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From the eurozone’s periphery, some good news at last

Has anyone seen Emilio recently? Spain's dole queues are--gradually--getting shorter. Has anyone seen Emilio recently? Spain's dole queues are--gradually--getting shorter.
Has anyone seen Emilio recently? Spain's dole queues are--gradually--getting shorter. Bloomberg--Getty Images

It seems like years since good news came out of the countries scattered around the fringe of the eurozone, but the signs are increasing that things are finally starting to improve.

Leading the way right now is Spain, where the latest figures put the existence of a recovery beyond reasonable doubt. In its latest quarterly survey out Thursday, the National Statistics Institute, INE , said that the economy had created 192,000 jobs in the last year, while unemployment was now down 7% from its peak.

The INE said that joblessness had fallen in all major sectors, including construction and manufacturing, which were both devastated by the implosion of a housing bubble in 2008 that crippled the country’s financial system, forcing it to take a €41 billion ($60 billion) bail-out from the eurozone and International Monetary Fund to shore up its banks.

Unemployment remains painfully high–at 24.5%, Spain still has one of the highest jobless rates in the world. But unlike much of Europe, it’s now growing fast enough to create jobs. The INE’s survey comes only a day after the Spanish Central Bank said growth accelerated in the second quarter to 0.5% from 0.4% in the first. It also raised its forecasts for growth next year to 2%, from a previous forecast of 1.7%

Like Ireland and Portugal, Spain has now exited its bail-out program, and all three governments have been confident enough to do that without arranging precautionary credit lines (which would have been tied to still more politically unpopular conditions by their lenders).

But arguably the more eye-catching development in the last few days has been in Portugal. On Tuesday, the country’s second-largest bank, BCP Millennium SA. said it had managed to raise €2.25 billion in new equity, allowing it to repay state bail-out money, despite a blast of negative publicity from its largest rival, Banco Espirito Santo SA.

Two years ago, before European Central Bank President Mario Draghi promised to do “whatever it takes” to save the euro, none of Portugal’s banks was able to sell debt, let alone equity, on public markets. The notion that one could have done so even while its neighbor was imploding would have been absurd.

The lesson of the last weeks in Portugal appears to be that markets have learned to separate the wheat from the chaff. There are no more panicked, generalised sell-offs (except only very brief ones), and the problems of individual institutions no longer read across automatically to their rivals, or to the rest of their economy, and still less to the economies of other countries perceived to be “in the same boat.” ‘Contagion’, to use the economists’ buzz-word, has been contained.

BES’s problem borrower has now filed for protection from its creditors, but BES’s shares are up over 25% from their low-point last week. Big money investors such as Goldman Sachs have placed sizeable bets on it recovering further. Meanwhile, Portugal’s 10-year bond yields have fallen 0.30 percentage point to 3.70%.

“The countries that once had to ask for external help have done their homework and are among the best performers in Europe,” says Holger Schmieding, chief economist at Berenberg Bank in London.

The problem now, he says is firmly with those countries that haven’t been forced to reform by the threat of national bankruptcy–Italy and France.