The integration of Europe’s Southern Periphery (Greece, Ireland, Portugal and Spain – known as Cohesion Countries or with the rather offensive acronym PIGS) into the European Union was always a controversial topic: on the one hand, some were highlighting the prevailing acute disparities between the EU’s periphery and core; on the other hand, most literature highlighted the crucial link between EU membership and political and economic modernisation.
The financial crisis of 2007 and the subsequent sovereign debt crises in Greece, Ireland and then Portugal, put PIGS in the centre of a borrowing costs’ cyclone. Their ever-increasing borrowing costs and their recourse to the EU and IMF for financial support meant that they had to implement extensive fiscal consolidation measures. Focusing on southern Europe, although the recent financial crisis posed an immense challenge for Greek and Portuguese public finances, Greece had to implement much harsher and deeper cuts than Portugal. Hence, after the crisis Greece experienced a ‘shock and awe’ whereas Portugal did not need to implement far-reaching cuts. This divergence can be explained by the different pre-crisis budgetary policies in the two countries respectively. While in Portugal since mid-1990s and especially after 2002 implemented a series of fiscal consolidation measures that significantly constrained public debt and deficit, Greece implemented numerous public sector salaries’ rises, extensive hiring of new personnel and did not implement any fiscal consolidation measures. In other words, contrary to Greece, the Portuguese prolonged period of gradual fiscal consolidation constituted the buffer against the financial crisis’ ‘fiscal tsunami’. Similarly, in Portugal throughout the crisis the main political parties and public opinion demonstrated much more consensus than in Greece which resulted in higher credibility for the country abroad. Nonetheless, Portugal was not able to avoid an EU/IMF bail-out in April 2011 and some austerity measures were implemented but much more should be expected.
The fact that three out of the four Cohesion countries were forced to ask for an EU/IMF ‘bailout’ raises complicated and unsettling questions regarding European integration’s success concerning convergence between rich and poor countries along with obscurity with regard to its future direction. It remains to be seen whether this crisis will bring about another step forward towards political union (through fiscal union) or an economic and political stalemate. It seems that for all parties involved (EU core, periphery and the aggregate EU stability) the former is less costly than the latter. However, moving forward will require significant political leadership, consensus among elites and the public and all parties involved have to cross their ‘red lines’ to a considerable extent. EU history teaches us that this may not be that difficult after all as similarly unprecedented decisions and agreements have been reached in the past forging a constantly unstable and in-fighting continent to one of the most unified economic and political blocs in the world.