AMID the drama of the past few months over a possible Grexit, it has been easy to overlook that other parts of southern Europe have been recovering—just as Greece itself would have done if politics had not got in the way. The revival of Spain’s economy is especially important because it is the fourth-biggest in the euro area and the one whose troubles seemed most likely to prompt a break-up of the single-currency club only three years ago. For some, the Spanish rebound is proof that structural reforms pay off. Yet so deep was the downturn that Spain is still far from regaining all the ground it lost. Moreover, it is not clear how much the recovery has to do with Spain’s vaunted policy shifts.

The Spanish economy has been growing for two years, following the extended double-dip recession in 2008-13 (see chart). The recovery was initially lacklustre but it picked up in the spring of 2014 and has sparkled particularly this year, with growth of 0.9% in the first quarter (an annualised rate of 3.8%) and 1% in the second quarter. Unemployment remains troublingly high, at 22.5% in June, but has fallen sharply from its peak of 26.3% in early 2013.

The Spanish economy has been benefiting from a general cyclical upturn in the euro area. The sharp fall in energy prices caused by the collapse of the oil price has been acting like a tax cut; the European Central Bank’s adoption of quantitative easing has been a further fillip. Yet Spain has been doing considerably better than the single-currency bloc as a whole, which grew in the first quarter of 2015 by a more sedate 0.4%. Indeed Spain’s recent growth rate is among the highest in the euro area.

For the government, led by Mariano Rajoy, the recovery is a vindication of the reforms it has pursued since taking office in late 2011. Much is made of a shake-up in 2012 of Spain’s labour market, which tackled two dysfunctional features. One was the divide between cosseted permanent workers and temporary employees who took the brunt of lay-offs during the downturn. The other was collective pay-setting arrangements within industries between employers and trade unions that were imposed upon individual firms. The reforms sought to make it less expensive for employers to dismiss permanent workers by reducing severance payments. Companies were also allowed to opt out of the sectoral agreements and to strike their own bargains with workers.

Other reforms have sought to encourage enterprise. In particular the government has made it easier to start a business, reducing the number of procedures involved from ten to six between 2013 and 2014. It is also striving to unify regulations across Spain’s regions. Corporate-income tax has been lowered this year from 30% to 28%, and will fall to 25% in 2016. Encouragingly, Spain has moved up the World Bank’s “ease of doing business” rankings, from 52nd two years ago to 33rd in 2014 (out of nearly 190 economies).

The verdict on the reforms and their impact is mixed, however. Rafael Doménech, an economist at BBVA, Spain’s second-biggest bank, argues that they help to explain why Spain has been doing better than other countries on the periphery such as Italy. He estimates that if the labour-market reforms had been in place during the crisis, unemployment would have peaked at 20% rather than 26%, sparing a third of the rise in the jobless rate.

But Juan José Toribio of the IESE business school in Madrid counters that the source of the recovery has not been structural reforms but rather the adjustments forced upon businesses and workers in coping with the severe recession, in particular through lower wages. He also attaches importance to the clean-up of the banks, which was facilitated by a European bail-out of Spain’s struggling financial sector in the middle of 2012.

It is in any case important to put the Spanish recovery in perspective. It follows a decline of 8% in GDP between its peak in the spring of 2008 and its trough five years later. The economy may now be growing fast, but it is still 4% smaller than seven years ago, a bigger shortfall than that of the euro area as a whole, whose GDP is about 1% below its peak. Despite the decline in unemployment, the jobless rate in Spain is still the second-highest in Europe, exceeded only by Greece’s.

Moreover, the recovery has become over-reliant on domestic demand, especially consumer spending. Although Spanish exporters did well during the second dip of the recession in 2011-13, mitigating the severity of the downturn, net trade has faded as a source of growth despite a strong performance in tourism. Spain’s poor public finances are another concern. The budget deficit was a swollen 5.8% of GDP in 2014 and is forecast by the European Commission to be 4.5% this year. Private and public debt are worryingly high in relation to GDP.

The biggest concern is that the recovery has done little to heal the wounds opened up in the years of crisis. Santiago Fernández Valbuena of Telefónica, one of Spain’s largest companies with a big presence in Latin America, worries about the uneven pattern of the recovery, in which mainly younger temporary workers have had a far tougher time than permanent staff, despite those labour-market reforms. Greece’s fledgling recovery in 2014 did not prevent the election of Syriza, which gave voice to the losers in the preceding depression. Spain’s recovery has lasted longer and its recession was not as severe as Greece’s (where the peak-to-trough fall in output was a huge 27%), but with an election due to be held later this year, it too remains vulnerable to political upheaval.