The European Central Bank is facing a tough balancing act in 2025 as it tries to navigate a reversal of fortunes in eurozone economies, as the hardest-hit nations of the 2010s debt crisis outperform the traditional core.
Highlighting a potential shift in power dynamics within the single currency bloc, economists said countries in the EU periphery ravaged by last decade’s sovereign debt crisis were in a stronger position than northern Europe’s most powerful nations, including France and Germany.
In a marked turnaround from a decade ago, Portugal, Ireland, Greece and Spain are among eurozone nations expected to grow by at least 2% in 2025 – more than double the rates forecast for France and Germany by the Organisation for Economic Co-operation and Development (OECD).
Carsten Brzeski, the global head of macro research at the Dutch bank ING, said: “They have flipped. There are two sides to that story. One is the positive side: that the south has been doing much better in recent years. And then there is the weakness of the north.
“In the euro crisis 10 years ago, we had all the moral attitudes of my fellow citizens from Germany – on how the Greeks should become more German. Now it’s a blessing not to be German, at least when it comes to the structure of your economy.”
Germany’s economy skirted close to recession in the second half of 2024 amid mounting political turmoil and a collapse in industrial output as the country struggled to adapt to weakness in demand for its exports from China, as well as growing domestic competition from Chinese carmakers targeting the EU market. It has also faced soaring inflation and the loss of cheap Russian gas, which the country’s dominant industrial base had grown to rely on before Vladimir Putin’s invasion of Ukraine.
The German chancellor, Olaf Scholz, lost a confidence vote earlier this month, paving the way for early national elections expected in February, as the EU’s two largest economies face rolling political crises. The OECD is forecasting that the German economy stagnated in 2024 and will grow by 0.7% in 2025.
In France, Emmanuel Macron is attempting to push through a budget to avoid a financial crisis, having appointed François Bayrou as his fourth prime minister this year, after Bayrou’s predecessor, Michel Barnier, was brought down by a vote of no confidence.
The OECD expects French GDP growth to slow from 1.1% in 2024 to 0.9% in 2025 as government efforts to bring down high levels of national debt through tax increases and spending cuts weigh on businesses and households.
The Paris-based organisation said the fact that Greece, Portugal and Spain were among the few countries with positive growth outlooks suggested the reforms they made under severe stress in the 2010s had put them in a stronger position.
“The countries that have done their homework are reaping the benefit of it,” said Fabio Balboni, a senior economist at HSBC. “It came at a significant cost in terms of GDP. Of course they’re now looking strong but there’s still a long way to come – particularly when you think about Greece. There is a perception these economies are now growing in a more blanched way.”
The ECB president, Christine Lagarde, has signalled that interest rates will be cut further in 2025 after saying the “darkest days” of high inflation appeared to be behind the eurozone. The central bank has cut borrowing costs in 2024 to 3%, amid mounting pressure to provide more support for the struggling economies of northern Europe.
Balboni said: “I’m not overly surprised to see France’s central bank governor has become one of the most dovish members of the ECB governing council. There’s no question from a European perspective you need a strong France, so it does pose some existential questions.”
