Amid a worrying situation in the euro zone, with a stalled economic recovery and an extremely low inflation, it seems that Spain is one of the few bright points in the current scenario –or there is at least some optimism especially after four years of cuts and adjustments.

Last month the European Commission said in a report that Spain was the country in which the structural reforms have had the most positive impact. Praising its “ambitious” reforms, the Commission argued that Madrid have firmly “cemented” the economic recovery.

Hans-Joachim Massenberg, a board member of the Federal Association of German Banks, foresaw in September that Spain would become the “growth engine of Europe within two years”.

Some in Brussels and Madrid could not believe that such an exaltation of optimism was occurring at a moment when Spain is failing to revive inflation (0.1% in August), credit (without changes in the last quarter, according to the Bank of Spain) and employment (the jobless rate is expected to continue above 20% in the two years ahead). And a third recession seems to be around the corner.

Maybe for that reason, the prime minister of Italy, Matteo Renzi, responded ironically hitting Spain’s Achilles’ heel: “To those in Europe that urged us to imitate what Spain has done because Spain’s labour market reform is a great example, I tell them ‘No, thank you’”.

“When I hear that Spain must be our model, it makes me laugh (…) I worry when they say that our example should be a country that has twice the unemployment,” he added.

However, the European Commission and the International Monetary Fund have insistently underscored the result of the reforms in Spain. In the second quarter, when Germany, Italy and France were dragging their feet, Spain’s growth inched up 0.6% of the GDP.

“There is a necessity within the European institutions, the country and even in Germany to affirm that things in Spain are going well, that the chosen strategy to overcome the crises has been the correct one,” Ángel Laborda, an economist from Funcas, a prominent think tank, says in a conversation with MacroPolis.

Growth is expected to surge 1.3% of the GDP this year from -1.2% in 2013 and the official forecasts have shown that the Spanish economy will rise again by 2.0% in 2015. Housing prices and activity are picking up and the successive labour reforms seem to have boosted competitiveness.

“The Spanish government has done what was really essential: attacking the problem of insolvency of Spain’s financial sector, asking for a bail out and reforming the labour market, making it the most flexible in history. It has played its role, controlling the public finances,” argues Laborda.

Woes that go for long

Experts agree that structural reforms in Spain have borne fruit but they are more cautious about their effectiveness and the remaining challenges.

“Looking at [macroeconomic] fundamentals, there are still many challenges. There is a problem with the debt that has not been improved, there are many more reforms to be done and all these make a sustainable growth more difficult,” argued Zsolt Darvas, from Bruegel, a think-tank based in Brussels, in an interview with MacroPolis.

Although private debt has reached alarming levels –the latest estimation indicates that it is slightly below 200% of the GDP– analysts and European institutions are especially concerned about the public debt, which is climbing dangerously close to 100% of the GDP.

Laborda thinks that the overwhelming private debt is its “main handicap,” while Darvas believes that, unless the government reduces the corporate and the public debt, the economy will probably stagnate. In a recent report, Deutsche Bank warns that “Spain will remain as a highly indebted country for a long time.”

Had the markets’ enthusiasm over the Spanish debt disappeared, debt in Spain would have rapidly become a sword of Damocles for the economy. For example, in the latest auction, the Treasury sold €3.5bn in five and ten-year bonds at record-low interest rates.

Some voices in the European institutions could be heard calling Italy and France, now under the spotlight, to follow the example –or the commitment– of Spain. Noting disagreement, Darvas underlines that Greece and Portugal have been the “most reformist” countries within the euro zone.

“It’s true that the economic recovery was stronger in Spain but, in terms of efforts, Portugal and Greece did much more, putting more reforms in place,” he adds.

For better or worse, Spain seems to be building up a growth-friendly economy but most Spaniards cannot feel it. The government tends to attribute it to its reforms and economists sometimes explain progress by recalling the cycles; however, for all the upbeat economic news, Spaniards have yet to reap any reward from these years of sacrifices.