Outperformance of the periphery: myth or reality?

Over the last two years, the peripheral countries - Italy, Spain, Portugal and Greece - have absorbed the adverse shocks better than the rest of Europe and have outperformed in terms of growth. This is sufficiently unusual to warrant mention. A decade or so ago, there was a widespread view that these countries posed an existential threat to the euro. This risk has disappeared and, in our view, for good. In the meantime, large adjustments have been made to purge the credit bubble,...