By Sara Rossi, Valentina Consiglio and Alessia Pe
MILAN, Sept 10 (Reuters) - Fitch's upgrade of Portugal's debt last week, its second in a year, marked the latest promotion among the five euro zone countries labelled the PIIGS during Europe's 2011 debt crisis.
Fifteen years on, global bond markets are again creaking under the weight of rising inflation and burgeoning U.S. debt, but the euro zone heroes and villains have traded places.
Benchmark German bond yields have come under pressure since Alternative
for Germany's weekend victory in Saxony-Anhalt, and markets are raising questions over Berlin's AAA credit rating, with the yield on 10-year Bunds hitting their highest level since 2011 on Wednesday.
Portugal, Ireland, Italy, Greece and Spain, meanwhile, have shored up their budgets and their government bond yields are now trading lower than those of France, which alongside Germany was previously regarded as a powerhouse of the euro zone bloc.
The former PIIGS have been rewarded by a stream of rating agency upgrades, although their recovery has not been uniform, with Italy held back by the highest debt burden in the bloc and persistently sluggish economic growth.
1/ YIELDS - DIVERGING TRAJECTORIES
At the end of 2011, 10-year government bond yields in Portugal, Ireland, Italy, Greece and Spain all hovered around record highs of 7.5%, easing only when then-European Central Bank President Mario Draghi pledged to do "whatever it takes" to save the euro, leading to the euro zone's first quantitative easing programme, launched in 2015.
The COVID-19 pandemic in 2020 affected the yields of all five PIIGS countries in broadly the same way, but Russia's invasion of Ukraine sent them down different paths.
Their differing dependence on energy imports and measures taken to shield households and businesses from soaring inflation drove yield divergence, with Italy and Greece now offering above 4%, Spain around 3.8%, Portugal 3.7% and Ireland 3.5%.
2/ THE GREAT RE-RATING
Greece's rating has staged the most remarkable turnaround, recovering between nine and 13 notches from the crisis, one of the strongest sovereign rating recoveries in the developed world.
Ireland and Portugal have also regained much of the credit standing lost during the crisis years, while Spain has made up ground slightly more slowly.
Italy stands apart, with its rating gains limited to one or two notches across the major agencies.
3/ FIVE DIFFERING DEBT STORIES
Greece and Portugal have delivered the most dramatic turnarounds, with the former reducing its debt from a 2020 pandemic peak above 209% of gross domestic product to about 137% by 2026, the IMF estimates.
Ireland has gone further. A surge in nominal GDP driven by multinational direct investment has lowered its debt ratio from around 120% in 2012 to little more than 30%.
Portugal presents a less dramatic debt-cutting success story, while Spain has also made steady progress.
Italy, however, struggling with persistently weak growth, has seen its debt-to-GDP ratio edging higher since 2024. It has climbed above its 2011 level and is forecast to overtake Greece this year as the euro zone's most indebted country.
(Writing by Sara Rossi, Valentina Consiglio and Alessia Pe; Editing by Gavin Jones and Alexander Smith)
