They used to be pejoratively labelled the “Pigs”: Portugal, Ireland, Greece and Spain, the “peripheral” countries carried into the eurozone on a wave of prosperity that were all forced to go cap in hand to their neighbours – and the International Monetary Fund – when the financial crash came.
Yet while Greece’s plight has only worsened over the five years since it was first rescued, the other three bailed-out countries have managed to return to growth, and send the inspectors from the International Monetary Fund back to Washington.
Ireland graduated from its bailout programme in 2013. Spain – which never had a full-blown rescue, but received aid to prop up its ailing banks – did so in January last year; Portugal followed suit shortly afterwards.
As Greece attempts to rebuild its shattered economy with the aid of last week’s controversial bailout, it will be encouraged to take heart, and learn the lessons, from these success stories. Yet these countries have taken their own, tough paths back to economic growth – and the pain is still being felt.
Ireland, which experienced an extraordinary property boom in the runup to the crisis and a deep downturn when the reckoning came, is expected to see GDP growth of around 5% this year. But its economic output is artificially boosted by the enthusiasm of multinationals for the country’s rock bottom 12.5% corporation tax rate — part of a long-term industrial strategy.
Ireland was also in a very different position to Greece when entering the crisis: until the country’s politicians chose to bail out its fragile banks, the public finances were in a relatively healthy state, with government debt at around 40% of GDP.
Nevertheless, Michael Taft of the Unite trade union in Ireland says the deep spending cuts imposed as part of the post-crisis settlement have left long-term scars. “Thirty per cent of people live in deprivation conditions – 40% of children,” he says.
He adds that the fact that parties on both sides of the political divide shared a commitment to spending cuts meant it was hard for a Syriza-style, anti-austerity narrative to take hold: “The debate has been like the sound of one hand clapping.” However, more recently there was a noisy public revolt when the government considered imposing charges for water.
There has also been large-scale emigration as young Irish workers have sought better opportunities abroad – a process that has been under way in Greece for several years.
In Spain, where growth has bounced back strongly, and is expected to exceed 3% this year, several years of declining real wages and plunging property prices have helped to attract manufacturers seeking a low-cost location to sell into the eurozone market.
Marchel Alexandrovich of City consultancy Jefferies says: “A lot of the Spanish story is a function of exports. The GDP numbers have improved, but none of that was driven by domestic demand. In 2009-10, factories were relocating out of eastern Europe into Spain.” He adds that Spanish food exports have also become cheaper.
Greece’s hopes of pursuing this strategy may be compromised, however, both by the perception that it is far from a business-friendly environment and lingering fears that it could eventually plunge out of the euro.
Boosting exports is also a long-term strategy that is unlikely to yield a rapid turnaround in growth. “It takes time to come through,” says Alexandrovich. Net exports had begun to make a positive contribution to Greek GDP in the runup to the latest crisis, but it’s not clear when growth will be resumed.
For Portugal, the journey back to normality is far from over. And for a country that has only managed to run a current account surplus in one quarter since 1960, the prospects of an export-led recovery look bleak.
Economic growth has returned, but as the IMF put it in its latest report on the economy, “longstanding vulnerabilities and legacies of the crisis – including elevated public debt, corporate debt overhang and high unemployment – continue to weigh on medium-term growth prospects and will require further fiscal adjustment, intensified efforts to advance private debt resolution, and sustained structural reforms”. The IMF’s number-crunchers expect an anaemic 1.6% GDP growth in Portugal this year.
In all three of these bailed-out “Pigs” – who were joined by Cyprus in 2013 – the legacy of the crisis has been long-lasting. And all have experienced periods when the social cohesion and political stability of the nation began to fray. But all three have managed to chuck out the creditors and regain control of their own policies.
However, some economists argue that has only worked because, ultimately, the debt burdens of Ireland, Portugal and Spain were manageable, while – as the IMF’s Christine Lagarde made clear again on Friday – Greece’s is “categorically” not.
Dhaval Joshi of consultancy BCA says: “There’s a big similarity between Ireland, Spain, Portugal – and ultimately the UK and the US: the problem was the property sector, and a credit boom linked to a housing boom.” For Greece, on the other hand, it was an unsustainable public borrowing spree, made possible by the cheap borrowing costs that followed euro entry. And for that reason, he believes, the relative calm of Dublin, Lisbon and Madrid is unlikely to spread to Athens. “The past three years have put clear blue water between Spain, Portugal and Ireland – and Greece,” he says.
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