The acronym ‘PIIGS’ refers to Portugal, Italy, Ireland, Greece, and Spain and has been used by analysts in the bond and currency markets for years. These nations are lumped together because of the similarity of their economies and their high levels of debt, and anyone who thinks the Britain isn’t one of them is very much mistaken.
The only reason that Britain is not considered a ‘basket-case’ along with the other PIIGS is because the true level of our indebtedness is widely misunderstood.
According to ‘official’ figures UK government debt currently stands at around £900 billion, which is equivalent to 60% of GDP. However if we consider public debt under the stricter Maastricht Treaty definition (by which the debts of the Eurozone members such as Greece and Italy are judged) the figure is £1.11 trillion, or 75% of GDP. And if we include the effects of the financial sector interventions, total government debt stands at £2.24 trillion which is equivalent to 147% of GDP. That’s not to mention the current unfunded public sector pension obligations which stand at around £1.18 trillion. Oh and did I mention the government’s outstanding commitments under PFI (private finance initiative) contracts? That’s another £170 billion.
All told, total public debt, when you include these other ‘unofficial’ items, amounts to around £3.59 trillion.
I’ve written about Britain’s indebtedness before but more important than the scale of our debt is our ability to service it, and the fact is this level of debt is only sustainable if:
- The deficit is brought under control
- We achieve strong economic growth
The good news is that the Chancellor, George Osborne, has repeatedly demonstrated his commitment to reducing the budget deficit. The bad news is that we haven’t even begun to take the necessary steps to promote strong economic growth.