Stocks in the periphery push European shares to fresh five and a half year highs. Barclays VP of Economics and Strategy, William Hobbs, says that periphery countries like Spain and Italy fell the furthest, and thus benefit the most as the economy starts to recover.

SHOWS: LONDON, ENGLAND, UK (REUTERS - ACCESS ALL) (JANUARY 8, 2013)

1. BARCLAYS VP OF ECONOMICS AND STRATGY, WILLIAM HOBBS, SAYING

JOURNALIST ASKING WILLIAM HOBBS: 'What do you think? Is it a catch-up or is there something fundamental here? Are these peripheral economies the ones that are going to really benefit the most from a rebound?'

WILLIAM HOBBS: 'Yeah, I mean certainly the sort of incoming data we've had on the peripheries look pretty good in the last couple of quarters. I mean if you look at Spain for instance, we turned positive in Q3 in terms of economic activity and the data we've had on Q4 so far shows that there's a slight acceleration there. And certainly those governments in the periphery which have been most aggressive in terms of their reform program, so the likes of Ireland, Portugal and Spain, they're likely to be the ones that benefit the most in our view.'

JOURNALIST: 'But I guess what I'm still puzzled by is why the periphery should be the biggest beneficiaries of recovery.'

WILLIAM HOBBS: 'Well because they fell the furthest basically.'

JOURNALIST: 'Okay.'

WILLIAM HOBBS: 'I think that's the easiest way to look at it. I mean if you look at sort of earnings from companies quoted on the periphery versus companies quoted in the core, for a start if you look at sort of companies quoted in France and Germany, they're not really facing Europe anyway. I mean these are very, very international indices whereas in the periphery you get much more exposure to the European story and so those were worst hit particularly the banking sectors.'

JOURNALIST: 'Alright. Let's talk about which areas of the economy will improve and are improving most quickly. I saw some great retail sales numbers from the Confederation of Commerce out of Spain. Retail sales look good. Someone told me this morning real estate purchases have gone back to levels that they were at before the crisis which is remarkable. And the banks also some of the best picks right now. What do you think?'

WILLIAM HOBBS: 'Yeah I mean it's- if you look at sort of Spain in particular, what we've seen is that the government's fiscal position looks a lot less scary. And the view that international investors are taking seems to be much more positive. You see in the balance of payment data released in December, we saw a real turnaround in how international investors are perceiving Spain generally. And I think the big work that they've done is in terms of unit labor cost. You've seen that labor market reform has resulted in a massive revision in unit labor cost relative to Germany, for instance. And that's made Spain's exports much more competitive. And I think sort of, that is the overall story and I think specifically you can certainly see banks benefiting. There's been a lot of- there's been some good work done in terms of deleveraging in the private sector. It's still very highly leveraged. There's still a big unemployment problem obviously in Spain. They're not out of the woods yet, there's no way you can say that, not with the unemployment where it's at. But I think it's worth remembering that the unemployment in Spain, the data is not necessarily wholly reliable just because of the size of the unofficial economy in Spain. '