Remember the PIGS (or PIIGS)? It was the acronym Portugal, Ireland, Italy, Greece and Spain, which in the early 2010s became a popular way to group countries facing high debt, financial difficulties and negative stereotypes, in contrast to the core countries that enjoyed political stability and much lower unemployment rates.

At the time, the acronym sounded derogatory to many. The sharp change in the countries’ economic and political profiles has also made it outdated.

Back then, the Berlusconi “bunga bunga” sex parties and scandals dominated the international press, while the unemployment rates peaked at over 25 per cent in Spain and Greece. Bond yields across the four countries surged during the sovereign debt crisis, leading the governments of Greece, Ireland, Portugal and Cyprus to request financial assistance from the eurozone member states and the IMF.

But fast forward 15 years, and things look much different for both core and peripheral countries.

Since taking office at the end of 2022, Italy’s prime minister, Giorgia Meloni, has outlasted several counterparts in France and the UK, underscoring a period of relative political stability on the peninsula amid unusually high leadership turnover elsewhere.

Scandals of the convicted sex offender Jeffrey Epstein are rippling through the US and the UK, while Donald Trump’s trade tariffs and threat of invasion of Greenland erode the global economic order. Instead, the latest scandal from Italy is that an angel painted in a church looks like Prime Minister Meloni.

The changing trends are particularly visible in the labour market. Unemployment rates are rising in the UK, Germany and the US, but the rate for Italy fell in December to the lowest since records began in the early 1980s. Portugal’s joblessness rate dropped to its lowest since the early 1990s, and the rates for Spain and Greece are down to their lowest since 2008.

In fact, Finland now tops the EU’s ranking for unemployment rate, while Italy and Portugal only rank 15th and 16th, after Sweden, France, Austria and the Baltic countries, among others.

“The narrative around these countries has been positive for some time, as demonstrated by the performance of their bond markets,” said Jack Allen-Reynolds, senior Europe economist at Capital Economics.

He noted how their governments can now borrow at similar rates or even more cheaply than France’s government. “This is justified,” said Allen-Reynolds. “Their economic performance has been impressive, and they have been much better at getting their budget deficits under control after Covid than many other countries, which has put their debt ratios on a steep downward trend.”

The Spanish economy grew by an annual rate of 2.6 per cent in the fourth quarter of last year, powered in part by tourism, immigration, financial and professional services, cheap renewable energy and EU funds.

The economies of Greece and Portugal are also outperforming core economies such as France, Germany and the UK.

Bert Colijn, an economist at the bank ING, said that the 2020s have seen a strong revival of growth for Southern European countries with a tourism rebound as an initial catalyst.

But momentum “has branched out much broader than that”, he said, “reforms in the 2010s have definitely helped to lay a stronger foundation for growth, which has been compounded with further reforms as part of the Recovery and Resilience Facility.”

A smaller energy-intensive industry has also helped Southern European countries during the energy crisis. However, Colijn warned that those economies seem less ready to adopt new technology like GenAI, and noted that productivity remains weaker than in northern eurozone economies.

Yet so far, the relative political stability, stronger economic growth and healthier labour markets are helping public finances in Southern European countries and reassuring financial markets.

Greece, Portugal, Italy and Spain are all expected to run a primary budget balance surplus this year, which Italy has been doing for most of the last 30 years. In contrast, France, Germany, the UK, the US and Canada are all running primary budget deficits, the shortfall of government revenues and spending excluding interest payments.  

The 10-year government bond yields for Greece, Spain and Portugal are lower than for France, the UK and the US.

Allen-Reynolds expects the positive narrative “to be sustained in the coming years,” and the IMF agrees. The Washington-based organisation forecasts that by 2029, the US will have a larger public debt to GDP ratio than Greece or Italy, with the UK having a larger debt to GDP ratio than Spain or Portugal. By 2030, France is expected to have a similar debt-to-GDP ratio to Greece.