A safe bet

Last December The Economist named the Spanish economy as the best in the world for 2024. All the indicators show that Spain is likely to be the world's fastest-growing advanced economy for the second consecutive year in 2025, although it was bumped to fourth place (with Colombia) in the British magazine's latest rankings, which were published last month. Neighbouring Portugal took the top spot, with Ireland and Israel coming second and third, respectively.

In a key indicator of fiscal health, Spain's borrowing costs are now almost the same as Germany's. It works like this. The greater the yield on a nation's debt, the more risky it's perceived to be. As a result, the country pays more to borrow and investors receive a bigger profit for lending to it. Before the Eurozone crisis of 2009, the yield on Spanish and Italian ten-year debt was much larger than on German Bunds. If you were mad enough to lend to Rome or Madrid, the reasoning went, you should receive a big payout. Buying German or French debt, by contrast, was a conservative option, as reflected in the smaller returns.

As we enter 2026, that gap has almost closed. The yield on ten-year Spanish debt is now just 0.5% higher than Germany's, while Italy has reduced that figure to 0.7%. Analysts predict that the yield disparity separating the two southern European nations from Germany will contract even further throughout 2026. The borrowing costs of France, typically seen by investors as another European safehouse, are now higher than Spain's.

It's a dramatic turnaround. Once impecunious rebels on the EU's fiscal and geographic peripheries, Spain and Italy have become pillars of the Establishment (although Italy's GDP is expanding much more slowly than Spain's). Spanish and Italian debt is now as predictable as a Berlin Bund, rather than a risky move for reckless gamblers.

The transformation of Madrid's reputation as an international debt-issuer is, in one sense, more surprising than Rome's. Giorgia Meloni, who became Italy's first female prime minister in October 2022, commands a majority in the Chamber of Deputies, something that Pedro Sánchez can only dream of. The relative stability of her administration contrasts sharply with the chaos that surrounds Sánchez's coalition, which was recently abandoned by the separatist parties on which it depends for votes.

Political instability usually increases debt yields, rather than bringing them down. But Spain's world-bearing GDP seems to have blocked out the factors that might otherwise put investors off, such as a government mired in corruption and unable to pass budgets.

As we learned from the prolonged governmental vacuum of 2015-16, economies can also thrive regardless of what their supposed stewards are up to.