MUDDY PIIGS

PIGS and PIIGS have become synonyms in last few days. While PIGS swirl in mud PIIGS countries (Portugal, Italy, Ireland, Greece and Spain) did the same over the years. Hefty spending for so many years have led to surmountable debts in these countries and now they are begging in front of EURO zone and International Monetary Fund (IMF) to provide them with aid which helps them in recovering from their so called

pauper status.

The first such aid was provided to Greece on 2 May 2010. Greece reached an agreement with IMF, European Commission and European Central Bank to provide aid worth $ 145 billion in order to stabilize the economy and make it more competitive. This measure will help on one hand to make the confidence crisis spread to other countries. But are the other countries still confident? The answer is NO. The reason is only Greece has been bailed out so far, the remaining pigs (Portugal, Italy, Ireland and Spain) countries are on their way to spread wings and make this a spoilsport for the rest of the world.

The Greek finance Minister, George Papandreou said that the public finances would be brought under check. What has general public got with it in Greece? They have received austerity measures by Greece government. Bonus cuts, and axe on pensions. Looking at other PIGS that are still muddy and carry stains would be interesting. The countries are not in a chronological order as crisis is not in any order as well. The more danger and undercurrents countries have the worst is their position in global space.

PORTUGAL:

Economists believe that Portugal will be the next to create panic in the markets; we have seen this in the past that markets are reacting above normal on meager news and the tendency will be constant in coming days.

Portugal had an unemployment rate of 9.4% during 2009, which is expected to jump to 11% in 2010, as per IMF estimates. The deficits are estimated to remain robust in coming years. Deficit is the differential between the borrowing and lending of the government. Deficit of Portugal was 2.75% of GDP in the year 2008, which stimulated towards 9.3% in the year 2009. For 2010 and 2011 the deficit is expected to remain elevated at 8.7% and 7.5% respectively.

General government deficit was 4.579 billion euros in 2008 from where it has been a constant northward journey. The deficit rose to 15.371 billion euro, up 235%. For the year 2010 the deficit is expected to decline marginally by 5.15% to 14.58 billions but not a considerable decline by any stretch of imagination.

Looking at the percentage of unemployment and significant higher levels of Government deficits its is clear that though the rescue package for Greece has been transported from Euro zone and IMF the Portuguese may create fresh anomaly in the markets.

The current account balance of the country is also on a negative, which indicates that the country is usually importing all these years and this has also in some way impacted the deficits. Current account deficit as a percentage of GDP was 10% in 2008; the same will be 8.97% in 2010 as per International monetary fund while in 2011 it will again bounce back to 10.16%.

This is also a blinker that austerity measures by Greece government can be introduced in other Euro zone countries soon in order to siphon the debt.

Spain:

Food, Wine and Bullfighting were all Spain was known for. But now some more specialties have been added, reduced bond status and eminent deficits. The markets believe that Spain will be the next to join the bandwagon of Greece and will be requiring billions of dollars for saving them from being extinct from global economy.

Spain government lending and borrowing deficits are expected to reach 108.67 billion Euro or $ 141 billion in 2010. This will be 10.4% of the total GDP of the country. For 2011, the deficit to GDP percentage is expected at 9.6. The total lending and borrowing decline will be 101.98 billion Euros or $ 132.38 billion in 2011.

This is only one side of the coin; the other is the rising unemployment rates and agitation of the civilians against the government. Rising unemployment in the country that is debt ridden is an alarming sign of troubles. The total unemployment in Spain has improved constantly. In 2008, the unemployment was 11%, this elevated to 18% in 2009 and no respite is there for 2010 as well with employment rates expected to cross 19% mark.

Standard and Poor’s have already downgraded Spain’s credit ratings and the cost of insuring Spanish debt against default has seen constant rise. Recently the Spain Prime Minister José Luis Rodriguez Zapatero met with European commission officials in Brussels and said that the Greece support was a measure of responsibility and credibility. It highlighted the capacity for commitment and bravery the Greek Government to implement a plan for deficit reduction, fiscal consolidation and structural reforms “involve great sacrifices to Greek citizens."

He denied the fact that Spain is planning for similar measures of rescue and termed it as “absolute madness”. Now if the news of bailouts in Spain is termed as madness, on wonders that what kind of lunacy Spain officials were doing when debt the deficit ballooned to $ 120 billion in 2009.

Mr Prime Minister acknowledged that the unemployment figure, known today, is "serious" but felt that "going to have a downward trend, moderate in the coming semesters," and expects this trend to continue. Whatever the case may be in future, it is very hard to conceive that the economic situation will be hunky-dory so easily when it took several years to become horrible.

ITALY:

The land of pizzas and junk food is now also a land of junk debts. Rising government deficits and unemployment with negative GDP numbers is asking for acid test in Italy.

GDP of Italy is now at –3%. The unemployment rate for the month of March was 8.8% according to Italy's statistics agency Istat. Italy public deficit has nearly doubled to 5.3% of output in 2009. This is the worst performance of the country since 1971. Italy's gross domestic product (GDP) shrank by 5% in 2009, its weakest showing in 38 years.

The public deficit is expected to remain almost constant in 2010 as well at 5.175%. This is much higher than the euro zone limit of 3% but when compared to peers it is quite low. Lack of industrial policy and failure on the part of government officials has rubbed Italy from wrong side.

The statement of Italy’s finance minister Giulio Tremonti was "It is true that we have a large public debt, but it is also true that we have a public deficit that is much lower than other countries," said Italy's Finance Minister. Now the implication of the statement can be made in two ways. One is that public deficit is lower so we will be in the mud after the other pigs have already gone there and secondly that may be Italy will not join the peers at all and will be able to cope with the problem of its own. We expect that it will be a uphill task if the later proves true.

IRELAND:

The last muddy Pig in euro zone is Ireland with deficits to the tune of 11.4% of GDP in the year 2009 that can go up to 12.16% in the year 2010. Banking sector is on a verge of death in Ireland and cost of buying insurance against Ireland bonds are raising steeply.

The budget of Ireland was put in public on December 2009. The Irish government has now started to take strict measures when the situation is out of hand. The Finance Minister Mr. Brian Lenihan said “if we cannot tax our way out of our difficulties and we all agree in this House that we cannot borrow our way to recovery then the only remaining option is to reduce our spending.” This is nothing but beating the bush.

The budget said that since 1997 country has made great strides in expanding levels of public service provision. This was done on public demand. But the current cost of providing public services is not sustainable. Without any correction, day-to-day spending would be about €58 billion in 2010, an increase of about Euro 2 billion over 2009.

The latest measures announced by Ireland will increase the amount of savings worth more than 4 billion euros. Don’t get too emotional by the generosity of Irish government. This article was not meant to give kudos to the government planning. This will mean that Ireland will join Greeks after some days in protests and there will be more hullabaloo.

Europe Rises Up:

Three people already lost their life’s in Athens when the people were protesting against the austerity measures by Greece government. This violence’s are just the start we will see more of them in near future. Spain, which is considered to be the next spoilsport in the Euro zone, is getting tense. Even after repeated assurances from its Prime Minster, people and markets are in no mood to accept the promises.

We were also perplexed to know the situation of EURO currency that has been shot dead by the dirty policy makers of the PIIGS. If reader’s remember their were talks everywhere about the supra national currency and Euro taking over the Dollar in next few years. Some countries even started to use EURO as their global currency. Now the theory has taken a serious hit after the current disaster. Chinese government on the other hand will be feeling much relieved now as the treasury value locked in Dollar is fetching some returns or recouping the losses.

EURO zone and its currency image has been tarnished badly after the concerns and now the other countries will focus more on holding on to their Dollar reserves and believing in Uncle Sam. Dollar recently tested a 1-year high against the EURO and the markets are likely to see some more multi year levels get broken in coming days.

People must wait and watch PIIGS spreading further flues and contamination in the markets.