PIIGS

PIIGS

What does PIIGS mean?

PIIGS is an acronym for Portugal, Italy, Ireland, Greece and Spain, which were the weakest economies in the euro area during the European debt crisis. At the time, the five countries in the acronym received attention due to their weak economic output and financial instability, which increased doubts about the country’s ability to repay bondholders and made fear that these countries will pay their debts.

Key points to remember

  • PIIGS is an acronym for Portugal, Italy, Ireland, Greece and Spain, which were the weakest economies in the euro area during the European debt crisis.
  • The first recorded use of this derogatory nickname dates back to 1978, when it was used to identify the less performing European countries such as Portugal, Italy, Greece and Spain (PIGS).
  • The PIIGS countries have been blamed for slowing down the economic recovery in the euro area after the 2008 financial crisis by helping to slow GDP growth, high unemployment and high debt levels in the region.

Understanding PIIGS

The euro area, at the time of the 2008 American financial crisis, was made up of sixteen member countries which, among other considerations, had adopted the use of a single currency, namely the euro. In the early 2000s, largely fueled by extremely accommodative monetary policy, these countries had access to capital at very low interest rates.

Inevitably, this has led some of the weaker economies, particularly PIIGS, to aggressively borrow, often at levels they could not reasonably expect to repay in the event of a negative shock to their financial systems. The global financial crisis of 2008 was this negative shock that resulted in economic underperformance, which made them unable to repay the loans they had taken out. In addition, access to other sources of capital has also dried up.

Since these countries used the euro as their currency, they were under the dictates of the European Union (EU) and they were prohibited from deploying independent monetary policies to help fight the global economic slowdown triggered by the financial crisis. from 2008. To reduce speculation that the EU would abandon these economically maligned countries, European leaders on May 10, 2020 approved a 750 billion euro stabilization plan to support the PIIGS economies.

The use of this term, often criticized as derogatory, dates back to the late 1970s. The first recorded use of this nickname dates back to 1978, when it was used to identify the underperforming European countries that are Portugal , Italy, Greece and Spain (PIGS). Ireland only “joined” this group in 2008, when the current global financial crisis plunged its economy into an unbearable state of debt and a deplorable financial situation similar to that of the PIGS countries.

PIIGS and their economic impact on the EU

Euro area GDP growth peaked in 10 years in 2020, according to European Union statistics office Eurostat, PIIGS countries have been accused of slowing the recovery of the euro area economy after the 2008 financial crisis by helping to slow GDP growth, high unemployment and high debt in the region.

Compared to pre-crisis peaks, the GDP of Spain was 4.5% lower, that of Portugal by 6.5% and that of Greece by 27.6% at the start of 2020. Spain and Greece also had the highest unemployment rates in the EU at 21.4% and 24.6%, respectively, although estimates at the end of 2020 predict that these numbers will drop to 14.3% and 18.4% by 2020, according to the International Monetary Fund. Sluggish growth and high unemployment in these countries are one of the main reasons why the euro area debt-to-GDP ratio fell from 79.2% in late 2009 to a peak of 92% in 2020. The latest annual results, up to 2020, show that this ratio is currently 85.1%.

This chronic debt persists despite the massive quantitative easing (QE) program of the Federal Reserve, which has provided credit to European banks at interest rates close to zero, and the severe austerity measures imposed by the EU to its member countries as a condition for maintaining the euro as a currency, which, according to many observers, has paralyzed the economic recovery throughout the region. In the third quarter of December 2020, the public debt ratio of Greece to GDP was 181.1%, that of Ireland 64.8%, that of Italy 134.1%, that of Portugal 132.2% and that of Spain 97.1%. By comparison, the countries that use the euro had an average GDP debt of 85.1%, while the EU figure was 80%.

A threat to the EU livelihoods?

The economic troubles of the PIIGS nations have reopened the debate on the effectiveness of the single currency used among the nations of the euro zone by casting doubt on the idea that the European Union can maintain a single currency while meeting individual needs from each of its member countries. Critics point out that the persistence of economic disparities could lead to the break-up of the euro zone. In response, EU leaders proposed a peer review system for approving national expenditure budgets to promote closer economic integration among EU member states.

On 23 June 2020, the UK voted to leave the EU (BREXIT), which many have cited because of the growing unpopularity towards the EU over issues such as immigration, sovereignty and continued support member economies suffering from protracted recessions. This led to an increase in tax charges and a depreciation of the euro.

If the political risks linked to the euro, highlighted by BREXIT, persist, the debt problems of Portugal, Italy, Ireland, Greece and Spain have eased in recent years years. 2020 reports have shown an improvement in investor sentiment towards nations, as evidenced by Greece’s return to bond markets in July 2020 and increased demand for Spain’s long-term debt.

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