Understanding PIIGS: Their Role in the European Debt Crisis

What Does PIIGS Mean?

PIIGS is a derogatory moniker for the countries of Portugal, Italy, Ireland, Greece, and Spain, that began to be used in the late 1970s to highlight their financial instability and the negative economic impact they had on the European Union (EU). The use of this term has largely been discontinued due to its offensive nature.

The five countries were blamed for slowing the eurozone economic recovery following the 2008 financial crisis because of their slow GDP growth, high unemployment, and high debt levels.

Economic Impact and Challenges of the PIIGS Countries

In 2008, during the U.S. financial crisis, the eurozone consisted of 16 countries using a single currency, the euro. During the early 2000s, fueled largely by an extremely accommodative monetary policy, these countries had access to capital at very low interest rates.

Inevitably, this caused some of the weaker economies to borrow aggressively, often at levels that they could not reasonably expect to pay back in the event of a financial shock. The 2008 global financial crisis was this negative shock that led to economic underperformance, 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 unable to deploy 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 approved a 750 billion euro stabilization package to support the PIIGS economies in 2010.

Controversy Surrounding the PIIGS Label

The use of the acronym "PIGS" and similar terms dates back to the late 1970s. The first recorded use 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 level of debt.

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. The roots of these stereotypes harken back to the anti-Irish and anti-Mediterranean racism of the British and Ottoman empires.

The Evolving Landscape of Eurozone Economies

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 EU can maintain a single currency while attending to the individual needs of each of its member countries.

Critics warn that ongoing economic differences might cause the eurozone to break apart. 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 depreciation of the euro.

Despite Brexit highlighting political risks with the euro, peripheral European countries have seen their debt problems ease. 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.

The Bottom Line

PIIGS refers to five countries at the periphery of the eurozone economy. In the aftermath of the 2008 recession, these countries—Portugal, Spain, Greece, Ireland, and Italy–had high levels of debt that threatened to cause a renewed financial crisis due to the potential for default. The EU's interventions, including bailouts and a stabilization package, helped alleviate problems for these economies.The crisis was averted. The acronym is now considered derisive and has fallen out of use.