PIIGS Debt Problems Plague Portugal – Is Italy or Spain Next?

On multiple occasions over the past several months, Portugal bravely declared it would not need a financial bailout to offset its debt. And Portugal was  wrong. Its leaders finally succumbed to reality by admitting they need help ASAP. Portugal is officially infected with the PIIGS flu. $129 billion is the estimated tab for Portugal's bailout but precise figures aren't yet known. Looking at the performance of European stocks one would hardly guess the region is in the midst of a sovereign debt crisis. Over the past year, the Vanguard MSCI Europe ETF (NYSE: VGK ) has climbed almost 15% and is ahead by 9.23% since the beginning of the year. Interestingly, almost 20% of the stocks in VGK are tied to the financial sector and many of these very companies have direct exposure to the debt from Europe's diseased PIIGS. Defying, Europe's crisis, German stocks have surged ahead. The iShares MSCI Germany ETF (NYSE: EWG ) has climbed 22.72% over the past year. German companies have been stealing market share in exports from weaker rivals – especially exports to China. The East wants to live like the West and so they're buying Germany's machinery, consumer products and luxury automobiles. The European Central Bank (ECB) thus finds itself in a difficult spot. The ECB hiked interest rates by one-quarter to 1.25% yesterday and left open the possibility of future increases to tame inflation. By raising rates, it wants to put the brakes on Germany's surging economy but it can't increase them too much because it would add to financial problems for the euro zone's weaker members. A cycle of increasing rates most certainly won't help Europe's PIIGS. For anyone keeping score, three out of five PIIGS have now bowed to the gravitational forces of over borrowing, over spending and all around fiscal nonsense. That leaves just two more countries – Spain and Italy – before the PIIGS go five-for-five in partaking from the EU's bailout picnic basket. How should we react when Italy and Spain confidently declare they are fiscally sound and won't need to be rescued? Let's be quick to remember that Ireland, Greece and Portugal said the same untrue things. Put another way, whenever any European countries say that everything is fine – the exact opposite is probably true. Europe’s debt FLU is a slow moving financial crisis that’s almost a year and half in the making. Instead of delivering a swift knock out punch, it’s proven to be death by a thousand cuts. No matter how slow Europe’s debt crisis unfolds, its severity and acute threat to the global economy is no less. This article is brought to you by ETFguide.com .  ETFguide is the information leader on exchange-traded funds because of its vendor neutral approach and its progressive reporting style. Unique features include an ETF bookstore, a monthly e-mail newsletter, and subscription based ETF portfolios.
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