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PIGS Go Bankrupt

They are called the PIGS — Portugal, Ireland, Greece, Spain. What they have in common is that all are facing deficits and debts that could bring on national defaults and break up the European Union.

What brought the PIGS to the edge of the abyss?

All are neo-socialist states that provide welfare for poor people, generous unemployment, universal health care, early retirement and comfortable pensions. Most consume 40 percent to 50 percent of their gross domestic product annually, a crushing burden on the private sector.

Dying populations is a second cause. After two world wars, the Europeans lost their faith and embraced hedonism and materialism, la dolce vita. Large families fell out of favor. Women put off marriage and babies, and went to work. Birth control and abortion were made readily available in every country and, if not, just across the border.

For 30 years, the fertility rate of Europe has been below the 2.1 children per woman necessary to replace a population. In Russia and Ukraine, a million people disappear yearly. In Western Europe, the passing of the native-born goes on quietly, as Third World peoples come to fill the empty spaces left by the aborted and unconceived.

Turks are in Germany. Pakistanis, Indians, Arabs and Caribbean peoples are in Britain. Algerians, Tunisians and Moroccans occupy the southern coast of France and the banlieues around Paris.

These newcomers have neither the education nor skills of the Europeans. Hence, they earn less and contribute less in taxes, but consume more per capita in social benefits.

As the number of young entering the European labor forces shrinks, the number of seniors and aged grows. And thanks to advances in medicine, these retirees live lengthening lives. Thus the burden of pensions and health care grows steadily and the need for higher taxes and larger worker contributions increases.

Then there is globalization. In Europe, wages and taxes are high, regulations heavy, unions strong, and lawyers ubiquitous. Manufacturers, to cut costs, have been outsourcing production to where the labor is cheap and abundant, the unions are nonexistent or weak, and health, safety and environmental regulations are lax. Welcome to China.

Greece is the first European nation to hit the wall. As an EU member state, she is obligated to keep her deficit to 3 percent of GDP. But this year’s is 12.7 percent, and Athens needs to issue $75 billion in bonds alone to finance the deficit and roll over debt.

The markets, however, are rating Greek bonds as risky bonds. To borrow, Athens must pay more than twice the interest rate Germany pays. Faced with strikes by public employees and students, Athens appears to lack the political will to make the cuts necessary to bring the budget back toward balance.

As Portugal, Ireland and Spain gaze on, Greece approaches a moment of truth. Should she default, their bonds, too, will plunge in value out of fear of a copycat default, and the interest rate they pay would also rise. They, too, might then take the Argentine road.

The EU’s crisis would then be like a crisis in the United States should California default on its state bonds and interest rates on other municipal bonds surged to double digits.

Is there a way out?

One option is for the EU to bail out Greece with a huge loan. But if Greece cannot meet her debt obligations now, how could she pay back the loan? And if the EU cannot compel Greece to make deep budget cuts today, what leverage would the EU have after bailing out Athens and removing today’s pressure on the government?

A second option is to call in the International Monetary Fund, which imposes tough conditions on nations receiving IMF loans — the Third World therapy. But problems would arise here, too.

First, it would be an admission that the EU cannot manage its own household. Second, the largest contributor to the IMF is Uncle Sam.

Why should America bail out Greece, when the EU is larger and richer and did not help bail out California in 2009? The stimulus bill did that in 2009, to which Europe contributed nothing.

Where Greece is at today, however, we shall all arrive tomorrow.

In every Western nation, government is growing beyond the capacity of taxpayers to bear. Deficits and debt are surging. Not enough children are being born to replace parents. The immigrant poor who consume more than they contribute are coming to take the empty places. Seniors and elderly are growing as a share of the population. Companies are saying goodbye to the West and moving offshore to low-wage lands.

The West begins to look like yesterday, while the East begins to look like tomorrow.

The West is approaching a crisis of solvency and of democracy. We shall see if democracy, which grew popular lavishing benefits upon all, is strong enough to start clawing them away. Or will democracy try to keep piling the burden on the producers until they rebel or depart?

Patrick Buchanan is the author of the new book Churchill, Hitler, and ‘The Unnecessary War,’ [1] now available in paperback.

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#1 Comment By Martin On February 9, 2010 @ 2:41 am

Of course, if only the Europeans hadn’t lost their faith, kept their women in the kitchen where they belong, left abortions and contraceptives illegal, and kept all those uneducated brown people at bay, none of this would have happened.

I mean, it is obvious. An unregulated banking system, easy monetary policy, currency misalignment and the tendency for the US to live above their means had absolutely nothing to do with it.

#2 Comment By Thomas On February 9, 2010 @ 2:42 am

“PIGS” are the least socialist states of Western Europe and the State share of GDP is actually in the 30-40%-range (close to the US) rather than 40-50%. The Germanic nations (including Scandinavia) with more generous welfare are not in such a danger. They also have the fewest labour regulations, thus very many textiles that used to be made in North Europe are now made in Portugal/Spain. But deregulation and free trade did not save them.

Their real downfall was the lack of state regulation on banks.

Lastly, Greece has typically had a large budget deficit. But even now its deficit is about the same or just slightly higher as a % of GDP as several large EU nations, including Britain. But the others are not being threatened. Why is that? Perhaps because Greece still has a large state sector that they want their multinational banker friends to buy up via forced privatisation?

#3 Comment By MattSwartz On February 9, 2010 @ 5:10 am

Of course, if only the Europeans hadn’t lost their faith, kept their women in the kitchen where they belong, left abortions and contraceptives illegal, and kept all those uneducated brown people at bay, none of this would have happened.

I mean, it is obvious. An unregulated banking system, easy monetary policy, currency misalignment and the tendency for the US to live above their means had absolutely nothing to do with it.

I know, right?

I’ve always said that having the right regulatory structure is more important than having children, especially when identical children from other parts of the world can be imported. Culture, language, and everything else about society will more or less smooth out and work swimmingly as long as nations have the right laws about banks. Can I subscribe to your newsletter? I like what you do…

#4 Comment By Pons Seclorum On February 9, 2010 @ 5:19 am

“I mean, it is obvious. An unregulated banking system, easy monetary policy, currency misalignment and the tendency for the US to live above their means had absolutely nothing to do with it.”

Martin, what if it were those very ‘democratic’ policies that Buchanan referred to that necessitated the creation and bolstering of the centralized banking (along with centralized, bureaucratic government needed to fulfill all these social programs) that fosters “easy monetary policy, currency misalignment and the tendency for the US (and Europe) to live above their means”?

#5 Comment By Robert On February 9, 2010 @ 7:57 am

Wait a minute now. I thought Ireland was supposedly a case study in how to get an economic system right. Doesn’t anyone remember the Celtic Tiger? I recall reading and hearing numerous reports about how neo-liberal economics–low taxes, lax regulations, leniaent immigration policy, etc.–were transforming Ireland into economic power that the rest of the world should immulate.

#6 Comment By Jack Tracey On February 9, 2010 @ 5:23 pm

Mr Swartz, very funny stuff. As usual, PJB’s honest appraisal of why governments champion certain policies (at their own peril) is dismissed as racist, sexist and off target. However, I bet he has turned on a few light bulbs here and there.

I’m curious just how “unregulated” the banking systems are in these countries. I’m not sure that government spending as a percentage of GDP is the best measure of a national government’s involvement in that nation’s banking system.

I find the charge of “regulatory failures or gaps” is often presented in a way as to suggest that these industries don’t already have an intricate web of government policies, procedures, forms, audits, etc., which can be used to pressure businesses into taking action that solves political problems at the expense of responsible business practices.

#7 Comment By Adam Rurik On February 10, 2010 @ 12:27 am

“2.1 children per woman?” Quite clearly, baby manufacturing has got to be increased via removal of birth control, defenestration of women’s employment opportunities, and perhaps rape.

#8 Comment By RK On February 10, 2010 @ 7:47 am

Goldman Sachs and Greece:

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#9 Comment By Robert On February 10, 2010 @ 7:53 am

I think Mr. Buchanan rubs some people the wrong way because he finds a way to make practically every issue a matter of lax morality.

Yes, it is possible to blame all of western socities’ problems–declining birth rates, high divorce rates, etc.– on a collapsing moral framework. And perhaps this collapse has led western civilization to become hedonistic, self-absorbed, short-sighted and ultimately suicidal. That is one possibility.

But perhaps there are other possibilities. It could be, and there is significant evidence to back this up, that declining birth rates and high divorce rates coincide with industrialization and urbanization. Might it be possible that the capricousness of the modern economy has led individuals and couples to limit the size of their families, or even forgo having a family all together. Logically it might also follow that soaring divorce rates in many parts of the western world are the result of the economic pressures that confront us all. I mean not knowing whether one is going to be employed from one day to the next doesn’t exactly promote harmonious relationships. I might also add that the publics’ demand for a social safety net (aka the welfare state) don’t look so irrational when considered from the perspective of a participant in this economic system.

If we look to the east, as we are all encouraged to do nowadays, we see a similar pattern developing. As the once agrarian socities of the east industrialize and uburnize, lo and behold, what do we find–decling birth rates and family size.

I think Mr. Buchanan knows as much. I find much wisdom in his writings on globalization, but for some reason, and this is stricltly my opinion, he seems unwilling or unable to connect the dots between the pressures that globalization creates and their effects on the social and moral frameworks of society.

#10 Comment By Fitzwaryn On February 10, 2010 @ 1:22 pm

Darwin at work. Those societies that embrace liberalism, abortion, discarding of traditional practices and values will disappear and be replaced by the ones that still keep traditional values and out populate them.

Guess it shows the survival value of modern liberal values vs traditional ones.

Those people who embrace the modern liberal world view will voluntarily weed themselves out of the gene pool. A couple more generations and the world will be rid of them. lol

#11 Comment By Pons Seclorum On February 10, 2010 @ 2:55 pm

“Might it be possible that the capriciousness of the modern economy has led individuals and couples to limit the size of their families, or even forgo having a family altogether. Logically it might also follow that soaring divorce rates in many parts of the western world are the result of the economic pressures that confront us all. I mean not knowing whether one is going to be employed from one day to the next doesn’t exactly promote harmonious relationships. I might also add that the public demand for a social safety net (aka the welfare state) don’t look so irrational when considered from the perspective of a participant in this economic system.”

If the Federal Reserve did not contribute to a capricious economy due to it sending spurious signals to the market through artificial interest rates, the “economic pressures” of which you speak would be much alleviated as various untenable bubble projects would never be undertaken. Also, it is the very welfare state that people demand which does them injury when this social safety net is funded by their own tax dollars. It would avail these people more to save their earnings–possible without centralized banking and its moral hazard–rather than entrust it to a bureaucratic welfare state.

#12 Comment By Ayn R. Key On February 10, 2010 @ 3:59 pm

I thought it was PIIGS: Portugal, Italy, Ireland, Greece, Spain.

#13 Comment By Robert On February 10, 2010 @ 5:18 pm

Pons Seclorum:

The market and gold cures all.

#14 Comment By Pons Seclorum On February 10, 2010 @ 9:15 pm

“The market and gold cures all.”

Robert, do you concur with the position that central banking is to blame or are you making mock of this? If you think such an explanation to be risible, why? I want to hear your thoughts since I too think that free markets and sound money are vital but do not serve as a cure-all.

#15 Comment By Publius Cato On February 11, 2010 @ 12:27 am

Wait, wait, WAIT! Before we get into this whole insane argument about monetary policy, morality, and banker conspiracies, let’s establish two things. 1)Which EU members are running a deficit and which EU member is balancing an economic disaster? 2)Which EU member does not benefit from Uncle Sam’s multi-billion dollar defense budget?

My understanding:

1)They all are.
2)They all do.

#16 Comment By Michael Siva On February 11, 2010 @ 4:56 am

When did Spain, Portugal, Ireland and Greece become ‘neo-socialist’? What is it with conservative Americans and their hatred of anything that’s not right of centre?

As far as I know, these four governments are democracies that are centrist in terms of political policies. They are no more ‘neo-socialist’ than the Gordon Brown government in the UK.

#17 Comment By AnteBragd On February 11, 2010 @ 9:05 am

Strange analysis of Buchanan this time. As Thomas points out many countries with stable economy are also more “socialized”, like Germany and the Scandinavia ´nations. And as a Swede, I can testify that the manufacturing sector in Germany or Sweden is not at all “outsourced” to the degree Buchanan suggests. I do not think one can draw any conclusion about a country´s productivity or financial situation by only looking on the regulatory system. Despite Sweden that has a relatively heavy regulated system, our manufacturing base is still mainly intact, while the American industry, as I understand it, is severly outsourced.

When it comes to Buchanan´s moral perspective, he has a point that degeneration or decadence is prevalent, but I think it may be wrong to connect it to economic performance. The “PIIGS” countries are still fairly traditional and religious compared to Sweden (and probably Germany). Still we perform better in economic terms.

What I believe matters most is culture and mentality. Northen Europe have traditionally had a strong sense of national unity, solidarity and responsibility for public concerns. (This is unfortunately gradually undermined, by i.e. immigration).
This mentality or culture is of course helpful when it comes to fiscal responsibility, absense of corruption and others.

Southern Europe has never had this culture (or atleast not as strong), which may have an impact on how public issues are being managed, and may ultimately put them in this predicament.

#18 Comment By jj On February 11, 2010 @ 3:56 pm

the economic collapse of these pigs frightfully sounds like what the us is heading towards. the us should stop providing social welfare to the lazy people who do not want to work. give the money to a venture capitalist not big government hand outs to the lazy poor slobs that have no inclination ever to work or better ones self.

#19 Comment By Jonathan Voiceofreason On February 12, 2010 @ 10:59 am

The Vatican has a birthrate of zero.

#20 Comment By Rodolfo On February 14, 2010 @ 5:07 pm

The main problems (out of many) in most of the Western Hemisphere are the replacement of the “Social Kinship of Christ the King,” “The making of money out of thin air.” And the illegitimate, immoral, and sinful permission given to women either to use contraception or to abort their kids, because when a mother use one of the unnatural methods mentioned above she is at war with her; (and politicians are looking, desesperate, for peace in the world; what a joke). Added to this, technology, (factories) almost has replaced farming; creating an excess of electronic equipment, and subjugating people by clocks. Lessening the goods, (meat, grains, milk, etc.), need them to provide a healthy life for the citizens. Conclusion, excess of technology is cheaper to consume, deficits in natural goods, and then prices are controlled by usury. All these problems, is no doubt, are conceived by a diabolical minds.

#21 Comment By Barney Rebble On February 14, 2010 @ 10:32 pm

Ever notice that the libs want you “off the grid”, “go green”, produce your power locally? Is that more efficient?

But then want your economic and political decisions to be made centrally?

Our system has been broken, for the forseeable future, by a debt that will keep at least the next couple of generations down, while criminal politicians keep voting themselves a raise.

The year 2010 needs to be the year of ZERO INCUMBANTS. Let’s flush Washington DC.

#22 Comment By Thomas On February 16, 2010 @ 10:56 am

Barney Rebble,

There are hippie-like, grassroots greenie leftists and slick elitist (and openly Malthusian) liberals. I think you may have confused the two. The latter talk only about global warming and want people *ON the grid* but to make the grid “green” by making it ridiculously expensive for poor people. The former are wrong in certain respects but not pond-scum in their intentions.
And let us keep about 20 or so incumbents. We need Ron Pauls to stand up for truth, Tom Tancredos and Pete Sessions’ to torpedo immigration bills, Nancy Kapturs to expose free-trade scams, and Bernie Sanders’ and Dennis Kuciniches to expose corporatist corruption in our regulatory apparatus.

Rodolfo, I think you have it right. Our moral failings are in our lack of regulation over the money-controllers and our promotion of hedonism. Buchanan might just overemphasise the latter as a main cause, but it certainly doesn’t help us.

#23 Comment By O. O’Connell On February 17, 2010 @ 6:38 am

Well I’m naturally peeved that Italy got off the hook in this essay – there were two “i”s in that acronym! Although personally I’d prefer to lumped in with GIPSI’s than PIIGS.

Ireland – with bank guarantees dwarfing any other European or north American country on GDP ratio basis; and Iceland – which has undergone a currency meltdown because of banking mania; and France, have amongst the highest birthrates in Europe.

And there’s no Muslim or Arab influx into the first two. And France has a state-run health system that is the envy even of the free-marketeer editing Reason magazine (Jan. 2010 issue), who prefers it to the bastardised US version. But it’s not FIGPIS.

And how does Ireland get to be “neo-socialist” when everyone from the Heritage Foundation on, was singing our praises as a poster-girl for former eastern-bloc members of the EU to emulate, back when we were the Celtic Tiger?

The Third Man in all of this is currency union. Greece, Italy, Portugal, Spain and Ireland (but for the last, this would be “Club Med”) had property bubbles super-sized by artificially low interest-rates set for the benefit of Germany. This land or site-based mania fed through to the rest of the economy’s in those countries.

Ireland’s Celtic Tiger years began when were were forced to drop out of the original Exchange Rate Mechanism that was a prelude to the Euro, in the early nineties. Floating our currency (it was overvalued, and currency speculators knew it) meant that everyone in the country had to take a haircut in income. The “great and the good” decried it, but anyone who actually made stuff for export or added value through service became much more competitive.

Now we are stuck in a loveless marriage, each of the sectors wages will have to be ground down piecemeal, and Iceland (as well as the other Scandinavians wisely outside) may be out of the badlands before we are.

#24 Comment By blue monkey On May 11, 2010 @ 8:09 pm

Greece and Spain won’t pay back. This was a calculated Risk, and a Lesson for the Banking System. What is happening in Greece, is a very well orchestrated show, to get granted €110bn aid, to avert meltdown.
The only thing Germans can do is:
REPOSSESS 170 Leopard 2AEX Battle Tanks from Greece, and 190 Leopard 2A6E Battle Tanks from Spain.
U.S.A must REPOSSESS 170 F-16 Jet Fighters from Greece, … the rest is gone with the wind …forever …
Greece must stop paying lucrative pensions with borrowed money, reform the free health care system, and cut down, 4 times the military budged.
Greece’s problem is too much debt. Greece has a budget deficit of 12.7% of GDP – meaning that the country is spending 12.7% more than the value of one year’s economic output.
Greece is no different to a serial credit card borrower who can’t pay back his loans. But just like a serial credit card borrower, as long as Greece keeps relying on borrowed money to fund itself, the problem won’t go away. It will just get worse.
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But don’t worry; the ECB, the Fed or both will print the money.
And all of us will share the pain, with our hard-earned money.
Bad is never good until worse happens.