A collection of countries that were financially precarious during the European debt crisis is referred to by the pejorative moniker PIIGS. The countries represented by the acronym—Portugal, Italy, Ireland, Greece, and Spain—had economies that were significantly less developed than those of other EU members and national debt levels that could not be sustained.
The debt crisis brought on by the bankers' reckless actions and excessive spending habits had a particularly large impact on a few nations. Numerous economists, investors, and industry professionals from throughout the world criticised the acronym for being demoralising and disrespectful.
What was the Crisis
The Eurozone was made up of 16 member countries that had accepted the usage of a single currency, the euro, during the 2008 U.S. financial crisis. These nations enjoyed access to capital at very low-interest rates in the early 2000s, thanks in large part to an unusually supportive monetary policy.
This inevitably led to some of the weaker economies borrowing heavily, frequently at amounts, they could not feasibly expect to be able to repay in the case of a financial catastrophe. This unfavourable shock was the global financial crisis of 2008, which resulted in economic weakness and made it impossible for them to repay the loans they had taken out. Additionally, there was no longer any access to additional sources of funding.
These countries were unable to implement independent monetary policies to combat the global economic downturn brought on by the 2008 financial crisis because they utilised the euro as their currency.
The 750 billion euro stabilisation package to aid the PIIGS economies was accepted by European leaders in 2010 to allay fears that the EU might forsake these economically disadvantaged nations.
Impact On European Union
The catastrophic global financial crisis that shook the world in 2009 gave rise to the European debt crisis.
Globally and in the European Union, in particular, there was increasing demand for central banks to intervene and stop the crisis. The European Central Bank moved swiftly to adopt measures that were beneficial to the economy, including quantitative easing (QE) initiatives and interest rate reductions (even to negative territory).
Many manufacturing and construction businesses in these countries had to cease their progress as funds started to run out and credit became more difficult to obtain. Additionally, the cancellation of these projects had a negative impact on the economy, leading to greater debt-to-GDP ratios in all PIIGS countries.
Investor caution over foreign investments increased as a result of these consequences on the financial markets. As a result, the different effects on the members of the European Union became clear as bond market spreads started to appear and the bond yield in the PIIGS countries was growing rapidly. The economy may be anticipating inflationary indications or other negative repercussions if bond yields start to climb.
In May 2010, a bailout programme was implemented to prevent Greece from going into default on its debt. In November, Ireland also got assistance. Portugal was the next country to obtain a bailout in May 2011. The European Central Bank soon started purchasing Spanish and Italian bonds.
How were the Countries pulled out of Debt?
The European Union gave two bailouts during the European sovereign debt crisis to keep the Greek economy from going into default. Greece approved the first bailout, but because of the mandated austerity measures, Greek voters eventually rejected the second bailout. Greek bonds were supported on the secondary market by a $750 million euro bailout package that was also released by the European Central Bank. Cyprus, Portugal, and Ireland were also given bailouts.
Countries that took part in the Bailout
The leaders of France and Germany, the two main industrialised nations in the European Union, were instrumental in relieving the debt of the periphery economies and re-establishing faith in the global credit markets. The European Central Bank additionally offered significant rescue packages.
Conclusion
The PIIGS crisis resembles the subprime crisis somewhat. To put it another way, the PIIGS are subprime sovereign credits. However, it's possible that the prime sovereign credits aren't really that prime, and we'll start referring to this as the global sovereign debt crisis rather than the PIIGS problem in the future, much as how we now talk about the broader financial crisis of 2008 rather than the subprime crisis.
Written by Melita Pinto
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