GIPSIs

Abstract

The Eurozone economies of Greece, Italy, Portugal, Spain, and Ireland (GIPSIs) have been struggling to emerge from their deep and protracted financial crisis for the past six years. The GIPSIs appear to have experienced broadly — but by no means exactly — similar fiscal and competitiveness problems that contributed to the buildup of acute external and internal imbalances since the formation of the Euro. These accumulated imbalances eventually exploded when the global financial crisis struck and caused severe economic contraction. As the GIPSIs find their way out of the woods, the absence of an exchange rate instrument to engineer a recovery has necessitated the use of harsh fiscal consolidation (“internal devaluation” policies) to restore the economies’ competitiveness. Most of the countries have also sought assistance from the European Union (EU) and International Monetary Fund (IMF) to facilitate the deleveraging process that is required to bring their debts and deficits in order. In addition, the GIPSIs are faced with a rapidly aging population that is likely to add greater stress to their future fiscal burdens; this only underlines the pressures for these countries to undertake effective structural reforms to both restore their lost competitiveness as well as to get back to a fiscally sustainable growth path.¹