PIGS Problems

Among the nations using the Euro as their currency, four or five have been identified as financially problematic: Portugal, Italy, Greece, Spain, and sometimes Ireland. Some obviously English-speaking wag decided the group could be identified by their first initials, turned these into an acronym and it comes out either "PIGS" or PIIGS." Most often they are known as the PIGS; obviously not a flattering label.

Of the group, Greece has been the poster child for budgetary shortfall this spring. However within the past week the bonds of both Portugal and Spain were also downgraded to a lower rating by Standard & Poors. Whether Italy will follow suit isn't known.

All of this is raising questions of whether the monetary union should ever have included less developed nations like the PIGS. Being in the Euro zone means these nations don't have available the mechanism normally used by countries in the fix in which they now find themselves, namely currency devaluation.

Rather the Euro zone is now in the same situation that Italy has experienced internally for decades. Northern Italy is developed and prosperous whereas southern Italy is neither. In order to hold Italy together, northern Italy subsidizes southern Italy year after year. This siphoning of tax revenues southward isn't popular in northern Italy whereas southern Italy doesn't seem particularly grateful, either.

Now we see this same scenario playing out on the larger stage of the European Union. The Germans are playing the role of the northern Italians and the PIGS, starting with the Greeks are playing the role of the southern Italians. The rioters in the Greek streets seem to be saying with their posters "We have a right to be profligate Greeks, and you thrifty Germans have a duty to subsidize us." Can you imagine the Spanish, Portuguese, and Italians will be any more reasonable? Can you imagine the thrifty Germans being willing to support them for very long?