PIGS was an acronym with a certain negative connotation (it means pigs in English) that was used to name the Eurozone countries (Portugal, Italy, Ireland, Greece and Spain) that suffered severely from the 2011 sovereign debt crisis. Today, Almost eight years later, the situation of these economies has some similarities (they all have high public debt), but many differences. While Italy and Greece are still stuck in the ‘mud’, Spain, Portugal and, above all, Ireland, have managed to get off the ground.
The Great Recession of 2008-2009 had a second surge in the Eurozone that hit harder the countries that had traditionally relied on devaluations of their currencies to regain competitiveness, generate inflation and reduce the weight of the debt. Greece, which already started with very high debt levels, was the first to lose investor confidence. The public finances of the Hellenic country presented a deficit of more than 10% of GDP in 2008 and 15% in 2009, which set off all the alarms in the markets.
Athens’s problems spread to the rest of the PIGS (which also had large deficits or high levels of leverage), making the cost of public debt extremely expensive and generating a sovereign debt crisis that led Greece, Portugal, Ireland and Spain to have to ask for international help to rescue their governments, only the banks (in the case of Spain) or both.
In short, the European Union approved six economic rescue plans, three for Greece, one for Portugal, another for Ireland and another for Cyprus (not included in the PIGS), in addition to the financial aid program for Spain (Italy has not needed, for now, a help plan). Aid that has been indexed to different adjustment plans that aimed to achieve the sustainability of public accounts and increase the competitiveness of the goods and services that were produced in the affected countries.
To this must be added the not inconsiderable ‘help’ from the European Central Bank and its president Mario Draghi, who after assuring that “it would do whatever it takes to sustain the euro” (the ECB is ready to do whatever it takes to preserve the euro ) helped to reduce the cost of the debt of all the countries of the Eurozone, but above all that of the PIGS. Draghi did everything he could (rate cuts, massive asset purchases…) and the risk premiums of peripherals were compressed, giving vital oxygen (which may have arrived too late) to these countries.
The exceptional case of Ireland
Today, after years of cuts and adjustments, it can be said that the great winner within these countries has been Ireland. on his own feet and without the need for assisted breathing. Now it boasts of being the fastest growing economy in the entire Eurozone with an annual rate of 7.2 and 6.9% in 2017 and 2018 respectively.
The strong growth has served to present today. Public debt continues to exceed 60%, considered a sustainable level, but the reduction has been amazing: in 2013 it was above 124% of GDP and in the last quarter of 2018 it had fallen to 64% of GDP. However, a significant part of the reduction is due to strong GDP growth (with some accounting controversy). The reduced Corporation Tax and the incentives to attract companies have distorted the reality of this indicator, which in 2015 shot up 25% while the Eurozone grew 2.1%.
The second country that has shown the best economic performance has been Portugal. Its per capita income is today 4% higher than before the crisis, economic growth in the last two years has exceeded 2% and the unemployment rate has been reduced by more than ten percentage points, from the maximum of 17 .3% in 2013 to 6.5% today, levels infinitely lower than those of its southern neighbors (Spain, Italy and Greece).
The most critical section of the Portuguese country is perhaps the public debt, which is still above 120% of GDP, the Government of Antonio Costa is moving towards fiscal sustainability. The public deficit has gone from 11% of GDP in 2010 to 0.5% in 2018, while the primary balance (not counting interest on the debt) will be the highest this year since 1992. This improvement in the imbalance in public accounts has made it possible to reduce the level of debt by 12 percentage points.
Finally, Spain would also be among the economies that are relatively better off, although with many subjects still failed. Real GDP per capita is 2% higher than in 2007, but it is also true that income inequality is higher now than before the crisis. This suggests that, since the GDP is higher, this increase has been unevenly distributed.
Part of the blame for this inequality (if not all) comes from the hand of an unemployment rate that is 14% of the active population, six percentage points higher than that of 2007. The marked (temporary and indefinite) has also been a key aspect that has contributed to , another factor that has also been able to support the growth of inequality.
Also on the negative side is the public debt (close to 100% of GDP), which has barely begun to decline, and the public deficit, which despite the sharp drop (from 10.5% of GDP in 2012 to 2 .5% today) is still high, especially the structural one (without taking into account the economic cycle). If the Spanish economy were not growing as vigorously as in recent years, the imbalance in public accounts would be much greater.
Among the positive aspects is the strong growth that Spain has experienced since 2015, with a real GDP variation rate of over 3% in 2015, 2016 and 2017 and 2.6% in 2018, the strongest of the large Eurozone economies. This growth has occurred with a constant surplus in the current account balance, which had just posted a deficit of 9.3% of GDP in 2008. The continuous deficits in Spain’s current account balance since the 1990s have led to The country is one of the largest net debtors abroad in the Eurozone, a situation that increases the vulnerability of the economy when shocks like the one in 2008 occur. This situation has begun to correct itself in recent years after a long and painful devaluation internal.
stuck in the mud
Among those who have come out worse off is Italy, the eternal patient of Europe. chronic political uncertainty, lack of long-term plans, productivity that has been stagnant for two decades or public debt that has exceeded 100% of GDP since time immemorial are some of the factors that have led Italy to be the country with the worst performance relative in the Eurozone (even worse than Greece) since the creation of the single currency.
Since the last crisis, Italy’s GDP per capita has fallen by 7%, public debt exceeds 130% of GDP and economic growth in the first quarter of 2019 has been 0.2% after two consecutive quarters of declines ( technical recession). Although Italy began to grow in 2014 (like Spain and Portugal) it did so at a much slower rate and has never exceeded 2%. On the other hand, the unemployment rate stands at 10.6%, four percentage points higher than in 2007 and in recent quarters it has shown a lateral behavior (with ups and downs).
All of the above is causing Italy to pay 2.7% to place its 10-year debt while Spain or Portugal (countries that have needed European help) today pay 0.93% and 1% respectively. This premium suggests that investors trust much more in Spain, Portugal or Ireland than in Italy.
The Greek economy has been the one that has suffered the most within the PIGS. The GDP per capita is still 21% below the maximum reached before the crisis, the unemployment rate (at 18%) is 11 percentage points above 2007, some 500,000 more unemployed in a country with only 10 .7 million inhabitants.
The great slab of Greece is a level of public debt that exceeds 180% of GDP. Although Athens is gradually returning to the markets, regaining investor confidence is not going to be an easy task. At least, the annual public accounts seem to have found a certain balance after two consecutive surpluses. It is true that reaching this point was essential, but the cuts made to achieve budget balance have not helped growth. And it is that the Greek economy did not begin to grow until 2017, presenting at a rate that is between 1 and 2% per year, a slow exit after so many years of intense recession. In addition, Greece continues to show an imbalance in the current account balance of almost 3% of GDP and a net foreign debt of 132% of GDP, the highest in the entire Eurozone.
In short, except for the exceptional case of Ireland, the PIGS continue to present, on average, a higher unemployment rate, more public debt and slower average GDP per capita growth than the Eurozone and, above all, than the leading countries of the bloc. However, Portugal and Spain have started to converge in recent years, while Greece and Italy remain relatively stagnant. Within the ‘pigs’ of the Eurozone, some seem to have taken flight while others are still cavorting in the mud.
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