The acronym PIGS, which stands for Portugal, Ireland, Greece and Spain, is becoming more and more common in the financial world as commentators have shifted from reporting on insolvent banks and financial institutions to a greater problem: the insolvency of sovereign states.
As these governments come under increased scrutiny, it is Greece that finds itself in the worst shape.
The European Commission, the executive branch of the European Union, released statistics showing that Greece’s 2009 debt-to-GDP ratio hit a record 12.7 percent. That pushed its overall public debt to more than 110 percent of GDP, easily surpassing the other so-called PIGS nations.
Greece now finds itself teetering on the edge of bankruptcy as its debt ratios make it harder and harder for the government to refinance its obligations.
Costas Paris reported in Friday’s Wall Street Journal that Greece recently delayed the sale of its 10-year bonds over fears that “an unsuccessful auction would exacerbate the sovereign-debt fears.”
In the meantime, Paris reported that Greece has planned an austerity package seeking to cut spending by up to $3.4 billion — a move the government hopes will instill much-needed confidence and encourage the purchase of its bonds.
And yet, the Greeks are not embracing the government’s proposals.
An Associated Press article published Feb 24. reported that “more than 30,000 demonstrators marched through central Athens Wednesday, as a nationwide strike grounded flights, shut schools and crippled public services in a show of strength against government austerity measures.”
It is important for Americans to take a close look at Greece’s situation and see what lessons can be learned.
A mix of excessive government spending, massive government bureaucracies and unfunded pension commitments have ballooned the country into a state of insolvency.
But Greece, a government often associated with fraud, has been reported to have had some major help from a curious, or perhaps not so curious, partner.
Business Week published an article Friday in which reporter Sean O’Grady wrote, “Goldman (Sachs) has come under fire for currency swap deals in which the Greek government engaged in.”
Such swaps would have allowed the Greek government to report only a portion of its debt, thereby acting as if it wasn’t in bad shape.
If governments spend and allow debt to continuously grow, the point will eventually come when said governments must face reality. Even with drastic policy changes, governments are forced to rely on foreign creditors to refinance their problems or look to other countries to bail them out.
Will our country continue down its current path of denial only to risk waking up to headlines that mirror what we see coming out of Greece today? Or will there be a dramatic shift that leads to our government learning from the mistakes of others to avoid similar consequences?
Jason Cutbirth is a UH student and may be reached at [email protected]
