PIGS in the centre of the economic crisis

The nickname PIGS has been used as an acronym for Portugal, Ireland, Greece, and Spain. This rather unpleasant nickname has grown increasingly popular these days as the economy of those countries are in the centre of the crisis.

Today, Greece, Portugal, and Spain's national bond credit default swap (CDS) has reached its historical amount. Greek CDS has risen 19.5bp marking (446.5), Portuguese ↑9.5bp (239), and the Spanish ↑13bp (183). This sharp rise of the amount to pay to borrow is believed to be caused by the shock from the Portuguese market. Yesterday, Portugal planned to issue 500 million euros bond, but then it had to cut its bills to 300 million euros due to the lack of investor interest. The rise of the Greek and Portuguese CDS is understandable since they are pointed as the closest countries to declare default (bankruptcy), however, why the rise of the Spanish CDS?

The CDS traders argue that the problem of Spain is not that Spain is in an imminent danger not to be able to pay back what they have borrowed. The problem is the rising of the public debt. The European Commission estimates that Spain's public debt will be increased to 74% of the GDP by 2011. Moreover, Spain's budget deficit marked 11.4% of GDP in 2009 which was higher than 9.5% that the government has set. In December 2009, Moodys rated Spain on top of the world misery index.

Last month, the secretary of the treasury, Elena Salgado announced the government blue print to reduce the budget deficit at 3% of the GDP by 2013. This plan, however, lost its credibility today when the bank of Spain said that the Spanish GDP has minus growth for 7 quarters in consecutive. Spanish economy is expected to have minus growth at least until 2012. It’s a matter of time that the current 18.8% of the unemployment rate goes over 20%.

The economic crisis that Spain now faces is serious. But then, there’s no medium of communications in Spain which seriously talks about it. While people in abroad discuss of the debt default of Greece to have possible domino effect in Spain, majority of the Spanish people don’t even know what kind of crisis they are in. The current economic crisis is not only the problem of the so-called PIGS. In Europe, big economies like the UK and France are struggling to reduce their budget deficits to meet 3% of the GDP as they agreed with the EU. In Japan, economy is shrinking so rapidly that in this year they are expected to hand over the world second biggest economy position to China. Among the OECD members, only South Korea and Australia marked positive growth in 2009. This is to tell that the rest of the world is still in a stage to overcome the recent economic crisis. In other words, it won’t be easy to expect outside help if any European countries declare default.

Hiding and pretending is not a suitable strategy to combat the economic crisis. I wish the Spanish government to issue more realistic, down to earth plans to overcome this crisis so that people in Spain don’t need to search for a job in abroad, and they can instead remain in Spain.

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