00:00A new label for a risk grouping is emerging in Europe's bond market.
00:04PIGS was a common term during the Eurodebt crisis of 2010 to 2011,
00:10a reference to countries badly affected, Portugal, Ireland, Italy, Greece and Spain.
00:15Well, investors say attention is now shifting to BIFs.
00:19Britain, Italy and France have been grouped together under the new term
00:23after borrowing costs climbed sharply across all three economies.
00:27Since the Middle East conflict began, yields on the country's 10-year bonds have risen by or around half a
00:34percentage point.
00:35Let's talk to the distinguished international economist, Vicky Price.
00:38Vicky, welcome back. Good to see you.
00:40So what has changed structurally to shift investor concern towards Britain, Italy and France today?
00:45Is this just about the Middle East?
00:48To a considerable extent, it is.
00:50I think there's been a worry about the extent to which countries like the UK had enough fiscal room
00:56to support consumers and also businesses during this crisis.
01:01And the expectation has been that because of that limitation in those fiscal rules that have been imposed,
01:11if you like, both by the UK but also in the Eurozone,
01:15there would be perhaps not an awful lot that can be done to support those countries and if the population
01:22and businesses.
01:23But if they were to intervene much more heavily,
01:28which is one of the things that quite a lot of politicians have been asking for,
01:33then if you add to that the concerns that everybody has heard about the extent to which one would need
01:38to increase defense spending,
01:39then that puts some pressure on the debt-to-GDP ratios that these countries have
01:44and they would need to go out and borrow quite significantly.
01:47Of course, when you look at Europe in particular,
01:50they are all getting together in a way in order to raise funds for defense
01:55and it's entirely possible that the UK is going to be part of this.
01:58But it's generally believed that it is those countries that are going to increase
02:02and are going to bear the bulk, if you like, of the extra defense spending.
02:06And if you add to that the pressures that are now coming because of the situation in the Middle East,
02:12then that is going to hinder, if you like,
02:16what capital markets think in terms of being necessarily prepared to lend to those countries
02:22at any rates which would have been acceptable.
02:24So what you've got now is that in many of those,
02:28the debt-to-GDP ratio looks like it will be going up
02:31and the interest rates and therefore the cost of servicing the debt will also be going up.
02:36I think that's what the markets are suggesting right now.
02:39You're quite right to put that distinction between those countries
02:42and countries which perhaps are not going to have to quite bear that cost
02:46like the southern European countries which have been favored recently by investors,
02:51sort of up to a point, of course,
02:53because we do not know what the impact overall of the crisis that we're seeing at present will be.
02:59Some improvements seem to be happening and yields are going down as we speak
03:04because I've just, as you've been asking me this question,
03:05I've been looking at the movements and they're all going down.
03:09So there could be indeed a re-evaluation of the whole thing in the next few days.
03:13So let's see.
03:14But for the moment, your analysis is correct.
03:17Hey, that's breaking news.
03:18It changes while you're speaking.
03:19Let me ask you about the 2010s.
03:22Austerity, we remember, and structural reforms helped the pigs' countries recover.
03:28I wonder if similar measures would work for the BIFs today.
03:34Well, if you heard what the IMF has been trying to say,
03:37it's saying that what all these countries should be doing
03:40is really limit any sort of support and subsidies that they give to consumers and businesses
03:46and that they should be very watchful of their debt situation.
03:51But, of course, the bigger countries in Europe can still issue a reasonable amount of debt.
03:57There is quite a lot of confidence in them more generally.
04:01And the fact that they are all, to a considerable extent, sort of getting together,
04:05particularly the European ones, the UK is getting closer, particularly on the defence side,
04:10suggests that perhaps we are talking about maybe some reinforcing mechanisms between them.
04:15And what, of course, Europe in particular is trying to do,
04:18and you're right to be thinking about what happened in 2010,
04:20where, of course, a lot of the smaller countries were very badly hit and needed to get bailed out,
04:25what I think we're seeing now is that there is a lot more preparedness to have sort of joint issuing
04:32of debts,
04:33so euro bonds, everyone is talking about that, raising funds for defence together.
04:38And I think that is, in many ways, quite reassuring for investors,
04:43because, of course, if you do it in a bigger scale and you've got countries like Germany more or less
04:48guaranteeing that type of debt,
04:51then you may be able to borrow more cheaply.
04:54So there is an issue of confidence in this, and if the markets start believing that indeed we're going to
05:00be talking about a European market
05:01with a big capital ability and, of course, also supporting industries in particular sectors and not just in defence,
05:09then they might be much, much more prepared to invest in that country in all sorts of ways, bonds and,
05:14of course, equities.
05:15Vicky, good to see you. Thanks for that.
05:17Vicky Price, the international economist.
05:18Vicky Price, the international economist.
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