The Roots of the Eurozone Sovereign Debt Crisis: PIGS vs Non-PIGS

The main purposes of this paper are twofold: on the one hand, to determine if there are significant differences of regime on public expenditures, total revenues and tax revenues between the so-called PIGS and the remaining Eurozone member states and, on the other hand, to uncover possible explanations for the quite different situations in which these countries find themselves nowadays. This work focus on the effect of the cyclical state of the economy, captured by the unemployment rate, and on the two fiscal rules imposed by the Maastricht Treaty on the Eurozone member states. Based on the estimated results, which distinguish between PIGS and non-PIGS countries, we come to the conclusion that the anti-cyclical reaction with respect to the unemployment rate is much stronger among non-PIGS. We also find that fiscal rules have, in general, not been obeyed by the two groups of countries. Moreover PIGS, in spite of their economic frailties, have, instead, tried to emulate the fiscal behavior of their more prosperous Eurozone partners instead of implementing more rigorous policies.