Due to heavy government debt loads and slumping economies, Portugal, Ireland, Italy, Greece and Spain, at one point or another, have been in the spotlight over the past 18 months.
The unflattering acronym, PIIGS, that lumps these five nations together should really be split into two separate groups. Portugal, Ireland and Greece would be put into one set and Italy and Spain in another. The size of the Portuguese, Irish and Greek economies pale in comparison to Italy and Spain. As of 2010 the combined gross domestic product (a measure of the size of an economy) of Portugal, Ireland and Greece was $730 billion. In 2010 Italy alone had a GDP of $2.0 trillion and Spain $1.4 trillion.
Another reason for splitting the PIIGS acronym into two groups has to do with the steps taken to assist the nations. Over the last year and a half Portugal, Ireland and Greece all began tapping the pledged 750 billion euro rescue package. This program is aimed at providing loans to troubled nations at lower then market level interest rates. These funds are promised by the the European Commission, the IMF and ECB and come with conditions of austerity by each nation.
Maximum Amount of the Rescue Packages
Greece: May 2010 – 110 billion euro loan package
Ireland: November 2010 – 85 billion euro loan package
Portugal: May 2011 – 78 billion euro loan package
This summer, the concern in Europe shifted from the three smaller nations to Spain and Italy. Interest rates of 10 year government notes, a year ago 4.1% in Spain and 3.8% in Italy, began to increase. By the beginning of August 2011 the Spanish 10 year soared to 6.3% and the Italian 10 year 6.2%. The higher rates indicated that it was going to be much more expensive for the countries to issue debt to finance government expenditures. On Monday the European Central Bank (ECB) announced that it started buying Italian and Spanish debt in an attempt to prevent rates rising further in Italy and Spain. After this declaration yields in both Italy and Spain decreased dramatically to approximately 5% for both 10 year Spanish and Italian government debt.