piigsty

According to an editorial in the Wall Street Journal (WSJ), the source of the European debt crisis lies in the failure of the European welfare state. With the PIIGS debt piles clearly undermining the sovereignty of each nation rather than bolstering it, European states have failed to grow fast enough to pay for their massive entitlement programs (and most decided to tax the hell out of its citizens for the privilege).

For Italy, with aging populations (20% of Italians or 12m people are 65+ ) and low birth rates (Italy ranks 207^th of 221 territories/countries), pensions today cannot be fully funded by worker contributions at the entry level. The maths don’t work.

Italys failure was a political failure to tackle the low tax/high spend economy and the protected power of various trade ‘guilds.’ This was not helped by the ‘concertazione’ (concert) of Italian coalition politics which makes for unwieldly and shifting poliitcal blocs, making a cohesive and stable federal government next to impossible (hence the endorsement of ‘strong’ leaders instead such as that of Silvio Berlusconi (PM 1994-1995, 2001-2006, 2008-2011) with at least the appearance of control.

It boils down to this. The hard remedy to Europes problems lies in the reform or complete destruction of the European welfare state. But tough reforms requires strong leadership. The lesson? “Never to become a high-tax, slow growth entitlement state, because the inevitable reckoning is nasty, brutish and not short.”

PIIGSty prides itself on not rehashing the breaking news of the day, each and every day (and we know the European mess is a tad depressing, especially if you’re Irish, Italian, Greek or Portuguese)

Credit where credit is due, the Guardian’s (UK) Tom Meltzer has sought to address that burning capability question hanging over the head of New Italian PM Designate Mario Monti. Will Mario Monti really become a European ‘Super Mario’? His comparative analysis provides all the necessary relevant facts.

(Our favourite line: Mario Monti’s Antagonist: Silvio Berlusconi. Not a turtle)

BBC News has a really handy interactive graphic on the eurozone debt crisis. It has 4 sets of data based on Eurostat figures – Debt:GDP ratios, Budget Deficit, Economic Growth and Unemployment – from 1999 to Q1 2010 (not bang up to date but still useful to compare the PIIGS and others over the past 11 years). Use the indicators to compare all 17 eurozone countries (and the UK, as a bonus…)

PIIGSty has put together 3 useful images comparing each of the PIIGS to each other on the ‘big 3’ issues: Debt, Deficits and Growth (click on each category to see the Eurostat Excel tables)

Debt (GDP:Debt Ratio)

Budget Deficit

Growth

Heres a really useful (and informative) graphic from Der Spiegel.

It compares the 3 key economic indicators for the PIIGS, France and Germany. Note how the EZ crisis is now boiled down to just the pivotal 7 of the 17 members; the Franco-German leadership duo and the PIIGS crisis countries. For reference: the Maastricht Criteria for entry to the euro started that…

• ‘Sovereign Debt: GDP ‘ be 60%
• ‘Budget Deficit‘ does not exceed -3%.

Over the past week, there have been a few really valuable insights from the Economist on the euro crisis and the European debt crisis. Of course, we at PIIGSty are very proud of our summaries so, with you in mind, we’re giving you a run down of our favourite three articles. Heres a PIIGSty pictoral summary of all 3.

Full summaries of the articles are below…

Read the rest of this entry »

There is plenty of negativity associated with the present day European project – some of it merited, some not. A key question which is not often asked is ‘what next?’ With the EU’s economic wings pretty firmly clipped for next few years, we are living through an on-going battle. While we look within ourselves and talk about future economic and political governance, what about our external position? Where is Europe’s relevance in the 21st century?

One article which PIIGSty feels represents an interesting tip of the iceberg insight to this question is in today’s Wall Street Journal entitled ‘Emerging Giants Look at Europe Aid’

An alternative headline could be, as one clever commentator puts it ‘BRICS rescue PIIGS.’ The BRICS – Brazil, Russia, India, China and South Africa – are basically an acronym for growth especially considering the various restrictive factors on the traditionally strong US, EU and Japanese economies. The BRICS, in sum, are growing fast in economic importance. But even the BRICS are not immune to a downturn.  Chinese growth forecasts for one have been pared back thanks in part to the EZ crises. Without Europe buying BRIC exports, BRIC economies can overheat. China needs to carve out new markets and as China produces more technologically advanced exports, the best option is to sell them to Europe and North America rather than Africa where it is also trying to get a foothold.

Read the rest of this entry »

A sobering visual from the Economist Daily Chart 18 Aug 2011

Also featured? Every member of the PIIGS has suffered GDP decline since late 2007. Ireland has fared worst with Greece  and Italy close behind.

Key stat: Ireland’s income per head is now a painful 25% below its previous trend. Its GDP is 12% lower