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PIIGS: CNBC Explains

PIIGS is a not-very-favorable term used by bond analysts, academics, and the media to refer to certain countries of Europe.

So which countries make up the PIIGS? Why are they important? CNBC explains.

Which countries are referred to as PIIGS?

Portugal, Italy, Ireland, Greece, and Spain make up the letters. All arepart of the European Union.

The use of the acronym goes back to 1979 and describes countries in the EU considered to have troubled economies. However, there's no known inventor of the term.

Originally, it was just PIGS, without Ireland. That changed in 2008, with Ireland's financial crisis, when the country fell into recession.This was after Ireland had several years of economic growth, but two "economic bubbles"—in credit and housing—pushed Irish banks and the economy into huge debt.

It's not a term of endearment for the countries involved, as we'll see later.

Why are these countries grouped together?

The countries that make up the PIIGS are considered to have big risks of being unable to pay their national debts, and each country has faced some sort of severe economic crisis—either massive debt as in the case of Greece and Ireland, or slow growth and debt, in the case of Portugal and Spain.

Italy, too, has faced debt issues and has promised to cut debt and institute a liberalization of its economy to allow more 'free enterprise' and have less government control.

The worry is that these five countries could bring down the European Union, as other European countries offer some kind of finanical aid to the five nations—with tough restrictions—to avert a financial meltdown in the euro zone.

The countries are also considered a negative for foreign investors, whose infusion of cash might help the economies recover.

What are the controversies over using the term PIIGS?

The countries who comprise the acronym are anything but happy over its use.

The term was denounced by the Portuguese Finance Minister in 2008 and by some in the Portuguese and Spanish speaking press. One Portuguese politician called it a "racist plot fired up by the British media" to deflect attention away from the weak UK economy.

But some members of the Spanish and other international economic press continue to use the term in its narrow and restricted economic sense.

Others in the media and investmenet world—notably the Financial Times and Barclays Capital—have restricted or banned the term, with the FT reducing, but not completely, eliminating it.

Some investors warn that such acronyms can make the markets less safe."These acronyms can spread systemic risk,"Gerard Fitzpatrick, senior portfolio manager at Russell Investments in London, has said. "They create herd behavior, with investors mindlessly running from anything tarred with the PIIGS brush."

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