Since the beginning of the year, the equity indices of so-called peripheral countries (such as Italy, Spain, and Greece) have significantly outperformed those of the major eurozone economies (France and Germany). At the two extremes, the CAC 40 rose by just 5% in 2025, while the ATHEX Composite, the Greek index, gained 37%. 

This outperformance of the equity markets reflects that of the economies themselves. Spain, Portugal, and Greece are the countries that suffered the most after the eurozone crisis. Now, thanks to healthier fundamentals, growth is more dynamic and these countries are gradually regaining the confidence of international investors.

At the same time, Germany is emerging from two years of recession, while France appears to be politically and financially gridlocked. Since the dissolution of the National Assembly in June, the division of the political landscape into three major blocs has made any government unstable and any reform of the public deficit virtually impossible.

It's a reversal of the situation. For years, one of France's assets for international investors and rating agencies was its political stability, while governments came and went in Italy. Now, Giorgia Meloni has been in power for three years, while France is looking for its fifth prime minister in three years.

Long live the banks

This rally is, of course, partly a catch-up in terms of valuation. Years of investor disinterest have led to significant discounts on the shares of peripheral countries. The rise in the MIB and IBEX indices is therefore partly a re-rating (increase in valuation multiples).

Source: Financial Times

Finally, sector composition is a factor that explains the performance gap. Since the beginning of the year, the best-performing sector in Europe (by far) has been banking. However, the financial sector accounts for 50% of the Italian MIB and 44% of the Athens Stock Exchange index.

The Stoxx 600 Banks index is up 45% in 2025. Over five years, the index has even risen 300%, more than three times the performance of the Stoxx 600 over the same period. European banks are benefiting from strong earnings momentum and low valuation multiples.

https://www.marketscreener.com/news/in-europe-the-periphery-is-leading-the-rally-ce7d59dede81f622