Former PIIGS Nations Win Back Market Trust as Euro Zone Fortunes Shift
Once branded the euro zone's weakest economies, the five former PIIGS nations have rebuilt their credit standings, with Greece posting the most dramatic turnaround.
Fifteen years after Europe's debt crisis, the five euro zone countries once grouped under the PIIGS label have largely reversed their fortunes in global bond markets. Portugal, Ireland, Italy, Greece and Spain have tightened their budgets and now see government bond yields trading below those of France, which along with Germany was long viewed as an anchor of the bloc.
Fitch's upgrade of Portugal's debt last week, its second in a year, was the latest in a series of rating agency promotions for the group. The recovery has not been even, however, with Italy weighed down by the euro zone's largest debt burden and persistently weak growth.
Yields diverge
At the end of 2011, 10-year government bond yields across the five countries hovered near record highs of 7.5%. They eased only after then-European Central Bank President Mario Draghi pledged to do "whatever it takes" to save the euro, paving the way for the bloc's first quantitative easing programme in 2015.
The COVID-19 pandemic affected all five similarly, but Russia's invasion of Ukraine pushed their yields onto separate paths, shaped by differing reliance on energy imports and the measures each took to shield households and businesses from inflation. Italy and Greece now offer above 4%, Spain around 3.8%, Portugal 3.7% and Ireland 3.5%.
Ratings recover
Greece's rating has staged the most striking comeback, recovering between nine and 13 notches since the crisis — one of the strongest sovereign rating recoveries in the developed world. Ireland and Portugal have also regained much of the credit standing they lost, while Spain has made up ground more slowly. Italy stands apart, with gains limited to one or two notches across the major agencies.
Debt paths split
Greece and Portugal have delivered the most dramatic turnarounds. Greece cut its debt from a pandemic-era peak above 209% of GDP in 2020 to about 137% by 2026, according to IMF estimates. Ireland has gone further still: a surge in nominal GDP driven by multinational direct investment lowered its debt ratio from around 120% in 2012 to little more than 30%. Portugal's debt-cutting record is less dramatic, while Spain has made steady progress.
Italy, by contrast, has seen its debt-to-GDP ratio edge higher since 2024. It has climbed above its 2011 level and is forecast to overtake Greece this year as the euro zone's most indebted country.
Meanwhile, pressure has emerged at the bloc's core. Benchmark German bond yields have come under strain since Alternative for Germany's weekend victory in Saxony-Anhalt, with markets raising questions over Berlin's AAA credit rating and the yield on 10-year Bunds hitting its highest level since 2011 on Wednesday.