PIIGS

Following the downgrade of United States' credit rating to AA+ from AAA,  economists feel  PIIGS too  ( Portugal, Italy,  Ireland Greece and Spain) are  facing a recession. Of these, Italy and Spain are likely to lose market access because they are 'too big to fail' or to ' big big to be bailed out', said economist Nouriel Roubini.PIGS is an accronym used for four Eurozone nations— Portugal, Ireland, Greece and Spain— which were considered economically weaker following the financial crisis of 2008. Since the nations are members of the eurozone and  use the euro as their currency and were  unable to employ independent monetary policy or devalue the euro in order to help battle the economic downturn.On 3 August 2010, the yields of 10-year Italian government bonds hit a new high and Italy was added to the list and the acronym became PIIGS.In May  2010, European finance  leaders approved a €750 billion rescue package to these nations.  The economic turmoil  of the PIIGS nations reignited debate about the efficacy of a single currency employed among the Eurozone nations.[caption id="attachment_56506" align="alignleft" width="380" caption="Photo by Ethan Bloch/Flickr"][/caption]Today the PIIGS  are caught in a vicious circle : on one side, they are faced with spiraling debt and obligations which can be serviced only through borrowing, and on the other, the increasing costs of borrowing resulting from profound doubt in the minds of potential buyers of government debt instruments that bonds can be repaid.Though these countries face similar economic challenges, the symptoms differed in every country. Greece and Spain, which ran into huge current account deficits  had started off by sucking in cheap imports. Meanwhile Italy  and Portugal, which  suffer from high wage cost and low productivity, never did enjoy a period of prosperity.  Ireland's success was export-led, but it eventually resulted in a bubble built on low interest rates since bank lending was heavily tilted in favour of mortgages and construction which crippled the banks.Greece, Portugal, and Spain have a 'credibility problem', because they lack the ability to repay adequately due to their low growth rate, high deficit, less FDI, etc. Italy and Spain's creditors are mainly domestic institutions, but Greece and Portugal have a higher percent of their debt in the hands of foreign creditors, which is seen by certain analysts as more difficult to sustain.According to professors Nouriel Roubini and Stephen Mihm Greece is already insolvent, Portugual's growth has been stagnant for a decade, borrowing costs in Ireland and Spain have reached record highs and Italian national debt is already €1.6 trillion — three times greater than the national debt of Greece, Portugal, and Ireland combined.

"Even with a draconian austerity package, totaling 10 percent of gross domestic product, its public debt would rise to 160 percent of GDP. Portugal, where growth has been stagnant for a decade, is experiencing a slow-motion fiscal train wreck that will lead to public-sector insolvency. In Ireland and Spain, transferring the banking system's huge losses to the government's balance sheet—on top of already-escalating public debt—will eventually lead to sovereign insolvency", they said.

Understanding the PIIGSPortugal, which is the fifteenth-largest economy in the European Union,has vowed not to leave the EU inspite of suffering a major economic crisis. Between 2002 and  2007, the unemployment rate increased 65% . By early December 2009, unemployment had reached 10.2% – a 23-year record high. In December 2009, ratings agency Standard and Poor's lowered its long-term credit assessment of Portugal to "negative" from "stable," voicing pessimism on the country's structural weaknesses in the economy and weak competitiveness that would hamper growth and the capacity to strengthen its public finances and reduce debt and in  July 2011, ratings agency Moody's downgraded its long-term credit assessment of Portugal after warning of deteriorating risk of default in March 2011.Greece, which  is the 27th largest economy in the world, benefiited by joining the eurozone in 2001. But soon enough the government went on a spending spree which resulted in souring public public. As a result, the government is now suffering from a massive debt and is finding it difficult to meet EU deficit rules.  Some experts argue the best option for Greece  should be to engineer an “orderly default” on Greece’s public debt which would allow Athens to withdraw from the eurozone and reintroduce its national currency the drachma at a debased rate.Ireland is the third-largest island in Europe and its economic growth was largely dependent on a property bubble. Ireland was the first state in the Eurozone to enter recession as declared by the Central Statistics Office. According to wikipedia the Irish economy expanded rapidly during the Celtic Tiger years (1997–2007) due to a low corporate tax rate, low ECB interest rates, and other factors. This led to an expansion of credit and included a property bubble which petered out in 2007. Irish banks, already over-exposed to the Irish property market, came under severe pressure in September 2008 due to the global financial crisis of 2007–2010.Though the economy emerged from a recession last year, there has been a lot of cry over the government's austerity programme which included spending cuts and tax raises.Italy, the twenty-third most populous nation in the world, has the second biggest government debt in the Eurozone, after Greece. The country has an inefficient state bureaucracy, low property rights protection and high levels of corruption, heavy taxation and public spending that accounts for about half of the national GDP. Like Spain, the country's productivity level is low and like Greece  it has a problem in collecting tax and suffers from massive debt. On 20 May , 2011  Standard & Poor’s cut Italy’s credit-rating outlook from “stable” to “negative” after they failed to display significant economic growth and improvement of the national debt.  Italy’s government says they will continue forward with measures to balance the debt by 2014.Spain, the fifth largest economy in the EU, was severely hit by a decline in property prices. The property bubble that begun building from 1997, fed by historically low interest rates and an immense surge in immigration, imploded in 2008, leading to a rapidly weakening economy and soaring unemployment.The government announced a €50 billion  austerity package, including a civil service hiring freeze, at the end of January. However, since IMF feels that Spain is likely to contract further, analysts fear  it will be the next country to rattle financial markets.