Eurostat Revises Irish Deficit to 14.3%

Eurostat has today announced that the Irish general government deficit for 2009 was in fact 14.3% rather than the 11.7% figure that the government has been reporting. Reuters report

Irish Finance Minister Brian Lenihan said this was a result of a technical reclassification associated with government support provided to the banking sector.

“It is important to note that the underlying 2009 general government deficit for Ireland is 11.8 percent of GDP, which is broadly similar to that projected in December’s budget,” he said.

“There is no additional borrowing associated with this technical reclassification. This is a once-off impact, and will not affect the government’s stated budgetary aim of reducing the deficit to below 3 percent of GDP by 2014,” Lenihan said.

Though the Eurostat document does not state this, the revision appears to be related to reclassifying the €4 billion used to recapitalise Anglo Irish Bank as part of the deficit (at this point, I can’t resist an I told you so moment.) If this is indeed the case, I’m not sure that the once-off impact comment is correct since there’s more money going in this year.  Hopefully it is indeed the case that we’re not still pouring money into Anglo in 2014.

Oh, they also revised the Greek deficit upwards and said mean things about Greek budget statistics. So nothing new there.

42 thoughts on “Eurostat Revises Irish Deficit to 14.3%”

  1. @D_E

    Will the “promissory notes” not spread the borrowing requirement for this year’s recapitalisations over 10 years? Or are they only used for NAMA assets rather than general capital injections?

  2. The key thing, as DE mentions, is to understand what impact this approach has on the forecast headline number for 2010, 2011, etc.

    Many bond market guys will look at that number. One could argue that they shouldn’t, but many of them do.

  3. The revision of the Government’s budget deficit for 2009 from 11.8% to 14.3% of GDP may appear to be a technicality due to recognition of the first tranche of the Anglo bailout as “capital expenditure”. However, ignoring timing issues, the inclusion of further bale outs to Anglo of €20 billion would increase the deficit by 13% of GDP.

    All this, on top of €46 billion of Nama bonds which, thanks to smoke and mirrors, are not counted in the deficit.

    How will the Government bring the deficit into line with EU rules by 2014 without inflicting massive pain on a largely innocent populace and virtually destroying what’s left of the economy?

  4. I thought it was promissory notes for the “capital” (=flush down the toilet) for Anglo and INBS, but the NAMA bonds are still an asset purchase and NPRF will backstop any new money to AIB, B of I.

    So the forward implication would seem to be that 10% of the value of the notes to Anglo and INBS are now government spending.

  5. Eurostat is the regular subject of snide remarks about funny money off balance sheet and, of course, sure everyone else is at it.

    But Eurostat deserves credit for recognising that Anglo Irish Bank is not just a zombie bank but is really a vampire bank sucking life blood out of Irish taxpayers. We will never see this money again and we are condemned to a decade of further blood offerings.

    It might be an idea for us all to take up Minister Lenihan’s garlic chewing habit.

  6. Excuse my ignorance, but why is Greece getting all the negative press while we ratchet up a deficit that has no hope of ever getting back to 3% by 2024, never mind 2014.

    International traders know the real figures, and I’ve no doubt they’ll include our NAMA debt in calculating them, yet the Department of Finance and they’re numerous ‘professional’ cheerleaders keep distorting the truth in the Irish media.

    I still can’t believe this is all happening. Am I in a parallel universe?

  7. The Minister for Finance, Brian Lenihan T.D., noted the publication of the Maastricht returns and said: “While the headline deficit for 2009 is 14.3% of Gross Domestic Product, as a result of a technical reclassification associated with Government support provided to the banking sector, it is important to note that the underlying 2009 General Government deficit for Ireland is 11.8% of GDP, which is broadly similar to that projected in December’s Budget. There is no additional borrowing associated with this technical reclassification. This is a once-off impact, and will not affect the Government’s stated budgetary aim of reducing the deficit to below 3% of GDP by 2014.”

  8. *CORRIGAN: NAMA WILL ISSUE 40 BLN OF BONDS EXC. SUBORDINATED

    Huh? Less loans or bigger haircuts?

  9. So, when will it become acceptable to say that sovereign default, IMF intervention and/or a Euro exit are highly likely in this country – before, say, 2014 and barring some sharp policy changes? Surely it’s not sufficient to (correctly) point out that all of these outcomes would have ugly consequences to justify the conclusion that none of them is really going to happen. Objects in the mirror are closer than they appear.

  10. A quick glance at the Italian financial Il Sole 24ore, had a snippet linking Greece and Ireland re deficits.

  11. Yep! and what about the promissory notes, going forward, as the politicians like to say? Not to mention the NAMA SPV? We know Eurostat allowed the SPV to be off-balance-sheet but was that decision prudent? In my view, it certainly was not, and reflects very badly on the common currency. What is the point of finger wagging at Greece for OBS events if they are going to encourage OBS as they have done in Irelands case. The ratings agencies are starting to take a more realistic view of these matters now that their own activities have come in for scrutiny.

    The governments idea to offer a pay freeze to public servants is looking more and more foolish and profligate. As to giving back the money taken so far, you have to laugh at the supine nature of the governments fiscal policies. On the one hand, they send out messages of fiscal rectitude on the other, they cannot resist reverting to type.

    Martin Wolf’s had an article in the FT yesterday, under the heading, “The challenge of halting the financial doomsday machine” Can we afford our financial system? he asks, then answers “No”. The thesis was that banking and financial systems have been allowed to become far to big vis a vie the real economy. Just as it did in Iceland’s case.

    Whatever about the UK, in Ireland it is all to obvious that we cannot afford our financial system. So Anglo must be wound down. BoI and AIB must be merged into one semi-functioning bank. We must try and save the Credit Union system and then try to entice a Canadian bank or a Chinese bank to come into the country to establish a network of branches to act as a counter balance to our nationalised banking system. Of course, I understand that they would dread the competition. Speaking to someone who worked debugging the NTMA software some years ago and who has been involved in writing suites of banking software for American and Norwegian banks, I was assured that Ireland could easily get by with just one functioning bank.

    Bankers like to point out that you cannot have an economy without banks but they fail to say that neither can you have a banking system without an economy and our economy is on its knees. The last thing we need are weak barely capitalised banks. Ones, that have not yet figured out a new model as to how they are going to generate profits. We especially need a functioning economy if the burden for failed banks is to be thrown on top of the tax payer who is already burdened with debts to the very banks they are supposed to be rescuing.

    On one side of the balance sheet, is the taxpayers income. On the other, his mortgage, his bill for Anglo, Nationwide et al., his NAMA interest bill, his bill for servicing the sovereign debt. The tax payers accounts are getting more and more skewed and one wonders how long this can go on.

  12. @ Eoin

    “CORRIGAN: NAMA WILL ISSUE 40 BLN OF BONDS EXC. SUBORDINATED

    Huh? Less loans or bigger haircuts?”

    40bn = 95% of consideration (the other 5% is represented by subordinated debt which has a nasty interest rate (currently 5.25%) but generally the 10-year bond rate plus 0.75%)
    So the total consideration would work out at just over 42bn which is line with Brendan McDonagh’s answer at the Committee hearing last week.

    By the way the Oireachtas transcript is now available at

    http://debates.oireachtas.ie/DDebate.aspx?F=FIJ20100413.xml&Node=H2#H2

  13. I wonder will Garret Fitz revisit the great deflict guessing game of 2009 based on this new evidence.

    🙂 me, stir the pot … never 🙂

  14. @Garry
    Sure no-one could have forseen this, no-body, no-where was even suggesting this as a possible outcome. Few people even considered the possibility that Anglo might not be a going concern. Ogilvy at the Department of Finance dismissed the possibility out of hand. But wait, what’s that green flare from Eurostat? And another? And another?

    Only a few nutjobs (*pats self on back*) considered the possibility that nationalising Anglo would add to the national debt… the chances of anything coming from eurostat were extremely unlikely they said, but still they come. Cue cries of unfairness now as the UK managed to get away with Northern Rock… (pssst, in case you wonder why Mr. Darling is in no hurry to return NR to the private sector, could it be because he’d have to technically reclassify his losses?).

    PS. I still think Anglo is being wound down – Eurostat have rather let the cat out of the bag.

  15. Can anyone give me a guideline when Ireland is going to default. From an economics 101 angle, I,d say two more years. If you look at the figures and the deem prospect for any growth, we are heading south fast. Can,t take the ESRI seriously anymore with their 2.5% growth, growth from where, the whole world is screwed.

  16. You are right to give yourself an ‘I told you so moment’. Most of my firends and colleagues argued the same point.

    The ‘independent’ banking official ‘Pat McArdle’ has a clear ideological agenda. He is in no position to give a fair and accurate analysis of the governments policy response to the banking crisis, public finance crisis or the public sector pay deal.

    The Irish Times should start seeing the wood from the trees.

  17. Express your views directly to Joaquin Almunia about the tragic farce being inflicted on the country. After Almunia rules on state aid to Anglo, objectors have only one month to file objections. The cabinet contact that responded to me was:

    Anna PILIOURA
    Cabinet Almunia
    +32 (0) 229 67798
    anna.pilioura@ec.europa.eu

    She appears to field queries.
    Perhaps others have more direct access than this. I don’t, but she did reply helpfully with a letter from Almunia’s Head of Cabinet, Carlos Mongay.

  18. Any bond trader with exposure to Ireland will have factored in Anglo, NAMA and other similar what is a debt and when do I apply it scenarios. I would worry about what has been successfuly hidden and not about known close calls. Have the Goldman reps been seen on the CBI/FSA premises?

  19. @All

    Good to see something improving – the quality of data. And as the data improves … time to .. er.. get back to the drawing board. Dictatorial Transformation still the only response to crisis, when significant vested interest groups oppose essential change, and essential change the minimum required to keep the ship afloat and in sound order. Present lot are neither into it nor up to it.

  20. @ all
    IMF Global Financial Stability Report April 2010 maps out the waters into which we sailing.

    ‘The wall of refunding needs is now bearing down on banks even more
    than before, with nearly $5 trillion of bank debt due to mature in the coming 36 months. This will coincide with heavy government issuance and follow the removal of central bank emergency measures. In addition, banks will have to refinance securities they structured and pledged as collateral at various central bank liquidity facilities that are ending…( p21)

    Sovereign crises can widen and cross borders as they spread to the banking system. Due to the close linkages between the public sector and domestic banks, deteriorating sovereign credit risk can quickly spill over to the financial sector On the asset side, an abrupt drop in sovereign debt prices generates losses for banks holding large portfolios of government bonds. On the liability side, bank wholesale funding costs generally rise in concert with sovereign spreads, reflecting the longstanding belief that
    domestic institutions cannot be less risky than the sovereign.

    In addition, the perceived value of government guarantees to the banking system will erode when the sovereign comes under stress, thus raising funding costs still higher. Multiple sovereign downgrades could precipitate increased haircuts on government securities or introduce collateral eligibility concerns for central bank or commercial repos’ (p24)

  21. @Garry
    Drat, you’ve seen through my strategy for bailing out the country… oh wait, that’s the one everyone is doing… I hear there’s a Pretend and Extend exhibition at the RDS this year.

  22. The solution to the deficit is, of course, to pay public sector workers more and thereby stimulate the economy.

    Is there a prize for the first person who can report hearing this claim on Irish broadcast media?

  23. We just overtook the U.K. and Greece to have the second highest percentage deficit in the world in 2009 after Iceland. In 2010 we have a good chance of becoming the highest thanks to money the minister of finance is proposing to burn on Anglo and Irish Nationwide. Come on bring on those Icelanders, anything they can do we can do better.
    Who are these idiots buying 5 or 10 year Irish paper.

  24. Keef – “Am I in a parallel universe?”

    .era ouy sey

    Is this not the EU saying that as far as spending on Anglo is concerned, it’s money down the drain? I guess so.

    I heard some FF’er on Prime Time last night trotting out the “€70 billion to close it down” line. I thought they had moved the Anglo argument away from ‘cost to much to close it down’ back to ‘systemic’ but maybe they now know that they won’t get Quinn after all. Redundancies all round then – especially in any UK area of the business.

  25. @Jules

    “Who are these idiots buying 5 or 10 year Irish paper.”

    Unfortunately, id say a large chunk of it is Irish banks!

    As such a key question is who is buying irish bank debt.

  26. @ Christy

    not much evidence that Irish banks are large net buyers of Irish bonds. Their holding of govvies are stable. They could of course be hiding it!

    About 2/3 of our debt is held outside Ireland.

  27. @ Jules

    “Who are these idiots buying 5 or 10 year Irish paper.”

    Everyone outside of Ireland who i speak to thinks we’re doing a great job in extremely difficult circumstances. They also believe what we say and pledge. And further to that, they genuinely hope we get out of this mess and are happy to help us do that. This is in almost complete contrast to how they feel about Greece. Its quite possible that our classic sterotypcial Irish lack of self-belief is causing us to think the end is nigh when in fact its just a pretty bad situation that can be turned around eventually. Given that everyone on here seems to believe that we’re a stupid sorry excuse of a nation, and that foreigners are damned cleverer than us, shouldnt we trust their judgement on the purchasing of our debt?

  28. Ah remember Eoin that most of those foreigners are using OPM and pocketing a commission. What is happening is not atypical of a pre-default country. That music can go on for a while yet.

  29. Lets cut to the chase here, Preception is reality. Its not a matter of if but when we default that is before Portugal and Spain. As I said in my last post here, giving Ireland two more years before we default. of course the Euro could be gone by then.
    Too much politics clouding the issue here.

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