Economist Jim O’Neill coined the acronym BRIC in 2001 to refer to four economies which showed great potential then and now — Brazil, Russia, India and China. More recently, he added four more promising MIST economies — Mexico, Indonesia, South Korea and Turkey.
In mid-2008, The Economist magazine drew a sharp contrast between the booming BRIC economies and four feeble PIGS — Portugal, Italy, Greece and Spain. By 2010, after Ireland and Great Britain bailed out their banks, that unkind acronym was stretched to PIIGGS.
All PIIGGS have two things in common. First of all, government spending grew dramatically — from an average of 43.2% of GDP in 2007 to 52.6% by 2010.
Spending was modestly trimmed by 2012 in a few cases, yet the ratio of spending to GDP still remained 3 to 6 percentage points higher than it had been in 2007.
This sad story was repeated in Cyprus, where government spending soared from less than 34% of the economy in 1995 to 47% in 2010.
Despite this explosive growth of government spending among the PIIGGS, economist Paul Krugman’s End the Depression Now! somehow attributes southern Europe’s slump to “frantic, savage attempts to slash spending.”
In a recent New York Times column, Krugman suggested that Ireland suffers from grossly insufficient government spending, and contrasted Ireland’s alleged penny-pinching with “the true economic miracle that is Iceland … (which) thanks to its embrace of unorthodox policies, has almost fully recovered.”
What actually happened is that government spending in Ireland soared to 66.1% of GDP in 2010 — up from 36.8% in 2007 — when the government shocked the markets by bailing out the banks in September 2010. The budget deficit suddenly spiked to 30.9% of GDP. Irish bonds collapsed.