Once a PIIGS Always a PIIGS? Divergent Recovery in the European Periphery

The fury of the 2008 housing and financial crisis struck few places harder than in the countries of the European periphery.  Massive shocks to growth, employment and public finance plunged Portugal, Greece and Ireland into international “bailouts” and brought Spain and Italy to the brink of that shared fate.  Financial markets, seizing on the long tradition of considering the poorer-performing Southern European economies as “Club Med”, brought Ireland into the group with a rebranding using the inflammatory moniker “PIIGS”.  This heuristic became synonymous with the crisis in the European periphery and has been previously shown to have driven convergent market treatment of the constituent members as their bond yields soared above the European core. While the impact of the creation and perpetuation of identities based on country-group heuristics on political economy outcomes is beginning to be explored (the BRICS development bank, the SIDS and climate justice) this paper investigates the implication of the deconstruction of such an identity.  Following wide-spread media usage of the PIIGS term at the height of the crisis, by 2014 the term has almost completely fallen out of use.  Over the same period, constituent member bond yields have gone from highly synchronized movement to substantially divergent paths.  Using vector auto-regression (VAR) to disentangle issues of simultaneity and causality this paper explores if the space for this divergence has been facilitated ideationally by a market that no longer considers the countries as PIIGS.