Stopping the Run on the PIIGS! EMU Structural Imbalances, the Sovereign Debt Crisis and the Response of the EU

The global financial crisis was an unprecedented blow to the global economy whose consequences still need to be fully appreciated. The last phase to date in the unfolding of the crisis was the outburst of a sovereign debt crisis in the euro area, first in Greece, in May 2010, then in Ireland at the end of November 2010 and finally to all the members of the so-called PIIGS group (Portugal, Ireland, Italy, Greece and Spain). In this paper, the run on the sovereign debt of the ‘PIIGS’ group of European Union (EU) member states is analysed within the context of the structural asymmetries of the Economic and Monetary Union (EMU). It tries to identify the impact of the crisis on the future of the EMU and of the PIIGS within it. Far from having been socialized among the members of the eurozone and of the EU through the adoption of a real common fiscal policy and the attribution to the European Central Bank of its natural role as lender of last resort, the burden of the costs of the crisis was inflicted on the weakest countries of the system through austerity and internal devaluation. It remains to be seen if this is a price worth paying in exchange for fiscal stability.