What Are PIIGS and the Link with European Debt Crisis

What Are PIIGS and the Link with European Debt Crisis
What Does PIIGS Mean?

PIIGS is a derogatory acronym for Portugal, Italy, Ireland, Greece, and Spain, the weakest economies in the eurozone during the European debt crisis.

At the time, the acronym’s five countries garnered attention due to their weakened economic output and financial instability, heightening doubts about their abilities to pay back bondholders and spurring fears of default.

Key Takeaways

– PIIGS is a derogatory moniker for Portugal, Italy, Ireland, Greece, and Spain, highlighting their economic impact on the EU.

– The use of this term has largely been discontinued due to its offensive nature.

– These countries were blamed for slowing the eurozone’s economic recovery following the 2008 financial crisis, contributing to slow GDP growth, high unemployment, and high debt levels in the area.

Understanding the PIIGS

During the U.S. financial crisis in 2008, the Eurozone was comprised of 16 member nations that had adopted a single currency, the euro. Fueled by an extremely accommodative monetary policy during the early 2000s, these countries had access to capital at very low interest rates.

Inevitably, some of the weaker economies borrowed aggressively, often at levels they could not reasonably expect to pay back in the event of a financial shock. The 2008 global financial crisis was this negative shock, leading to economic underperformance and rendering them incapable of repaying their loans. Access to additional capital also dried up.

Since these nations used the euro as their currency, they were unable to deploy independent monetary policies to help battle the global economic downturn triggered by the 2008 financial crisis.

To reduce speculation that the EU would abandon these economically disparaged countries, European leaders approved a 750 billion euro stabilization package to support the PIIGS economies in 2010.

The PIIGS acronym is now considered derisive and is rarely used.

Criticism of PIIGS Acronym

The use of the acronym "PIGS" and similar terms dates back to the late 1970s. The first recorded use was in 1978 to identify the underperforming European countries of Portugal, Italy, Greece, and Spain (PIGS). Ireland joined this group in 2008 when the unfolding global financial crisis plunged its economy into unmanageable debt.

Some argue that the term highlights a return of colonial dynamics within the Eurozone and links stereotyped assumptions about the cultural characteristics of the people of these countries. The use of the term potentially reinforces perceptions of laziness, unproductivity, corruption, and wastefulness. These stereotypes harken back to the anti-Irish and anti-Mediterranean racism of the British and Ottoman empires.

Current Status of the Eurozone Economies

The economic troubles of Portugal, Italy, Ireland, Greece, and Spain reignited debate about the efficacy of the single currency employed among Eurozone nations, casting doubts on the EU’s ability to attend to the individual needs of its member countries.

Critics argue that continued economic disparities could lead to a breakup of the eurozone. In response, EU leaders proposed a peer review system for approval of national spending budgets to promote closer economic integration among EU member states.

On June 23, 2016, the United Kingdom voted to leave the EU (Brexit), which many cited as a result of growing unpopularity toward the EU concerning immigration, sovereignty, and support of member economies suffering through recessions. This has resulted in higher tax burdens and depreciation of the euro.

While political risks associated with the euro, brought to the fore by Brexit, remain, the debt problems of countries at the European periphery have lightened in recent years. Reports in 2018 have pointed to improved investor sentiment toward the nations, as evidenced by Greece’s return to the bond markets in July 2017 and increased demand for Spain’s longest-term debt.

What Does PIIGS Stand For?

The derisive acronym "PIIGS" stands for Portugal, Ireland, Italy, Greece, and Spain, five countries at the periphery of the Eurozone economy.

How Did the Eurozone Get the PIIGS Countries Out of Debt?

During the European sovereign debt crisis, the European Union provided two bailouts to prevent the Greek economy from defaulting. While Greece accepted the first bailout, Greek voters ultimately rejected the second bailout due to required austerity measures. The European Central Bank also issued a $750 million euro rescue package, which was used to prop up Greek bonds on the secondary market. Ireland, Portugal, and Cyprus also received bailouts.

Which EU Countries Supported the PIIGS Bailout?

The leaders of France and Germany, as the core industrial economies of the European Union, played a key role in providing debt relief for the peripheral economies and restoring the confidence of the international credit markets. In addition, the European Central Bank also provided important rescue packages.

The Bottom Line

PIIGS refers to several countries at the periphery of the Eurozone economy. In the aftermath of the 2008 recession, Portugal, Spain, Greece, Ireland, and Italy had high levels of debt threatening a renewed financial crisis. Although the crisis has been averted, the acronym is now considered derisive and has fallen out of use.