The PIGS are often pointed at as economic basket cases but there is more to it than meets the eye. For instance Italian households have a debt level compared to that of Americans.... in 1980! More variables are present making the story a bit more complicated than perceived because of their reputation.
Let's just say if the PIGS had their own currency (EUR SOUTH) and Germany, Benelux, France & Finland had another (EUR NORTH) then the PIGS one would likely trade at a fraction of the EUR NORTH. That is probably true for any large economic region including the United States, but my point is that the difference in prosperity and productivity inside of Europe from North to South is both shocking and disgraceful. In the 1980s billions of EU funding was pumped into PIGS infrastructure projects in order to help modernize and diversify their economies. What came out of it? Economies solely depending on just two industries: tourism and construction - which unfortunately also bear a significant correlation considering how much of the Mediterranean property market was marketed to tourists/expats. IMO, Club Med's fish rots down from the head: corrupt and completely incapable governments and municipalities.
The chronical and structural shortcomings in most of these countries' economies and politics ensures them of a higher level of immunity versus external shocks making them less likely to become the next shoe to drop in my view.
What about Belgium? I remember before the PIIGs came to the fore, it was all about the breakup of Belgium and its dysfunctional government... It's just that there's an OLO (Belgian govt bond) auction scheduled for next week. Would be curious to hear your thoughts on how things stand currently, debaser, if you're willing to share 'em. Apologies if off-topic.
Let me start my response by sharing my view that none of the EURO members will be allowed to default and even the weakest link will be bailed out be it in broad daylight or behind the scenes. Having said that clearly the fact that a country does not defaults on it's debt doesnt mean a deterioration on a number of issues can't or wont take place which will clearly be the case for a large number of Euro members including Belgium. The debt to GDP ratio is about to rise above a 100% any day now, the political system has been in a gridlock for close to 3 years now, the labour market has been hit reasonably hard expected to be hit even harder this year and all this basically countered only by one of the highest saving rates in the world up above 20% today and the return of a trade surplus thanks to the global economy recovering somewhat. Now when you compare the impact of the global crisis on society with neighbour 'Triple A' Netherlands who have been considered to be an example of government for decades the difference is astonishing. They are really cell shocked, experiencing a testing of the limits of their system where as far a it's little and weaker brother Belgium goes it's business as usual really. I wouldnt lent money to neither of them. Hope this was helpfull enough in answering your question. Cheers.
Debaser, in this thread you seem the most informed, still you're 25 years wrong. Italian households debt/GDP=34%, like americans in 1955 Guys, I give you all a valuable piece of info: whenever anyone uses the term "PIGS", don't listen to him, because he doesn't know what he's talking about. As a coincidence, these data have been published just today in Italy. (in italian) http://www.corriere.it/economia/10_...ne_445f183a-fd2c-11de-9229-00144f02aabe.shtml Households debt/GDP rate: Italy 34,2% France 49,1% Germany 63,5% Spain 83,6% UK 100% Do I need to underline that italian families have HALF the debt than germans ? It's local culture, we don't like debt. When a young fella has to buy a home, he doesn't get a mortgage, instead he asks his parents for the money. Moreover, Italy is the 3rd economy in the eurozone. Talking about "PIGS" or "Club Med" referring to a macroregion, is a nonsense, propagandized by the british press. Speaking of which, if I'd like to find PIGS, guessing from the above data, in what country should I look ? (just kidding )
Having friends and family in Czech Republic I was initially astonished, as an American, that they don't generally go over a 5 year mortgage. No in Europe, from what I have seen, use credit cards, all debit card and cash.
1) It is too late for the periphery countries to diversify their economies. The countries that became manufacturing powerhouses after WWII were Germany and Japan - and that was by design post WWII by the Anglo American victors. Coincidentally, they were also stripped of military power. The next phase of manufacturing powers, beginning in the 1970s, was Asia. GATT, later turned to WTO, accelerated their manufacturing ascension in the early/mid 1990s. Why? Because their employees are socially pliable, get little gov't benefits, and are dirt cheap. To expect Greece or Portugal or Spain to diversify their economies is nonsense. Their incomes, already low, would have to go lower than their Asian counterparts. Their social programs too, very similar to Germany's, France's and Japan's, would have to be stripped to mirror the meager gov't benefits alloted to their Asian counterparts. The US has always relied on its TBTF Banks to lend to the then third world. This lending process was a narcotic style economic addiction that no country can fight off. When these third world countries inevitably defaulted, the losses suffered by the US TBTF banks were socialized amongst the US taxpayers, and an austerity program, created by the IMF (US largest shareholder) forced the nationalization of resources and industries of the defaulting (little/corrupt) country. American companies then scoop up these investments for pennies on the dollar. And thus, a new US based oligarchy is formed in these countries. So to wag your finger in admonishment at these small countries is disingenious IMHO. They are being treated much like Latin America and Eastern Europe Countries have been. As for your charge of corruption in these countries - no one can deny that. But I believe that corruption, in various forms, exists everywhere. Rich countries too are very corrupt - just look at what has transpired in the US w/ Geithner/Paulson re AIG, TARP, etc... The only difference is that the size of our wealth stops the corruption from crippling us. But as that wealth, particularly amongst the middle class dimishes, then our corruption will not only look the same as it does in smaller countries - but for many Americans, it will FEEL the same. Their lives will be no different than those that inhabit the barrios of Latin America. Just look at the rising tent cities, 1 in 4 children on food stamps, etc... Back to the periphery countries of the EU: These countries have tasted freedom and wealth and independence. I don't see them being corralled like subservient cattle. To wit, Iceland's recent referendum and rising civil unrest in Greece, which I fear, will only spread. The future will be very interesting to say the least. In a matter of a decade or two, the world transformed. Up is down, right is left, front is back. It's a developing chaos on a so far, slow timeline. I think the likelihood of this chaos accelerating is significant. There are just too many imbalances that can't be corrected without massive disruptions to the economies of the world.
An interesting question in my view is why do Europeaners save, despite the broad social security offered to them by their governments. Or perhaps the question should be reversed into why do people in countries basically offering less of a protection such as the US for instance are less willing to save. China for instance has an amazing savingsrate and you could see why clearly. The link between savings and social protection is less clear elsewhere.