.

A worker walks past the assembly site of a tunnel boring machine at the construction site of the Palermo-Catania-Messina high-capacity railway line at the Enna-Dittaino section in Sicily, Italy, on February 19, 2025. [REUTERS/YONHAP]

By contrast, France’s bond yields were higher than Spain’s last year. President Emmanuel Macron, who lost his parliamentary majority, has replaced four prime ministers but has yet to secure parliamentary approval for this year’s budget. Both the far-right National Rally party and centrist left parties have sought to pressure Macron into calling early elections, which he has refused. Political uncertainty continues to weigh on the French economy.

Spain and Italy have shed the stigma once attached to the PIGS label and are contributing to the EU’s effort to break free from low growth. Reducing economic disparities among member states remains a core objective of European integration, making their progress welcome. Challenges, however, remain, as tourism still accounts for 16 percent of Spain’s GDP and 13 percent of Italy’s. This leaves both economies vulnerable to overtourism and rising local discontent.

Spain is pursuing structural change toward higher-value industries such as data centers and consulting services, but progress has been slow. With the EU recovery fund set to expire this year, a key question is whether Spain can sustain growth without external support.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.