When PIGS Stop Flying

The crisis faced by the European periphery isn’t unique. Developed and developing countries have been mired in banking and fiscal crises throughout history. To be precise, in their book This Time Is Different, Carmen M. Reinhart and Kenneth S. Rogoff count 268 episodes of financial trouble and 199 of external debt defaults since the year 1800.¹² Reinhart and Rogoff also document that there’s a strong correlation between those two: Banking crises typically lead to sovereign defaults. Countries usually get out of their rut through restructuring their debt, devaluing their currency, or inflating prices. PIGS cannot devalue or inflate because they’re part of a currency union. Other EU member countries don’t share the same economic problems, so the ECB is slowly raising interest rates to counter inflation in the wider region while PIGS are stuck in recession and debt overhang. The periphery countries are not allowed to restructure their debt either because that would bring down EU’s zombie banks.