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People gather on the beach in Loredo near Santander, on August 2, 2015. Spanish tourism is at record levels, with visitors flocking to beaches. But the country is no miracle economy. Its jobless rate, at 22 per cent, is more than twice the precrisis level.

CESAR MANSO/AFP / Getty Images

Memories of the Spanish tourism downturn have vanished. New photos of the beaches along Spain's Costa Blanca, on the Mediterranean, barely show any beach at all, just umbrellas and human flesh, packed together like canned sardines.

Spanish tourism is at record levels – the industry was up 4.2 per cent in the first half of the year, with 29.2 million international visits – to the point some vacation spots can't cope with the crush. But to the Spanish government, the tourism wave is yet another sign that Spain has made a remarkable comeback.

Spain's economy is growing faster than any of Europe's big economies. The International Monetary Fund forecast Spanish growth at 3.1 per cent this year and 2.5 per cent in 2016, about double the average of the 19 euro zone countries. Of course, the centre-right government of Prime Minister Mariano Rajoy is taking most of the credit for the turnaround, citing the success of the labour and banking reforms and the fiscal tightening. "Seeing what is happening to others right now, one has to say: It was worth it," he said in a recent radio interview.

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While economists argue that low oil prices and the barrage of stimulus unleashed by the European Central Bank can take more credit for the turnaround, there is no doubt that Spain has emerged as the economic star among Europe's heavyweight economies. Not too long ago, it was the anchor member of the crisis countries known as the PIIGS – Portugal, Italy, Ireland, Greece and Spain. At one point, Spain's unemployment rate, at more than 26 per cent, was as high as Greece's. Spain was in such bad shape that it took a backdoor bailout through the €41.3-billion recapitalization of its banks, funded by the same European agency that came to the rescue of Greece.

Ireland's economy is also surging ahead, with year-over-year growth in the first quarter at 6.5 per cent. Portugal is recovering, too, though much more slowly, with expected growth of 1.6 per cent this year. Italy is finally out of recession, if only barely. The standout laggard is Greece.

Greece's dire economic plight was highlighted Monday by the collapse of both its manufacturing industry and its stock market.

Greece's factory purchasing managers' index, published by Markit Economics, fell at a record pace in July, to 30.2 from 46.9 in June. A reading below 50 indicates contraction. The Athens stock exchange, which reopened after five weeks of capital controls, plunged almost 23 per cent in early morning trading, later recovering somewhat to finish 16 per cent down. The banks, which are still subject to tight controls on cash withdrawals and international money transfers, fell 30 per cent, hitting the exchange's loss limits.

Many economists think the Greek economy, which seemed on its way to recovery, will shrink by 2 per cent or more this year as it negotiates its third bailout since 2010. More than a few think the crisis, now in its sixth year, is so dire that it will push Greece out of the euro zone.

The post-2008 crisis and deep recession hammered Spain, of which domestic demand fell 16 per cent from peak to trough. The culprit was not high debt, as it was in Greece; it was the bursting, in 2007, of the housing and construction bubble. The collapse transformed Spain from the euro zone's greatest jobs generator to greatest jobs destroyer.

How did Spain go from economic dud to darling?

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Nick Greenwood, an analyst at Afi, an economics consultancy in Madrid, said Spain has a highly leveraged national balance sheet, meaning that even small improvements in the financial conditions can produce outsized benefits. Greece's net international investment position is sharply negative – foreign liabilities exceed foreign assets by about 100 per cent of gross domestic product. Factors such as much lower debt-servicing costs have lifted Spain's growth rate at a faster pace than it did in less leveraged economies.

Mr. Greenwood also cites the fall in the euro, the launch of the ECB's €1.1-trillion ($1.6-trillion) quantitative easing program and the plunge in energy prices. While all European economies have benefited from low energy costs, the impact has been especially favourable in Spain because it imports three quarters of its energy, well above the European Union average of just above half.

Austerity was a drag on growth, as it was in other bailed out countries, but Spain did austerity well and those measures are now coming off as the election-bound government of Mr. Rajoy tries to sweeten up voters, propelling GDP. "Spain's strong track record in both delivering austerity and structural reforms was very important for it to regain market confidence," Mr. Greenwood said.

Spain is no miracle economy. Its jobless rate, while well off its peak, is 22 per cent, more than twice the precrisis level. Political risk is rising, as it did in Greece in January, when the radical left, anti-austerity Syriza party swept into power. Spain's answer to Syriza is Podemos, of which popularity has fallen since Syriza failed to negotiate any austerity concessions with its creditors.

Still, Podemos is polling at 18 per cent, making it a viable coalition partner in a possible Socialist Workers' Party-led minority government – the Spanish election has to be held by the end of the year. Another threat to the Spanish recovery comes from Catalonia, where the two main pro-independence parties are coming on strong. But the quick economic recovery is working in the government's favour. "We remain confident that these [political] risks will not derail the recovery and economic adjustment under way in Spain," Goldman Sachs said in a June 25 report on Spain's turnaround.

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