Slaughtering the PIIGS

September 14, 2011

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


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Unfortunately, what the peripherals have done so far is only applying reasonable macro-economic stabilisation policies (and even that, they are doing very, very late in the day!). What is really reuired is structural adjustment policies — what the IMF and World Bank have long been peddling to the now-emerging countries as SECALs (Sectoral Adjustment Loans/Programmes) and SALs (Structural Adjustment Loans/Programmes). What shape would these SALs and SECALs take? For one thing, the Common Agricultural Policy of the EU has long, long been inappropraite, with the peripherals getting subsidies that they thought could last forever even as the global demand/supply equation for food was overhauled by the emergence of China and India, with Argentina quick to cash-in on the bonanza and the peripherals were unprepared. Secondly the dramatic transformation of the energy market and the related transport infrastructure situation went badly out of sync with the mindset of the peripherals, whose political leaders allowed themselves to be drawn in the logic of war of NATO and its sateliite countries. Meanwhile, the same disconnect of the peripherals’ (and the Eurozone’s) financial sector from a changed international payments-settlement dynamic became more acute, without the policy-makers reacting timeously and intelligently. And the diminished role of the Euro as a means of payment-settlement and of forex reserve went unnoticed by those same policy-makers. It will be hard, even with good will from Germany, to reverse the unfavourable dynamic that these policy failures have allowed to develop so far.

Posted by MohamedMalleck | Report as abusive

Ian, simply put is like the “dollarization” of Argentina years ago… and we all know how it ended.

Considering that each of the PIGS cannot print their own uncontrolled amount of Euros, it is obvious they would be better off printing their own “old” currency and dealing with their own exchange rate and related inflation.

Posted by robb1 | Report as abusive

Thanks for the article, its candour has provided a measure of balance to the usual mendacious media offerings fed by greed and gloating.

Posted by scythe | Report as abusive

Clarity amid the fog of hyperbole–a rare and wonderful thing. Thank you Mr. Bremmer.

I wonder if analysts fully comprehend the depth of not only Germany’s commitment, but the depth of the EU’s commitment to their monetary and eventual political union.

What is at stake is their system, their new post-WWII political and social contract to avoid war and build a lasting, prosperous egalitarian society. This commitment goes to the very character of Europe and they will not crack.

Chancellor Merkel came up out of East Germany, she lived the Reunification, she understands the value of the system the Germans have built. Never, not ever will Germany abandon their grand vision, especially now when it has been proven the best political system to balance civil and market needs.

Posted by fardarter | Report as abusive

Nearly all the major news publications make the same serious mistake about the situation in Greece.

It is not a case of the government against the people. The “people” are not uniformly against the austerity measures.

The huge number of workers employed by the public sector, with their bloated wages and ridiculous and laughable bonuses, 30 hour weeks, and 35 days a year minimum holidays, which are unattainable by the average private sector worker, are against the measures and would rather see the country destroyed than give up one cent.

The private sector workers, on the whole, support the measures, because they understand that in the long term they will improve their lot. Private sector workers are unwilling any more to work 50 to 60 hour weeks, with minimal social security and no bonuses, and 15 to 18 days a year holidays which they are often denied, just to support their public sector counterparts.

The international community MUST understand this and appreciate that just as all PIIGS are not the same, all Greeks are not the same.

Posted by Kon.Nikas | Report as abusive

George Soros in an article today recognises the need for a number of countries to make a controlled default with the help of the ECB and to return to their old currencies. Many other economists also believe this to be necessary. Unfortunately Merkel and Sarcozy still trot out the nonsense that the Euro zone must stay as it is with all current members. I therefore fear a messy and dangerous forced default in future that could end the Euro for all.

Posted by pavlaki | Report as abusive

The Acronym, much as I love it, is unfair and it would good to drop it.
I used to think a Nord-Sud split would be best but realise now that it’s too simple.

*Let Greece go.
*Relocate all the bureaucrats busy working to bring in Serbia et al.
*Get Italy to sort out corruption. The Mafial bodies still hold many connexions – and brave Italians have to risk all to weaken them.
*Support the others (P, S, I).
(IMO, there should be a graded VAT).

You can critise Merkel – but not as much as all the others!

Finally, there’s something about a woman with a degree in Science.

Posted by eachtohisown | Report as abusive

Congratulations Ian for your magnificent, yet concise, political approach to this severe menace to Europe.
This is not as simple as the awful acronym could eventually suggest. This is not the traditional schism between the beautiful south (plus Eire) and the opulent north.
This is a serious threat to european stability as a whole.
A narrow national perspective of this problem (with a central-north european realignment temptation)is so dangerous for the entire region that all should be done to avoid it.

Posted by southmed | Report as abusive