Slaughtering the PIIGS
By Ian Bremmer
The opinions expressed are his own.
Nobody likes to be called PIIGS. For years, Europe’s so-called peripheral countries — Portugal, Italy, Ireland, Greece and Spain — have complained about this acronym, but the euro zone’s sovereign debt problems have only entrenched it further. Yet, it’s time to acknowledge that the PIIGS have a point. They don’t deserve to be lumped together. Their actions and their circumstances have sharply diverged over the past three years.
Some of the PIIGS, let’s call them peripherals, have accepted the need for painful austerity measures. Spain’s government beat its deficit reduction targets last year. That’s a result that should impress outsiders, including powerhouse Germany, where lawmakers have worked hard to persuade voters that profligate countries won’t be bailed out until they have proven they can mend their spendthrift ways. Protests against the belt-tightening have been limited and surprisingly peaceful given Spain 21% unemployment rate.
The conservative People’s Party, which has already pledged its commitment to both austerity and the euro zone, looks headed for a win in Spain’s November elections. That’s in part because Socialist Prime Minister Jose Luis Zapatero has pushed hard to implement so many of the plans called for by Germany and European institutions over the objections of his party’s political base, including a plan to amend Spain’s constitution to legally require both the central government and autonomous communities to meet deficit targets that go beyond the levels set by the EU.
Portugal is also making sacrifices, particularly on pensions, and its discipline has made a difference. Days ago, the IMF released another tranche of its bailout package for the country with a comment that Portugal’s strategy to bring its debt under control allows Portugal to “distinguish itself from other countries with a problem.” Its government has also made solid progress on reforming state-owned companies, collecting taxes, and stabilizing banks.
Germany deserves some credit here. Chancellor Angela Merkel has proven willing to drive a hard bargain for longer than many expected, but Spain and Portugal know that Germany will be there in the end and agreed to take their medicine anyway. Ireland has little in common with the rest of this group, because its need for a rescue package comes from a banking crisis, not a fiscal crisis or an economy that can’t compete. Italy is also a special case, given that the sheer size of its debt — 1.9 trillion euros – represents a much greater long-term threat to the euro zone’s future.
Then there’s Greece, the only European country in full-on economic meltdown, where austerity measures don’t have broad support, and government and voters are sharply at odds over the country’s present and future. Greece isn’t about to leave the euro zone, but almost everything else is up for grabs. The Papandreou government is a spent political force, and its eventual demise, probably later this year, will leave a weak coalition government to try to manage public outrage and to kickstart an economy stuck in a ditch. Germany and the IMF can refuel the tank, but Greece is an automobile without an engine.
Each of these governments has its own problems, its own needs, its own chances of recovery, and its own impact on the rest of Europe. If the rest of us are to understand the threat that each of these problems poses for a common European future, we need to slaughter the PIIGS, not the country but the acronym.
This essay is based on a transcribed interview with Bremmer.
Photo: Euro coins from a starter kit are seen next to traditional Greek gyros food from a small Athenian restaurant named “Euro Lunch” December 17, 2001. [Greece’s banks began distributing euro starter kits to the public amid queues and identification to buy the 5,000 drachmas ($13.23) kits.] REUTERS/Yiorgos Karahalis