Home > Climate Change, Europe > PIIGS: Who’s it going to be next and should we care?

PIIGS: Who’s it going to be next and should we care?

PIIGS: Portugal, Italy, Ireland, Greece, Spain

Very cute. What about it?

Well, here’s the deal – they all are in danger of having their credit rating downgraded. Greece has already been downgraded – which resulted in their lifeline of cheap or free loan money from the International Monetary Fund (IMF) to be shut off (they were over-leveraged by 150% – which means that for every 2 dollars they had, they owed somebody else 3). Overnight, massive layoffs occurred and there have been several riots led by unions and various pro-welfare state socialist parties (three fatalities in the riots so far). Instead of letting Greece fail and cutting it from the EU (like they should do – if you have a branch on a plant that has a disease you get rid of it before the disease can spread to the other branches), the EU and the IMF has decided to loan them billions of dollars of bailout money (which they know Greece can’t pay back), and in return Greece PROMISES to not spend it so poorly as they were doing (though the money is to support their welfare systems, which are massive and exactly what got Greece into this situation). The EU isn’t going this alone – the USA will be there tossing cash at these free-loaders as well.

When Greece was downgraded the EU took a big hit. As of the writing of this post, Der Spiegel lists the Euro at $1.26 – down from $1.50 about six months ago. Currencies usually move in fractions of a penny – this is a massive move, especially when you consider that the USD is losing value at a ridiculous pace as well (from what I can tell – US inflation is so bad nobody can agree on the rate, but all indicators point to “BAD”. The Gov’t wants to say 2.3%, but that is a topic of much debate amongst economists). The Euro is just losing value faster: it’s a race to see who can find the bottom of the pit first.

The clincher:

Analysts are saying Italy will be downgraded next. Personally, I don’t think it will be Italy – I think Spain is the most likely candidate. One thing is for sure though: another downgrade appears to be more of a question of WHEN rather than IF. This means that the “one time only, never going to do it again” loan that the IMF is giving to Greece is just the start. Perhaps, since the Emissions Trading Scheme (ETS) for limiting CO2 emissions tanked, this is the EU’s new scheme for redistributing the world’s wealth to corrupt countries.

The players (Stats here):

Portugal: really doesn’t have an economy to lose. They have a few firms that are large that design technology (like aerospace). They have a big bank. The most important stat is that their unemployment is at 10.1% – just 0.2% higher than the USA. They are probably where they’re going to be – I don’t think they’ll really get worse, per se.

Italy: has a real economy. It is incredibly hamstrung by all the public socialist programs offered, but it exists. If Italy gets downgraded or “falls”, it will be as a direct result of their public programs. I think analysts think Italy will be the next to fall is because Italy is really shady with how they spend lent money and they WANT Italy to fall. Corruption has always been a big problem since before WWII (I have family there that did not immigrate to the USA with everyone else and they say the corruption is as bad as it ever was), so the money has probably disappeared into officials’ pockets. As long as that money is being saved and spent in Italy, then the corruption doesn’t really hurt their economy (better if it’s being spent there).

Ireland: has a real economy that occasionally grows (right now it is shrinking at -1.28%). In fact, the only thing holding Ireland back is the EU. The EU doesn’t seem to be fond of Ireland. Ireland joined, made contacts and started business in a serious way, and has thumbed their noses at the EU by voting down the Lisbon Treaty. That treaty was a socialist’s wet dream, and since the administration of the EU are all socialists – they resent it being voted down. It was eventually passed in 2009, but I get the impression that the EU is still bitter over it. I do not think Ireland will be the next to fall though.

Greece: has no economy and has already fallen. They are going to receive a bunch of bailout money, but this is only prolonging the inevitable – the country is bankrupt and completely unable to pay its debts.

Spain: had an economy and squandered it on social programs and so-called Green Energy. For each green job they created, 2.5 regular jobs were lost. They were putting all their hopes on the ETS, but now that has tanked as well, and many of the “green” subsidies have been cut – they are out of options and against a wall. They are hemorrhaging money and they have no income. They will be next I think.

The most important lesson out of this:

WHEN the next one falls, the EU is going to take another big hit and this will pull down other western countries as well (since we’re all buddies now). Most affected will be the economic powerhouses – Germany, the USA, and possibly the UK. We, as countries, need to take a look at Greece and the other members of PIIGS and see what went wrong: public spending and taxation. These are obviously very bad things for an economy. This is how you turn a country into a welfare state that can’t support itself, and in today’s economic environment this is something that should be avoided at all cost until GDP is positive and greater than 4% again.

While I don’t know of a system that will make a Utopia – I do see one that makes countries fail, and that is a socialist system.

Edit: Good post on this issue: here

Categories: Climate Change, Europe
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