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When Will Euro-PIGS Fly?

Posted by Larry Doyle on February 5, 2010 10:56 AM |

Wall Street has more than bulls and bears. Trading desk banter often refers to the presence of ‘pigs’ in the market. Years removed, I can still hear traders saying, “this market’s a pig,” “this bond’s a pig,” and “that account is a pig.” Well, with my morning coffee I saw a new utilization of this famed reference. I chuckled but also realized the seriousness of the new pig reference in regard to the increasingly dire fiscal situation in the European Union.

What are the PIGS across the pond? Portugal, Italy, Greece, and Spain.

The Wall Street Journal highlights the disastrous fiscal situation in these countries in writing, Sovereign Risk Meets Sovereign Reality:

After months of shrugging off debt problems in Dubai, Greece and other smaller economies, markets yesterday seemed suddenly aware of the risks of sovereign default.

Back in November, when the question of Dubai’s solvency came to a head, it was ultimately bailed out by its rich older brother, Abu Dhabi. Now, the European Union is doing its best to avoid promising a similar bailout to Greece, though in the end few believe Brussels will allow Athens to go under.

The current crisis in Greece is only the worst example inside the EU. The PIGS—Portugal, Italy, Greece and Spain—all boast public debt above or headed for 100% of GDP. Though the PIGS acronym was apparently coined by British bankers, Britain, Ireland and Iceland also smell distinctly of bacon.

The problem isn’t confined to Europe. Japan and the United States, by most reckonings the world’s largest economies, also face pressing questions about their sovereign debt levels. To be sure, the U.S. and Japan can sustain such deficits more comfortably than small countries like Greece or Portugal where the government’s ability to curb public-sector spending is rightly suspect. Yet even in economic giants, bad policy could cause investors to move out of debt they have long considered a safe haven. The moment is approaching when the artificial line separating the wealthy from emerging markets will lose much of its relevance.

What does this all mean? Let’s reduce this to very simple terms. The overall debt relative to GDP within all the aforementioned countries is off the charts. We should make a point of adding the U.K, Ireland, Iceland, and eastern European nations as well. Government backstops are useful for a while but those are akin to putting a finger in a dike. Ultimately the wave of debt keeps coming and must be addressed. What has to happen?

1. Increased taxes
2. Cuts in services
3. Cuts in entitlements
4. Higher interest rates

Unless and until these medicines are applied, you can rest assured, these PIGS will not fly.


  • Duke


  • Mary a.

    Was the “i” in PIGS Italy or Ireland? reported it as Portugal, Ireland, Greece and Spain. Whaz a matta you?

    • LD

      Depends on one’s perspective. My last name is Doyle so I think the “I” stands for Italy, but there is also a lot of squealing going on over on the Emerald Isle.

      Ciao, baby!! Or should I say, Slainte..!!

      Either way, both countries are in the sty!!

  • Mary a.

    Both are small potatoes, or pasta e fagioli, compared to Illinois.

  • Mary a.

    No, I take it back, because the population of Italy is 58,000,000, and now I see your point. Thanks!

    • LD


      The key point with any of these countries is the concept known as contagion.

      The brain surgeons on Wall Street and in Washington thought the sub-prime mortgage debacle could be contained, but given the way the markets are interconnected via derivatives, that obviously did not happen.

      We can not look at defaults in any corner of the world/market and think there will not be some semblance of a ripple effect elsewhere. Perhaps those ripples are more like waves, if not tsunamis.

      Hope this makes sense.

      Now how about a cannoli with a nice Irish coffee!!

  • coe

    Your comment on contagion brings to my mind the theory of sensitive dependence on initial conditions – often referred to as the butterfly effect…if the structured leverage epitomized by the origination and ultimate foreclosure of one sub-prime mortgage on a tract home in Riverside, CA has unwittingly nudged the economic forces of nature so there is this cataclysm of debt and risk facing the sovereigns in Europe, then it stands to reason that this rippling impact will also likely occur as part of the cure…yet another reason that the recovery in America, so contingent on the housing sector and on unemployment, needs to lead the way…can we get there? …more is at stake than initially meets the eye

  • Mary a.

    Forget the cannoli. In fact, forget the coffee and just leave the bottle of whiskey on the table.

  • LD


    Consider it done. Some Jameson’s for you? What about a little grappa, as well?

    Bring some friends and we can have a little party while we navigate the economic landscape.

    Thanks for helping us keep it light.

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