Business free essay: PIIGS: Casualties of the Recent Economic Crisis
PIIGS: Casualties of the Recent Economic Crisis
An analysis of the European economies and their performance over the recent stretch of time gave a mixed reaction regarding the fortunes of European countries’ economic stability. One such analysis found out that some countries were particularly more exposed to the unpredictable global economic fluctuations than the rest. The PIIGS analysis is an unofficial acronym usage, representing five countries deemed to be worst hit by the recent global economic crisis from 2007. The usage of the acronym has widely been changed to fit the analysts’ scope of coverage, mainly involving countries such as Portugal, Italy, Ireland, Greece and Spain (PIIGS). Advanced versions of the analysis add more letters to represent the vulnerability of more economies to the global crisis that adversely faced them.
Glaring challenges facing the European countries termed as PIIGS are economically potent than many other major challenges facing the modern European states such as energy and climate change. In the recent economic crunch, many countries struggled to fight off uncontrollable public debt which threatened their very sustenance in the foreseeable future. In fact, some of them were in dire need of bail-outs as an intervention to the teething realities that their fortunes of economic performance presented. Low competitiveness for the countries acted as a major hindrance to economic augmentation while current account deficits proved to be uncontrollably high for them. With these and several other multiplier challenges, the fate of the performance of these countries seems to be hanging on the balance. The following discourse attempts to expound on the regional and state issues with regard to prospects of economic performance.
Prediction of the Seriousness: Effects on the PIIGS Countries
One of the other main indicators of the decline in vitality of the economies that could lead them to a complete breakdown is prices and wages inflation, which left the countries exposed to currency strength issues (Holger, 42). In view of the observation by the author and other analysts, PIIGS countries faced a serious purchasing power challenge occasioned by uncontrolled inflation figures. In comparison to other Euro countries, the inflationary impact experienced in these countries was by far below the average.
One of the most important prediction illustrating the magnitude and potency of the economic challenge ahead of the PIIGS countries is the need to induce immediate public cuts. Where inflation stares in the eyes of the governments, inducing reduced public spending will offer an avenue for the countries to find solace. Reducing public expenditure implies that the normal running of development programs might be affected. According to Hillinger (4), regulatory agencies must duly be constituted and empowered to take care of the policy to assist the government in implementing such cuts. One of the mandates of the agencies is facilitating the implementation of possible cuts deemed rather luxurious amid the crisis. The author highlights some of such reductions areas as executive bonuses. The other mandates to be accorded to such policy watchdog outfits as prescribed by the author include financial market regulation. However, the author is adamant that the involvement of politicians always make it difficult to realize the full potential of the agencies in the PIIGS countries (Roubini, 34).
Prediction of the Seriousness: Effects on the EU
It has been observed that individually, the countries struggled with inflationary impact, both price and wage impact. This implies that the authorities needed a turn of control events for the desired economic recovery and readjustment to be experienced. Bearing in mind that the European integration has been facilitated by the running of the economic affairs of the region by the use of a single currency, exchange rates would need change.
Current European labour market in the wake of the aftermath of the recent economic crisis is largely rigid and difficult to be controlled. The implication of the rigidity across the divide is that any intervention plan to be adopted must desist from inducing change through labour remuneration. It can be predicted that the much needed quick recovery plan by the EU region and some of the members of the economic bloc can not be clarified due to the market rigidity. The use of the Euro in these countries could prove be problematic in the circumstances.
The seriousness borne by the problems experienced by the PIIGS countries in the EU perspective translates to a leaner scope of intervention approaches available. Perhaps one of the most important assets that the economic bloc will find to be invaluable to this end is the consideration of possible reforms touching on the apparently rigid labour market. The EU will have tackled the possibility of serious problem to almost every member country.
To illustrate the seriousness that the PIIGS countries had to come to terms with during the crisis, Pengelly (48) explains the impact of the government bonds and their risk uncertainty in the crisis build-up. The eurozone debt crisis was as a result of the inability of the local currency to match up with the collateral expected to shield off dealers from debts. Collective European market policies of intervention had to be introduced to save the countries suffering from the crisis. One example of such interventions was the introduction of austerity measures. The author reports that the debt spreads across the PIIGS countries remain exceptionally high and the effect can be attributed to sovereign debt crisis.
Debt crisis have attracted serious adjustment policies in the PIIGS countries in the aftermath of the financial instability caused. Debt management intervention was now going to take a more cautionary approach since exposure to debts that use government bonds in the PIIGS became a high risk area. Tighter measures to manage debt collateral particularly in the selected countries alone seems like a direct public discouragement from engaging is one of the safest investment programs.
Doubt exists over the stability of the euro and if it can pass the test of time to exist by 2015 (Bercsten, 7). According to the author, whether the euro persists in the turbulent aftermath of the economic crisis in PIIGS countries remains a factual question that only time would tell. Possible projections however illustrate that it is possible for the currency to survive. The success of the EU over its life is certainly beyond such a challenge which can be weathered by its long integration willingness and resilience (Engelen, 48).
Bercsten, C. Fred “The Euro? Will it still be Around Five Years from Now?” The International Economy, 24.2(2010):6-10
Engelen, Klaus C. “Gunfire at the ECB Corral.” The International Economy, 24.4(2010):48-51, 71-72
Hillinger, Claude “The Crisis and Beyond: Thinking Outside the Box.” Economics, 4.23(2010):1-61A
Holger, Zemanek “Competitiveness within the Euro Area: The Problem that still needs to be solved.” Economic Affairs, 30.3(2010):42-47
Pengelly, Mark “Questioning Collateral.” Risk, 23.7(2010):47-49
Roubini, Nouriel, “Crisis Economics.” The International Economics, 24.2(2010):33-34
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