Lord of the PIIGS: the Great Recession Decade


Back in 2008 I remember reading an article by an economist who said if we want to see what happens in the aftermath of a property bubble, look at Japan.

In Japan, they had a lost decade with very little economic growth after their bubble burst.


The Great Recession Decade

Well, we are now in our fifth year of hardship so arguably we are half way through our lost decade. Prices of property have come down by 50% and even more in some places.

In this cycle, Greece was the first country in Europe to experience financial problems. Next it was the turn of Ireland and since then we have been joined by Portugal, Spain, and with Italy threatening (PIIGS). There have been meetings of the EU Ministers every few weeks but no big announcement to solve the debt problem in Europe. The economies of Europe have been in and out of recession now for five years, and things might even get worse. The idea that Europe is muddling through does not provide much comfort.

The problem with the PIIGS is too much debt.


Dealing With Debt 

In the case of Ireland, it was the Sovereign or Government taking on the debt of private banks who had bet the house on ever rising property prices, giving out long term mortgages with money that had been borrowed short term on the Interbank market. So the Government in the now famous night of “the Bank guarantee” agreed to guarantee private bank debt, so as to keep the ATM’s working, or so we were told.

To get out of recession, we need growth in our economy. But as a small open economy we depend on the major trading blocks of the EU, US, and Japan etc., to be growing and so buy our products and services. The major EU countries and the US, China etc are struggling at present, which impacts back on our small economy.

So how do we get out of recession – that is the 6 billion dollar question. How do you get growth when the Government has to implement an austerity programme in order to get the debt levels back in line? In the meantime we are muddling through and no doubt it will take a few more years before this problem is solved. By then we will have done our decade of economic pain and suffering.

No doubt economists in years to come writing books on the era, will refer to our great recession decade and how the problems should have been solved.

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