PIIGS

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21 Aug, 2024

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What is PIIGS?

The term PIIGS is a derogatory acronym that refers to a group of nations that were in a financially unstable position during the European debt crisis. The acronym included Portugal, Italy, Ireland, Greece, and Spain, which had unsustainable national debt levels and particularly weaker economies relative to other nations in the European Union.

These few countries had the most profound impacts on the debt crisis brought about by the bankers' excessive spending habits and irresponsible decisions. The acronym received several criticisms from economists, investors, and experts from around the globe for being discouraging and offensive.

What is PIIGS?

PIIGS is an acronym that was given to a group of nations in the European Union that were financially unstable and had high government debt levels.
The countries include Portugal, Italy, Ireland, Greece, and Spain.
The European Commission and the International Monetary Fund enacted several measures to support these nations' economies and revive them from their ongoing financial crisis.

PIIGS Countries Explained

PIIGS countries received that name in the early 1980s itself. At first, the acronym was PIGS without including Ireland.

Starting in 1999, European Union members began to issue and utilize the same currency (the Euro). And hence, with the nations conforming to these standards, the debts issued by the individual members of the union began to merge.

Initially, these developments seemed to be a positive occurrence as it was thought the economic risk could be spread amongst the EU members. However, as time went on, it was evident that some countries were more financially responsible than others, such as France and Germany. Because of the irresponsible spending habits of countries like Greece, they began to accumulate debt excessively.

In October 2009, Greece declared that they had been underreporting the countries deficit numbers for several years. As a result, this announcement had adverse effects on the nation's financial systems as investors began to worry about its ability to repay its debt.

Greece was not the only country in the European Union to experience financial worries at this time. Other nations in the EU also had high sovereign debt including Portugal, Italy, Ireland, and Spain.

That is how PIIGS economies received their name. According to a study posted in the European Journal of Political Research, there are arguments for saying the acronym may have caused more damage to those particular nations than what needed to be, which is referred to as "Granger causality." As the media promoted the term PIIGS countries, evidence pointed to an increase in the nations' bond yields.

Impact on European Union

The European debt crisis started in 2009 after the alarming global financial crisis that sent shockwaves worldwide.

The pressure began to mount for central banks worldwide, especially in the European Union, to act and contain the crisis. The European Central Bank acted quickly by implementing policies that were favorable for the economies, such as

Lowering interest rates (even to negative territory)
And quantitative easing (QE) programs

The effects of the crisis varied in different parts of the European Union. In many instances, investors began to reevaluate their international investments, especially for those assets held in countries that experienced high sovereign debt, such as the PIIGS economies.

As funds began to dwindle and credit was harder to access, many constructions and manufacturing companies in these nations had to bring their progress to a halt. Moreover, the discontinuation of these projects adversely affected the economy, like higher debt to GDP levels across the PIIGS nations.

These effects impacted financial markets as investors became warier of international investments. As a result, the varied impact on the European Union members became evident as spreads in the bond market began to surface, and the bond yield in the PIIGS nations was rising sharply. When bond yields started to rise, it can signify that the economy is expecting signs of inflation or other negative effects.

The relief started with a bailout package to save Greece from debt default in May 2010. Ireland similarly received a relief package in November. In May 2011, Portugal became the next nation to receive a bailout. Shortly after, the European Central bank began buying bonds from Italy and Spain.

PIIGS Crisis Timeline

2007

The subprime mortgage crisis in the U.S collapsed, sending ripple effects throughout the world's banking and lending services lasting several years.

2009

In October 2009, George Papandreou wins Greece's national election. Shortly after, he disclosed that the nation's budget deficit to GDP reflected almost double the previous amount at 12.7%.

2010

The countries of Portugal and Spain have begun to take measures to reduce their budget deficits

April/May: Greece receives 45 billion loans from the European Union and International Monetary Fund
May: European Central Bank (ECB) revealed the securities markets program. The program supported debt-burdened countries by providing liquidity through bond buying.
November: Ireland receives a bailout from the European Commission and International Monetary Fund.

2011

April/May: Portugal is the latest country to receive a bailout financial package.
July: Introduction of European Stability Mechanism
November: ECB lowers interest rates to 1%

2012

January: ECB begins buying of bonds in Italy and Spain
February: Standards & Poor's lowered the Greeks credit rating by selective default.
June: Spain receives bailout funds to help stabilize the nation's banks
July: Interest rates cut again to.75%
November: Protests in Portugal, Italy, Greece, and Spain over measures taken to reduce the deficit

Frequently Asked Questions (FAQ's)

What Countries Are Included in PIIGS?

The countries that were considered part of the PIIGS economies included the following:
Portugal
Italy
Ireland
Greece
And Spain

Who Invented PIIGS?

Several sources have noted that the term PIGS (Portugal, Italy, Greece, and Spain) was used back in the 70’s or ’90s to describe countries performing poorly relative to the other nations in Europe.

However, it wasn't until the Euro Crisis that the acronym became popularized. Since 2002, the term has been used a handful of times in the media. On May 13th, 2008, Professor Andrew Clare produced a report for the Fathom Consulting Group that contained "PIGS," which he later clarified implied both Italy and Ireland.

On May 19th, 2009, the Financial Times released an article with the acronym "PIIGS" and was followed up by a posting in the Sunday Business Post.