PIGS spells problems for euro

Stephen Beard Feb 5, 2010

PIGS spells problems for euro

Stephen Beard Feb 5, 2010


KAI RYSSDAL: Today had all the makings of a miserable day in the markets. Not only was there that jobs report here, but for the second day in a row, European and Asian exchanges took giant steps backwards. The euro spent most of the day losing ground to the dollar and commodity prices were down, too. At least some of them.

The proximate cause for all that commotion was, on the face of it, kind of surprising — it was the lack of demand for Portuguese bonds. There’s trouble in some of the smaller, weaker economies in Europe, and that could eventually mean trouble for the rest of us.

From the European Desk in London, Marketplace’s Stephen Beard reports.

Stephen Beard: There’s a small group of countries in the eurozone called the “PIGS.” It’s not an insult. It’s an acronym: Portugal, Ireland, Greece and Spain. They have two things in common: rather weak economies and governments that are heavily in debt.

As they struggle to borrow more, speculation is growing that one or more of these government will default.

Steve Barrow is a currency specialist with Standard Bank.

Steve Barrow: I think we are going to see something of an economic crisis in these countries and that could continue to cause a lot of problems, certainly for the euro.

The single currency has fallen 10 percent against the dollar in recent weeks and could fall further.

Fund manager Justin Urquhart-Stewart says that’s bad news for America’s big exporting companies.

Justin Urquhart-Stewart: Obviously, a lot of America’s trade is over to the EU. And if the euro value is dropping against the dollar that means the income for those companies exporting to Europe is weakening.

In his State of the Union address, the president called for a doubling of American exports. The rise in the dollar makes that more difficult. But the trouble in the eurozone has wider, more worrying implications. It shows that investors are getting wary about lending to governments.

Andrew Hilton of the CSFI think tank.

Andrew Hilton: Markets have suddenly decided to focus on sovereign debt. And it really is potentially a very, very serious issue for almost all the Western economies.

He says governments that can’t borrow can’t boost their economies. Another global downturn could be looming. This time, governments will be less able to pump in the cash. The PIGS that won’t fly could turn out to be the canaries in the coal mine.

In London, this is Stephen Beard for Marketplace.

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