The Fiscal Situation Elsewhere

The FT carries interesting articles on:

Greece (and a broader discussion of  the euro area)


12 replies on “The Fiscal Situation Elsewhere”

“Here we go again. The stability of the eurozone is once again in question as punters bet heavily in the credit default swaps market on an Italian sovereign default, while the yields on government debt in peripheral countries such as Greece move out further against the German benchmark. Is this a blip or a reflection of deteriorating fundamentals?”

Well bejaysus. Thank God they didn’t mention Ireland there.

“deteriorating fundamentals” How about just fundamentals? Where did they go? Fundamentals don’t need adjectives. They are what they are.

Gold at $1191. Someone is losing faith in the Dollar. Or someone is calling someone’s bluff.

Thank God we’re in the Euro. It’ll be great when it appreciates against the Dollar and Sterling by another 20%. Where would we be without it? Nothing like a strong currency when you need to devalue.

We may not have made it to the world cup but here we go.

Here we go Here we go Here we go….Here we go Here we go Here we gooo….oh?

“Here we go again” indeed.

Buckle up enjoy the ride.

When is a central bank not a central bank?

When it’s the ECB.

European what? Central?

OK Jean Claude print me up a €100bn for Ireland.

What’s that Jean Claude … it’s not in your power?

@ Greg
Not mentioned in this report, but we sure as hell will be in the next one. Looks like it will be off to the US alright, to buy up the even more distressed than Ireland “forclosed” properties, with each Euro in our back pocket worth 3 dollars! Pick a nice sunny state!

These articles confirm what I’ve said all year.

Early in 2009 it was being claimed that Ireland was way out on its own for having a high budget deficit. The term used was ‘outlier’. At that time too, the consensus forecasts were that the fall in GDP in Ireland in 2009 would be about 10% (or 20%, according to Morgan Kelly), compared with an average of 2% in the EU. I wrote at the time that these forecasts were rubbish.

Since early 2009, forecasts for GDP in Ireland have been revised up (i.e. they now forecast a smaller fall in GDP in 2009 than was previously thought), while forecasts for GDP in the EU have been revised down (i.e. they now forecast a larger fall in GDP in 2009 than was previously thought). The consensus forecasts are now that the fall in GDP in Ireland in 2009 will be about 6.5% to 7%, compared with an average of 4.5% to 5% in the EU. Even this largely reflects what occurred in 2008 Q4. In 2009 Q1 and 2009 Q2, growth in GDP in Ireland was higher than the EU average (or, to be more precise, the fall in GDP in Ireland in those two quarters was less than the EU average). By 2009 Q4, the quarter we are now in, since the 2008 Q4 figures will drop out, there is a good chance, although not a certainty, that once again the y-o-y change in GDP in Ireland will be higher than the EU average, a situation which pertained continuously between 1970 and 1982 and again between 1987 and 2007.

As might be expected, given the link between GDP growth and the budget deficit, a similar pattern is emerging in relation to the budget deficit. Early in 2009 it was being widely forecast that the budget deficit in Ireland would be 11%, compared with about 3% in the EU and 5% to 6% in the UK. Since then, however, there has been very little further slippage in Ireland. The latest forecasts are for a deficit of about 12%. But, in other EU and OECD countries, there has clearly been a lot of slippage since early 2009. This article states that the average budget deficit in the OECD in 2009 will be 9.7%, which is only 2% to 2.5% lower than in Ireland. Greece and the UK are now forecast to have higher budget deficits in 2009 than Ireland.

It must also be remembered, of course, that Ireland’s pre-recession debt position was much better than in most EU/OECD countries. Pre-recession, government debt in Ireland was only about 25% of GDP, compared with around 60% in the majority of EU countries, and over 100% in some like Belgium, Greece and Italy. So, given that the gap between the budget deficit in Ireland and that in other EU/OECD countries is turning out to be much less than was thought earlier in 2009, when government debts stabilise as a percentage of GDP in a few years time, it is likely to be at a lower level in Ireland than in most EU/OECD countries.

I personally am getting fed up with the number of articles in the British media, and indeed from posters living in Britain on this site, claiming that Ireland is going bankrupt. The truth is that government debt as a percentage of GDP and the budget deficit in 2009 are both higher in Britain than in Ireland. The main difference between the two countries is that, whereas the Government here has taken action to bring the situation under control, in the UK all such action or even discussion of the matter has been long-fingered until after their election next Spring.

@JohntheOptimist. Usual caution about using GDP figures as a reliable measure against which to illustrate debt apply. I think the worry for Ireland – as opposed to the UK – is that Ireland is smaller and doesn’t have its own currency. So it’s a much harder landing here.

Also – and this is not directly related to the thread – Ireland’s high cost economy where rent-seeking behavior on the part of groups ranging from: Local Authorities, domestic supermarket groups, central gov’t weave extra taxes, charges and mandated costs such as minimum wage, benchmarked salaries into every (legal) transaction point in the economy, means we (and especially the poor amongst us) are much more in harms way than the population of Britain.

The headline numbers look OK – sure – compared to Greece or even – if you squint your eyes – the UK but we are going to have much, much, much higher enemployment and job destruction.

There is no government solution to this because (and it’s even truer for Ireland than when Reagan said it of the USA) Government is not the solution. Gov’t is the problem.

Personally I believe that the sooner the Gov’t goes bankrupt the better. How else can they be stopped?

I think the latest estimate for our deficit is nearer to 13% than to 12%.
Also any comparison that uses GDP rather than GNP for Ireland can be misleading.
The deficit as a percentage of GNP is over 15%

It is also worth bearing in mind that the US and the UK plus many other countries have large deficits due to huge fiscal stimulus packages.
We have a massive deficit after huge cut backs.

lets compare Ireland and Greece, through their CDS spreads over Bund and through their benchmark bond yields over bund (5y maturity), in basis points, and set same as base for an index.

greekcds irecds greekbond irebond
4230 2005 52.6 20.9
100 100 100 100

greekcds irecds greekbond irebond
16788 13651 156.3 86.4
396.9 680.8 297.1 413.4

so while both of us have worsened in the eyes of the international bond markets the greek 5y excess spread has tripled while ours has quadrupled over the period.

not that i can see.
see if this helps
greekcds / irecds / greekbond / irebond
4230/ 2005 / 52.6 /20.9
100/ 100 /100 /100

greekcds/ irecds /greekbond /irebond
16788 /13651 /156.3 /86.4
396.9/ 680.8 /297.1 /413.4


Thanks. That’s more legible. I can see your rebasing to 100 at 1St August.

For the bonds I can see the increase in spread over bund and the relative worsening from Ireland’s perspective.

I can see the same calculation for the cds spread.

When you have a mo.

Does the 4230 mean that Greek cds are 42.3% more expensive that Bund cds.

@Paul McDonnell
I think it is the case that because people in the US get less from government they demand more justice against people who commit financial crimes and cheat on tax than European social democracies do.
Ireland’s justice system of course never jails politicians, bankers or tax cheats. In this one we are not even Berlin. We’re Moscow.

@E43Bn ..I think there’s something in that. I remember pointing out some years ago that Americans demand better service in restaurants and hotels etc…because they know that their money is usually hard earned and so see poor service as a personal disrespect. Similarly I expect with crime in high places. It offends them.

We’re not (yet?) evolved as a society to this degree. We see corruption as wrong but very few of us are actually personallyl affronted by it. We have, as a society, surrendered to it.

AS taxes elsewhere increase, to rectify their fiscal imbalances, more MNCs will relocate to Ireland.

They will not bring much employment until costs in Ireland have collapsed, but as you all know this process is well in train now and the next two budgets will improve it spectacularly.

But there will still be strife as the wealth will trickle down very slowly indeed. Attitudes have now changed and will harden further. The sympathy for the unemployed will alter to “they must have deserved it in some way” and the need for circuses will increase.

The British always like to sell to their literate peasant class that things are worse elsewhere. It keeps labour costs down. They detest the Irish success and will do it down whenever they can. MSM is riddled with falsehood. The public perception of this will increase.

It will be worse in the USA than elsewhere.

But Ireland will recover and yet many in Ireland will not. Expect to see attempts to discourage voting. Apathy will be subtly encouraged. Dampening down of expectation will be the order of the day, hence the bankers telling the truth about more lending.

Time rich, money poor. But perhaps happier?

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