PIIGS

What Does PIIGS Mean?

PIIGS is an offensive acronym for Portugal, Italy, Ireland, Greece, and Spain, which were 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, which heightened doubts about the nation's abilities to pay back bondholders and spurred fears that these nations would default on their debts.

Understanding the PIIGS

The eurozone, at the time of the U.S. financial crisis in 2008, was comprised of 16 member nations who, among other considerations, had adopted the use of a single currency, namely the euro. During the early 2000's, fueled largely by an extremely accommodative monetary policy, these countries had access to capital at very low interest rates.

Inevitably, this led to some of the weaker economies, especially the PIIGS, to borrow aggressively, often at levels that they could not reasonably expect to pay back should there be a negative shock to their financial systems. The 2008 global financial crisis was this negative shock that led to economic under-performance, which rendered them incapable of paying back the loans they had procured. Furthermore, access to additional sources of capital also dried up.

Since these nations used the euro as their currency, they were under the dictates of the European Union (EU) and were forbidden from deploying independent monetary policies to help battle the global economic downturn that was triggered by the 2008 financial crisis. To reduce speculation that the EU would abandon these economically disparaged countries, European leaders, on May 10, 2010, approved a 750 billion euro stabilization package to support the PIIGS economies.

An Offensive Acronym

The term's use, often criticized as being derogatory and racist, dates back to the late 1970s. The first recorded use of this moniker was in 1978, when it was used to identify the underperforming European countries of Portugal, Italy, Greece, and Spain (PIGS). Ireland did not "join" this group until 2008, when the unfolding global financial crisis plunged its economy into an unmanageable debt-ridden state and a deplorable financial situation akin to those of the PIGS nations.

Some argue that the term highlights a return of colonial dynamics within the Eurozone. It links the stereotyped assumptions about the cultural characteristics of the people of Portugal, Italy, Ireland, Greece, and Spain. The use of the term potentially reinforces a perception of those people as lazy, unproductive, corrupt, and/or wasteful liars. The roots of these stereotypes harken back to the anti-Irish and anti-Mediterranean racism of the British and Ottoman empires.

Economic Impact on the EU

According to Eurostat, the European Union's statistics office, GDP growth for the eurozone reached a 10-year high in 2017. However, Portugal, Italy, Ireland, Greece, and Spain have been blamed for slowing the eurozone's economic recovery following the 2008 financial crisis by contributing to slow GDP growth, high unemployment, and high debt levels in the area.

Compared to pre-crisis peaks, Spain's GDP was 4.5% lower, Portugal's was 6.5% lower, and Greece's was 27.6% lower as of early 2016. Spain and Greece also had the highest rates of unemployment in the EU at 21.4% and 24.6%, respectively — although estimates, as of late 2017, forecast that those figures will shrink to 14.3% and 18.4% by 2020, per the International Monetary Fund. Sluggish growth and high unemployment in these nations is a major reason why the debt-to-GDP ratio of the eurozone rose from 79.2% at the end of 2009 to a peak of 92% in 2014. The latest full-year results, through 2018, show that this ratio currently stands at 85.1%.

This chronic debt persists despite both the U.S. Federal Reserve's massive quantitative easing (QE) program, which has supplied credit to European banks at near-zero interest rates, and harsh austerity measures imposed by the EU on its member countries as a requirement for maintaining the euro as a currency, which many observers believe has crippled economic recovery throughout the whole region. As of the third quarter of Dec. 2018, Greece's public debt to GDP ratio is 181.1%, Ireland's is 64.8%, Italy's is 134.1%, Portugal's is 132.2%, and Spain's is 97.1%. To compare, countries that use the euro had an average debt-to-GDP of 85.1% while the EU's figure stood at 80%. 

A Threat to the Livelihood of the EU?

The economic troubles of Portugal, Italy, Ireland, Greece, and Spain reignited debate about the efficacy of the single currency employed among the eurozone nations by casting doubts on the notion that the European Union can maintain a single currency while attending to the individual needs of each of its member countries. Critics point out 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 issues such as immigration, sovereignty, and the continued support of member economies suffering through prolonged recessions. This has resulted in higher tax burdens and depreciating the euro.

While political risks associated with the euro, brought to the fore by BREXIT, remain, the debt problems of Portugal, Italy, Ireland, Greece, and Spain, 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.