The trendy new acronym is PIGS. It stands for Portugal, Ireland, Greece and Spain, and is a handy way of referring to the struggling members of the eurozone. These four countries are all facing some similar problems, such as huge budget deficits and galloping unemployment.
But not all PIGS are alike, says Daniel Gros, director of the Centre for European Policy Studies in Brussels. He writes in the Financial Times that Ireland and Spain are actually in a better position than you might think because their domestic savings are adequate to fund their government deficits now that real estate bubbles in both countries have popped and money is no longer flowing into the property sector.
Portugal and Greece, however, are not generating enough internal savings to cover their needs. Greece—no surprise—appears to be in the worst position. Its net national savings, after adjusting for capital consumption, has been negative for almost a decade.
This deficit has important implications for the debate about Greece’s horrible financial position. Many people expect the country to be bailed out by a loan from its European neighbors and for its government to agree to austerity measures, such as reducing the wages of public sector workers.
But as Gros points out, a loan to Greece would only shuffle the debt problem around unless it’s accompanied by deep cuts in Greece’s private-sector wages as well. At the moment, Greece is not generating enough internal cash flow to maintain its capital stock. To put things bluntly, it is a country growing poorer by the day. Gros’s advice to outsiders is not to even think about stepping forward until Greece’s private sector agrees to deep cuts in wages and consumption.
Freelance business journalist Ian McGugan blogs for the Financial Post