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PIIGS: Why The World Should Be Very Worried!

  • Written by Syndicated Publisher No Comments Comments
    May 31, 2012

    “PIIGS” we are informed in the current Wikipedia entry “is a pejorative acronym used to refer to the economies of Portugal, Italy, Greece and Spain. Since 2008, the term has included Ireland, either in place of Italy or with an additional I.”

    With apologies, I am joining the ranks of contributors to such august publications as the New York Times, Wall Street Journal, Financial Times and The Economist who have used this handy label as a linguistic convenience and, I believe, with no aspersions intended.

    My topic is the relative size of these five countries in a basic economic sense — to one another and to the world as a whole. To make comparisons, I’m using GDP based on purchasing power parity (PPP). My source for the data is the IMF (International Monetary Fund), specifically the IMF’s World Economic Outlook Databases.

    The complete IMF database includes over 180 countries. For the chart below, I used the 58 countries with the largest GDP, which thereby includes the newcomer and smallest of the PIIGS (both in size and GDP) — Ireland.

    As an aside, anyone who is curious about the relative size of these five nations in a more conventional non-economic sense, the adjacent table arranges them in order of population along with the square miles and the GDP percent of world total. My source for geographic size and population is the Central Intelligence Agency’s World Factbook.

    The financial threat of Greece to the Eurozone and a potential spillover to the rest of the world has, of course, been much in the news. My illustration of the relatively tiny contribution of Greece to world GDP, should not be construed as an effort to downplay the reality of the financial risk it poses. The complex financial and political interlinkage of debtors and creditors trumps an easy metric such as GDP.

    The PIIGS are Big!

    The bar chart above does suggest the rationale for the broader anxieties about potential risks posed by the financial stresses in Spain and Italy. To put the size issue in a broader context, consider this: The European Union, which I didn’t include in the chart above, would be the largest entity if I had. It’s about 4.8% larger than the US based on GDP purchasing power parity. The PIIGS collectively constitute about 5.05% of world GDP, but they account for 25% of the GDP of European Union.

    The world is worried about the PIIGS, and it should be.

    Images: Flickr (licence attribution) 

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.