Irish Bond Spreads Up Sharply

S&P downgraded Greek government bonds to junk status today and also downgraded Portugal’s debt. Meanwhile, in Germany, there appears to be continued prevarication about whether\how to help Greece.  To be honest, I’m not willing to spend that much of my time following the whole Germany\Greece soap opera.

What’s more concerning, however, is that the yield on Irish government debt has jumped dramatically over the past week, with today being the worst day (chart here). The yield on ten year Irish government bond yields rose to 5.25% today with the spread relative to German bonds rising 42 basis points. At 2.3%, this spread is now not too far off the highs of about 2.5% seen last summer.

142 thoughts on “Irish Bond Spreads Up Sharply”

  1. If commonsense does not prevail here, no Greek bank will be able to access the International credit markets. There will a massive run on the system and depos will flow out of the domestics into the HSBC’s etc.
    One or all of the Greek banks will be nationalised by Monday, possibly tomorrow. Then we will see if the Sovereign and Bank debt are conflated.

    Then its on to Portugal, Spain and Ireland.

  2. Does anyone have data on the implications of a consistance rate of 5% (or above) on the countries finances.

    Dont the NTMA have us sorted until July-ish? Surely this mini-run on the Euro is giving us a higher chance of solid growth this year (via increased competitivness). Resulting of course in more tax money.

    It seems to me that of all the PIGS we are the only ones with prospects of growth. We’re very close to the edge though. Lets hope the Germans sort the Greece mess out otherwise…. well, another mini-budget anyone?

  3. It’s funny to watch the lack of interest (and yours) in this. It’s almost invisible on newscasts, and yet it’s like a tsunami is about to hit -one that could make topics like NAMA seem like a side show.

  4. Given the record of S&P and Moody’s in cheerfully rating the best subtranche of the worst tranche of a CDO backed by the worst subprime-backed mortgage bonds as top-drawer investment grade, how are they still in business, never mind retaining any credibility?

    Nothing these companies do can be accurately described as “rating” anything. They don’t analyze bonds or yields and make empirical decisions based on their perception of risk. They horse-trade and issue arbitrary codes based on bribery, threats, and access.

    And, what’s worse, is they invented the Starbucks phenomenon of avoiding simple, unambiguous descriptions for simple, unambiguous things. Why aren’t bonds rated in quintiles called A, B, C, D, E instead of on these absurd, distorted scales where AAA+ is the best and BB- is the worst?

  5. Old Europe is a bit tired. Regulation lags speculation, and there’s a pot of money to be made shorting vulnerable sovereigns.

    As Edward Harrison put it on Seeking Alpha:
    ‘this looks like the moment when the Greek problems really start to generate contagion across the eurozone region. We’ll see rates on government debt trending higher, asset prices (such as real estate) falling even more, and renewed concern about banks on the European “periphery”.

  6. @Kevin

    Agree. I’m astounded. Sean Whelan did a piece on the 9pm news but of course, was outshone by the gaaards.

  7. Overheard at the Dept of Finance* — “And we would have gotten away with it too if it hadn’t been for those meddling Greeks”

    *Not.

  8. The better news is that there’s massive money to be made for Ireland by borrowing at its current rate and lending to the Greeks at their current rate. What could possibly go wrong?

  9. @ All,

    Isn’t the long and short of it, the same old problem which Paul Krugman, Ciaran O’Hagan and many other observers have referred to. Namely, that too much savings are chasing far too few opportunities. Supplies of bonds offering decent yields from all of the safe economies in Europe are gone. So that investors are having to look down the line at places such as Ireland to find decent returns. I mean, at what stage is the European region going to come up with a real plan to issue bonds, related to some kind of economic plan, which will offer decent returns in medium/long term, and actually put people back to work in Europe? I listened to coverage of British election campaign in news this week, and the basic issue was no jobs, no jobs, no jobs. At what point, in the larger states such as Britain are so-called leaders going to wake up, and develop a real plan? BOH.

  10. Also,

    As Brian Lucey would assert, we are into the domain of political economics. But what will it take to enable leading parties and individuals to see that and act? BOH.

  11. @Sarah Carey:
    The RTE website headlines mention Greece only in the context of its Prime Minister’s plea for time and serenity. But of course, now that politicians are renouncing their pensions, all our economic troubles are over.

    bjg

    PS Why does Quinn Insurance employ so many truck drivers?

  12. The 5 year Irish CDS is the worst performing sovereign credit today
    R
    Up 54bps or 27% we are within touching distnce of moving in to the top 10th most risku

  13. Is it not what the spread is between Irish and German bonds when officially issued that is important, rather than bond prices and yields on the markets? Because last month, the spread on newly issued 10 year Irish bonds was the narrowest since 2008.

    Anyways I think, the effect on Irish bonds is a bit overblown. The NTMA have significant cash resources(about 23bn), have raised 59% of their funding programme for 2010 and have no significant refinancing issues going into next year.

    To settle the markets for Irish bonds, it would be helpful if the authorities highlighted this while also presenting credible plans for cost cutting next year. Given that the politicans have by and large given up their pensions, the climate is perhaps less electric.

  14. @ BOH,

    Perhaps the leaders of Europe are still divided (blinkered) as ever.

    Just like WW1 and WW2 the Americans will have to ride to Europe’s rescue again.

    A bit embarrasing really, Europe should be able to show more leadership and less dittering and doddering.

    Where is the sense of ownership? The Greek difficulty is our difficulty, and we (Europe) are going to sort it out. Or is “The Domino Theory” staring us down the barrel of a financial gun?

  15. @All

    Think Minister Lagarder put it best – basically – get on with it now – and directed at Chancellor Merkel – who has a little election on May 9 and is stalling as visions of disgruntled voters has to be addressed as well. Surely they can learn something from us – the costiliness of wasting time. My best to the Greeks.

  16. @Dreaded Estate – quoting percentage moves on geared derivatives (CDS) is a bit meaningless. The cash market spreads are the things to focus on, not headline-chasing press releases from (I presume) CMA.

  17. One question.

    Does this mean that as we contribute a substantial sum of money to the Greek loan at 5% interest, we shall be making a 5.25%-5%=0.25% loss as we will be borrowing at 5.25% to pay this rescue loan?

  18. We have been unable to sort out our problems in an honest and coherent fashion Now, let us see how the “Only game in town” and “we are where we are” spinning stands up to the rigorous analysis of the bond market.

    Regardless, as to whether there is a news blackout on RTE or even national denial, the Irish people are about to become acquainted with sovereign debt and all its intricacies. it will soon be the most important issue in the economic lexicon. If the market remains hostile and it probably will, it will not take long for us to burn through our “generous cash pile” which of course is not cash at all, only borrowed money stacked high by the NTMA.

    Am I alone in viewing our sovereign debt as a measure of our failed economic and political policies? In that sense, in look forward to a full and rigorous examination of both. We never get straight answers maybe in the next few months there will be some enforced honesty in both codes.

    When we wanted answers on this site from our politicians all we got was fudge, recrimination and bluffing.

    We have proved very adept at running up sovereign debt in the knowledge that it will have to be paid off by our children and those coming after us. This was always morally wrong and cowardly. All of this, so we can live beyond our means, spending the money on current consumption such as tribunal salaries. Was that ever a good strategy? Our only concern, and still is our only concern, is whether or not we will be allowed to borrow more and more money. Is that a good strategy? Why did the department of finance advise the government that they could offer the public sector unions protection from cuts up to 2014? Do they know something about double dip recessions and sovereign debt markets that the rest of us don’t know about? We all know there is a huge wave mortgage defaults waiting to manifest itself in the loan books of our main banks. All completely separate from NAMA. I would like to know the DoF plan to deal with that?

    First of all, the DoF never saw any of this in good time because they were primarily responsible for it, then they exempted themselves, now they see fit to extended the offer. I was aghast at this bending over backwards, surreal approach to the parlous state of our countries finances. I believe that it will prove immaterial whether they are accepted or not as the “unforeseen” circumstances clauses will be invoked.

    The DoF optimism is not shared by Ken Rogoff or by the yields on our government bonds. Meanwhile our ability to do anything is severely hampered by the strait-jacket of the guarantee.

    @ David O’Donnell

    Frau Merkel also has the Verfassungsgericht to contend with not just an election and there is good chance that the professors will win their case.

  19. @Karl

    IMHO attention to the German/Greek soap opera would be time very well spent for anyone who wants Ireland to be well prepared for all eventualities.

  20. This doesn’t bode well, but it’s making our decision to sharply cut public expenditure look smarter by the minute. If only we’d decided to forego NAMA too 🙁

  21. I’m moving my money out of Irish Euro’s and into Dutch ones. Should get a nice capital appreciation in due course. Not very patriotic of course but I’ll leave that to the politicians.

  22. Ben
    Why are they so influential? OPM. They are trusted. Just as we used to trust banks. They are another mal-investment. Don’t worry, though, they will apologize. A chain is as strong as its weakest link ……..

  23. Karl
    It is good to let others pull the load for a while! Besides we all know how it is going to go! Reread my earlier posts. Lots of drama for those who ourht to know but don’t.

  24. Edmund Burke
    I advised Au$ not euro even if Dutch. Cloth ears! Besides the point is devaluation of the euro. There may be a break up, but Ireland will be on the fast track, as a sort of floating aircraft carrier ………

  25. “I’m moving my money out of Irish Euro’s and into Dutch ones. Should get a nice capital appreciation in due course. Not very patriotic of course but I’ll leave that to the politicians.”

    Bono?

  26. Robert Browne
    As always, on the button! I stand with you, from 11,000 miles away!!!!
    Yes it is a pretty mess isn’t it!

    I pointed out, in sworn testimony, that there was official written evidence linking banking to Government, suggesting further secret linkages, including the clear use of evaded taxes to build up bank capital. The written evidence was accepted by the PAC sub-committee. None of the three chairman of the Revenue could ever recall reading it. Nor could the vauntedly efficient Revenue find who had written it although every inspector of taxes had been issued with the memo. Jimmy Livingstone disobeyed the memo as did Tony McCarthy. Both were moved from their investigative positions. Tony was refused due course promotion.

    But no one cared. Caring now anyone?

  27. Holbrook Fields

    Nothing! Entirely predictable and made worse by NAMA increasing borrowing, unnecessarily. What a mess! The euro may suffer …. Devaluation? Yes, please.

    Panic?

  28. BOH
    “Isn’t the long and short of it, the same old problem which Paul Krugman, Ciaran O’Hagan and many other observers have referred to. Namely, that too much savings are chasing far too few opportunities.”

    Priceless! Those savings were ravaged long ago. Watch as the balloons deflate and food costs rise. Too many savings!!!!!

  29. “tull mcadoo Says:
    April 27th, 2010 at 10:37 pm

    If commonsense does not prevail here, no Greek bank will be able to access the International credit markets. ”

    And? What happens then, exactly? Will they have to dismantle their houses and send the materials back to the bankers? Bankers. Oh, yes that is what we mean when we say markets……

  30. I’m sure Frau Angela will run it to the wire. I see the EU ministers meeting is not until 10th May. By a remarkable coincidence, the day after her little election problem. Was it Myamoto Musashi who said “there is timing in everything”?

    What’s the worst case scenario for them? Greece leaving (forced to) the tent to save the others – but dressed up as something else?

    What’s the worst case scenario for us? Collapse of the Euro? That ought to just about bring the roof down.

    “I may be some time”…… it’s damn cold out there in the snow.

  31. @Aiman
    You may feel the percentage moves in the CDS market are meaningless but the fact remains. Ireland was the worst performing sovereign credit yesterday.

    The same can be seen in the bond market with the 10 year spread exploding for Ireland, Portugal and Greece.

    Interestingly Spain and Italy seem to have come away a bit unscathed.

    Portugal +48bps to 280bps
    Ireland +20bps to 220bps
    Greece +13bps to 670bps!!!

    Italy +3bps to 115bps
    Spain 2bps to 117bps

    The notion that Ireland has decoupled from the PIIGS is completely incorrect. It has really become a PIG.

  32. New York Times:

    “It’s like Lehman Brothers and Bear Stearns,” said Philip Lane, a professor of international economics at Trinity College in Ireland, referring to the Wall Street failures that propelled the financial crisis of 2008. “It is not so much the fundamentals as it is the unwillingness of the market to fund you.”

  33. But the fundamentals are rotten too. Anyone following Lehman and Bear Stearns knows that. Similarly PIG fundamentals are rotten too.

  34. @ Karl

    “To be honest, I’m not willing to spend that much of my time following the whole Germany\Greece soap opera.”

    Not a tad parochial, no? This is completely a contagion affect, so i dont think you can discuss the Irish bond yields without referencing the downgrades to Greece and Portugal yesterday. As noted above, Ireland has funded almost 60% of 2010 requirements, while Spain is somewhere closer to 25-30% on the same metric. Spain and Portugal are further up the firing line than us, though this is really scant consolation to be fair.

  35. The market clearly doesn’t agree Eoin
    Spain and Italy are both trading 100bps below Ireland

  36. @Karl: it has been a soap opera, and that has been tremendously damaging. I despair at the quality of European leadership. In the meantime, what can we do, apart from crossing our fingers? Not taking onto the State’s shoulders all the debts incurred by our crazy banks seems like a good start.

  37. @ Kevin: What type of European leadership were you hoping for? One that brings closer fiscal union even if that is not what the ‘citizens’ want? Never waste a crisis etc!

  38. I am not sure where to invest all my worry.

    Should I put it all into dread fear of national default and en IMF bail-out? Will that really be so worse than the austerity we are facing into? Or is there a danger that the IMF et al are running out of money?

    In the alternative, I could go quids-in on the panic over the future of Europe. If Spain hits the wall will it be hell in a hand-basket time. Also, the long-run effects of poverty and depression amongst Europeans has turned very nasty before. Is fascism still on the rise in Hungary? Will German fiscal rectitude turn to overblown righteous anger? How long before co-operation disintegrates into naked protectionism?

    I usually get annoyed when politicians tell us “failure is not an option” or “the alternative does not bear contemplation”. If failure is a possibility in relation to the national finances then it bears serious contemplation. However, I think that an EU level failure does not bear contemplation.

    “Ruin is formal devils work consecutive and slow
    Fail in an instant no man did
    Slipping is crash’s law”

  39. There is no ‘European’ leadership, merely leadership of different European states, no fiscal unity. And there is massive opposition in Germany to transferring billions to Greece. However the IMF has already upped its contribution.
    “So far the EU’s policy process has been a net contributor to this crisis. We need to hear something that does not fall short of our lowest expectations. Otherwise Greece will be heading for default, and the crisis will spread to Portugal and beyond.”=Munchau
    http://www.ft.com/cms/s/0/47b429f4-5091-11df-bc86-00144feab49a.html

  40. ‘The only part of the so-called national wealth that actually enters into the collective possessions of modern peoples is their national debt.’ – Karl Marx, Ch. 31 of Volume I of Capital.

  41. There is European leadership, just not the talking heads who have learned their lines before appearing on TV. It is of course, behind the scenes. Bilderberg? Trilateral Commission? We know what happens in a depression.

    Fiat currencies are devaluing. The fewer commodities produced in an economy, the further the currency will fall. Hence the AU$ is higher and the Euro lower. The fear of the IMF is that the voters get to pay for the waste by the capital directing class.

    But ’twas ever thus! Those without power get squeezed. Squeeze and release. Have you not noticed the loss of human rights recently due to all dem planes dat do be crashing into dem buildins? Fear stalks the land and the air……. We are at war! Against Terror! Sacrifices are needed to defeat Eurasia or East Asia. Oceania will triumph!

  42. @ Zhou & All.
    I don’t think Ireland will default for 2 reasons:
    1. We have to keep borrowing in the coming years, so we need bond markets to be receptive to us.
    2. We don’t have an enormous accumulated debt, so it wouldn’t really pay us to default.

    Nor do I imagine that the Germans would abandon the Greeks at this moment. They will feign disinterest to the last, to secure maximum concessions from the Greeks in the deal, but ultimately, the European economy is too fragile for Germany to stand aside as a MS defaults. Once we are past this, all the present hysteria will seem overblown. Yes, things can get worse, but only if national leaders have a zest for self-harm. I am somewhat confident (borderline hubristic) that the money will come through on time and in full.

  43. @ Eoin

    “Not a tad parochial, no? This is completely a contagion affect, so i dont think you can discuss the Irish bond yields without referencing the downgrades to Greece and Portugal yesterday.”

    I’m not claiming there isn’t contagion just that I don’t have the time to follow every step of the Merkel/Coalition Partners/Bundestag/Regional Election show.

  44. The yield levels at 10yr maturities for govt. debt were as follows as of close of business Tuesday (%, FT bond table);

    Austria 3.38
    Belgium 3.52
    Finland 3.21
    France 3.26
    Germany 2.93
    Greece 9.54
    Ireland 5.25
    Italy 3.95
    Netherlands 3.20
    Portugal 5.61
    Spain 4.03

    Greek yields rose 81bps yesterday, Portugal up 59bps and Ireland up 46bps. Portugal is widely thought to be next in line from the ‘contagion’ effects of the Greek crisis. If so, in terms of both level and change in yields, Ireland cannot be far behind.

    Of course, Ireland’s unique experiment in fiscal contraction was designed to “reassure the financial markets”. It has clearly done nothing of the kind. No-one, not even Greece, has a higher projected general government budget deficit this year. And many countries with higher levels of debt now have considerably lower yields, including Belgium, Italy and France.

    Yield levels which exceed nominal growth rates, or more accurately the growth rate in taxation revenues which derive from them, cannot be sustained indefinitely. Perhaps, post the German elecions all will return to normaility and yields subside. Perhaps not.

    Bu even in the optimistic scenario, it is clear that Irish government policy has failed even in its own terms. Growth has not resumed, taxes continue to decline and the deficit continus to widen. Unsurprisingly, none of this has reasured financial markets and relative borrowing costs have continued to climb.

    Perhaps it is worth trying to learn something from the Greek experience after all, as well as from others. The Greek recesion had been milder than the EU average, and recovering, before austerity measures were adopted, as both the PMI and GDP charts here show

    http://graphics.thomsonreuters.com/310/GR_ECON0310.gif

    Now the Bank of Greece warns that the austerity measures themselves have lowered taxation revenues and argues therefore (!) for greater austerity measures. This sounds depressingly familiar.

    By contrast, other EU countries adopted fiscal stimulus measures. Their debt has stabilised along with economic activity and they have been rewarded with much lower bond yields than Ireland.

  45. @ Michael Burke

    so in a sovereign debt crisis, you think we should be borrowing more? I understand why you think that is a good idea (boost growth), but ultimately i think the market is now telling the Eurozone that they have to reign in public spending, not increase it. The main reason we have not been subject to such relentless attacks from the bond markets as Greece is that they appear to believe we’re really trying to initiate long term fiscal austerity, while the Greeks are still just talking about it.

    @ Karl

    you really should make the time! Its fascinating stuff. Is it also sad that i found the Goldman’s hearings on tv last night compelling viewing??? 😀

  46. @Michael Burke

    Whoa back, laddie!

    The Irish recession was exacerbated by lack of fiscal stimulus? That won’t go down well in these parts!

  47. Michael Burke

    Where do you propose to get the money for a fiscal stimulus?
    Is a deficit of 20% of GDP not sufficient?

  48. Re Irish sovereign debt:
    “Uh oh, uh oh, uh oh, oh no, no” (Beyonce et Jay-Z, 2003)

    Although stating the obvious, we need to be careful when talking about contagion. So far, only countries with risky attributes are getting hit. There are two underlying reasons for Ireland’s weakness. Firstly, unsustainable government spending. Secondly, Mr Lenihan acting out the wedding feast of Cana turning junk into sovereign debt. Both of these can be traced to the property-based credit superbubble.

    A further problem which has been fostered during this crisis is the interdependence of Government and banks. Irish sov risk accounts for too much of Irish bank’s balance sheets (direct gov bonds and NAMA bonds). Much of their liabilities require a government guarantee. Equally, the banks (& possibly their managed funds) are buying Irish gov bonds. I don’t like this.

  49. Some might argue that the 4Bn+ burned so far in the Anglo pyre should have been spent on fiscal stimulus.

    But they’d be soooo wrong. Cut, cut and cut again! I personally find plughole surfing quite stimulating.

  50. The scenario seems to be as follows

    Greeks: We need money
    Germans: No way
    Everyone else: Give it to them or we are all doomed
    Germans: Oh okay
    A short time later
    Greeks: We need money
    Go back to beginning and repeat endlessly

    When (if ever) do we decide enough is enough.

  51. @Stuart Blythman

    “When (if ever) do we decide enough is enough.”

    Possibly after the German elections on May 9th. But is seems a mighty dangerous game with the bond markets baying for blood. I believe there is twisting of German arms in a meeting with the ECB and IMF today.

  52. @ Ahura Mazuda

    The assertion that the primary cause of Ireland’s weakness is government spending is false. Government spending in 2009 is jut €3.3bn higher than it was at te end of 2007, and is €1.7bn below its trend growth growth rate. By contrast, taxation revenues are €14.2bn below their 2007 level, and €24.1bn below their trend level. Any effective cure for government finances must begin with a programme to restore tax revenues. The opposite course, tax increases and spending cuts, has been tried, and failed.

    @ Pope Eptot

    I go further. The recession was deepened and prolonged by fiscal austerity. Since government spending is a component of GDP and its investment a component of GCFC, then it could hardly be otherwise, even before we take into account multiplier effects. The alternative scenario, where private investment and demand is ‘crowded in’ to replace withdrawn government spending, has manifestly failed to materialise.

    @ tull mcadoo

    Opponents of fiscal stimulus have been arguing unaffordabiity forever- even when the government finances were in broad balance in early 2008. Now that their contrary policies have created the highest deficit in the EU, their determination is redoubled. It is slash&burn that is unaffordable.

    NTMA’s pre-funding, the surpluses of the NPRF, tax hikes in areas that will not hit domestic demand combined with targeted transfers to the poor, abandoning bank bailouts and endng NAMA, and borrowing on the international markets could all provide a surfeit of funds for fiscal stimulus.

    But I agree it should be done quickly, before the government policies result in a crisis of confidence.

  53. @MB

    What do you think would be the effect of the government announcing a stimulas package of the type you recommend on the yield on government debt?

    You say tax revenues are the problem – but perhaps the concern is that tax revenues were artifically boosted by our property bubble and the level of government spending that accompanied them is unsustainable.

    We may be seeing, not just a temporary falll in revenue caused by collapse in demand, but a permanent downward shift onto a new lower trajectory for government revenue.

    We could attempt to reflate our bubble (in one interpreatation) or boost temporarily depressed aggreagte demand (in another interpreation), but the problem is, nobody is willing to lend us the money to do so, and we cant print money to do it ourselves.

    I would argue that, irrespective of whteher you think, in an ideal world, we should boost goveremnet spending, that option is simply not open to us.

  54. @MB

    So it is no response to these arguments to suggest that “stimulas would work” – if you cant get over the first hurdle which is – would anyone fund our stimulus plans if we tried to implement them?

  55. @Michael Burke
    An attempt to fund a fiscal stimulus by pushing our borrowing from its current crazy levels to even higher crazy levels would be a disaster, primarily because it’s highly likely that the taxpaying sections of the economy simply cannot grow quickly enough to pay back the money.

    If we were to push borrowed money out into the economy as stimulus and 75% of it quickly flows back out of the country, we are still left having to pay back 100% of the money from taxes. It’s highly likely that the tax base of the economy is permanently lower than the illusory levels that prevailed in the middle of the decade.

    I’d love for us to be able to have a meaningful discussion on whether a stimulus would be the best thing to do. It’s an interesting discussion, with lots of scope to argue multipliers, social cohesion, etc,. but in our current situation it’s simply not a meaningful discussion.

    Pushing the fiscal deficit above 20% – which is what you’d have to do – simply isn’t practical. No-one will give us the money to try the experiment and I can’t blame them for that.

  56. I read this today on a site….

    It is a myth …
    State funded and ran schools are good for a nation.
    Education can be neutral and is the solution to all our problems.
    Soverign debt does not matter.
    Treaties of Maastricht and Lisbon signing were positive.
    The two world wars were necessary
    Fiat money promotes long-term economic growth.
    Ethics and culture are relative.
    The Renaissance was rational; the Dark Ages were not.
    The universe is 13.3 billion years old and will die.
    The welfare state is legitimate.

    Following these myths cause the yield on Irish government debt to jump dramatically over the past week. This was baked into the cake and the timer has gone off.

  57. http://www.cnbc.com/id/30308959

    “External debt (as % of GDP): 1,312%

    Gross external debt: $2.32 trillion
    2009 GDP (est): $176.9 billion”

    dont tell the bondholders…and if you do , dismiss the IFSC with “oh, that ole thing…sure that doesnt count”

    From their october discussion
    “”The first time this analysis was published on CNBC.com, it stirred angst from Ireland over the numbers, as the country was a significant outlier in the final data. A further breakdown of the country’s external debt data, provided by the World Bank, shows that a significant proportion of the country’s external debt is represented by the country’s banking sector, accounting for approximately $976.48 billion. The argument is that the country’s International Financial Services Center (IFSC) “lends almost nothing to the domestic Irish economy,” according to the Irish Sunday Tribune.

    However, to get a true apples-to-apples comparison, data from the World Bank as well as external debt estimates by the US Government were used, numbers which take into account this lending facility and any given country’s banking system as components of the overall debt number.

    With the Irish government itself forecasting a contraction in GDP of 8.3%, the debt-to-GDP ratio will likely continue to increase, even without additional foreign investment. The biggest difference in these numbers, however, is that the Irish taxpayers are only responsible (directly or indirectly, as in most countries) for a portion of the debt responsibilities. But even if the banking sector is removed from the total external debt number, Ireland would still have a 748% debt-to-GDP ratio, keeping the country at the top spot.”

  58. Ahura Mazda says,

    A further problem which has been fostered during this crisis is the interdependence of Government and banks. Irish sov risk accounts for too much of Irish bank’s balance sheets (direct gov bonds and NAMA bonds). Much of their liabilities require a government guarantee. Equally, the banks (& possibly their managed funds) are buying Irish gov bonds. I don’t like this.

    Here, here. BOH.

  59. Thank You Brian,
    that’s an excellent link to cogent data.

    Our problems are NOT sovereign debt. It’s the debts of the financial institutions. Now it really would have paid us to let those institutions default, but it would not pay us to default on the relatively modest debts of the State, for the foreseeable future.

  60. @MB

    “… Hungary’s premier-in-waiting stated that the country, which was bailed out last year, will not be able to meet IMF fiscal targets and should widen its deficit even more to stoke growth. Traders went into risk-aversion mode, with emerging market and junk bonds also suffering. And as we mentioned, quite a few people in London expect a significant devaluation of the pound after their elections.”

    http://www.nakedcapitalism.com/2010/04/greece-downgrade-what-shoes-will-drop-next.html

  61. Michael Burke,
    Your advice to the man living wildly beyond his means is that its not his spending that is the problem, it’s that he is now earning half of what it takes to fund his lifestyle. All the needs to do is get a higher paid job. Simple.

    Seriously – the tax base collapsed because it was built on unsustainable revenue streams and because we were experiencing a huge credit bubble. True, in many areas our tax rates were out of kilter and low by international standards, but they have been significantly corrected since. Yes, there is still a requirement to really overhaul the tax base and it will help close the gap when the economy recovers but there is no point hoping that a sprinkling of magic powder into unproductive areas of the economy will suddenly generate large numbers of jobs and hence revenue. Nor that shooting rates up now would autmatically fix the problem. It seems pretty clear to me that the rate at which our debt was (is?) rising could leave no room for a massive stimulus. Nice to fantasize, but we have to return to reality.

  62. @ Michael Burke,

    2007?

    Government spending in 2007 was too high. The exchequer’s coffers were bulging with tax from private sector borrowing. Elements of expenditure would also have benefitted from the credit frenzy (e.g. less dole etc). If anything, 2007 was peak madness! You need to go back several years.

  63. Christy

    Ireland would not be unique in borrowing money to fund fiscal stimulus- in fact nearly everyone else has done it. The evidence of the bond market response to their borrowing is set out above. The reason bond markets are willing to fund stimulus is precisely because they work- they grow the tax revenue stream, the only source of debt repayment.

    Hugh Sheehy

    It is this government which has engaged in a unique experiment and it has failed. The leakage argument is a well-worn and inaccurate one – all evaluations of the NDP include leakage, and yet the multipliers are still exceptionally high, eg.

    “The cumulative expenditure on the “recommended” NDP over the period 2007 to 2013 would amount to a little under 29 per cent of GDP with a long-run sustained increase in GDP of around 2 per cent. Without making an allowance for the timing of the costs and the benefits this would suggest a crude rate of return of around 7.5 per cent. This return would eventually be significantly higher since it is clear… that by 2020 GDP would not yet have reached its equilibrium level.”

    In addition, investment in infrastructure and education would increase the long-run capacity of the economy thereby lowering inflation – Ex-Ante Evaluation of the NDP prepared for the DoF, October 2006, Policy Research Series No. 59. Furthemore, the impact outlined above is on the supply side only, not on demand which would of course be affected immediately. Finally, the authors’ concern on the inflationary impact of increased spending in the boom of 2006 justifiably and significantly curtailed the estimated stimulative effects of the increases madeat that time. No such concerns or curtailment are likely in the current environment.

    Ireland’s economic success over decades is a function of its openness; its participation in the international division of labour. In the Supply and Use Tables 2006 producers’ intermedate demand for imports was €124bn, while the exports from those same sectors was €141bn (where imports comprise 25% of the total supply, not 75%). The value added to imports was therefore €17bn. This is a boon to the Irish economy, not a detriment.

    Nor is it the case that household consumption is the driver of imports. In Q4 2009 the former was €10.4bn (annualised, nominal €) below its peak, whereas imports are €22.2bn lower. Since only a proportion of household consumption is expended on imports, it is clear that the overwhelming bulk of imports are related to production, and to re-exports, not household consumption.

    Ireland’s openness is its strength, and increase the effects of stimulus, not diminishes them. This is supported by comparative studies of the effects of EU stimulus packages, where Ireland has one of the highest multipliers for EU funds, such as the Macro-Economic Evaluation of EU Structural Funds Using the HERMIN model, Bradley, Morgenroth and Untiedt, May 2003.

    The leakage argument should be turned on its head to be accurate; Ireland’s multipliers are bigger becasue it is more open.

  64. Ahura

    Is 1997 far back enough? Voted spending then was €19.7bn. The annual average growth rate to 2007 was 6.5%. This is markedly slower than either GDP at 10.8% or GNP, 10%. By contrast, tax revenues grew at a annual rate of 10% over the same period, dspite repeated and substantial tax cuts. So, it remains the case that increased spending is not the cause of the deficit.

  65. @MB

    I think the evidence we have form market partcipants is that you are wrong on this front – i suppose this is an empirical question really – you think that market partciapants would welcome a stimulas package – and an associated larger budget deficit – i think the opposite.

    I would go further, and say that, as market particapants, in public, argue that austerity measures are what is required to aid funding problems, and you are arguing that these same guys really want stimulus measures despite what they say in public, that the burden of proof falls on you – as you are are essentially arguing that these guys either arent representitative of the wider market or are not telling the truth. Im not saying that those positions are unarguable – but they do seem far fetched.

    Also, the idea that Belguim, for example, represents a useful comparison seems weak. They are not experiencing the bursting of a very large property bubble. They have not had (so far as I know) inflation rates significantly above the EU average since joing the euro. They have not had a large a portion of their national output devoted to construction and they therefore do not face the same long term employment/restructuring problems we do. (Also their banks are less screwed). These points are so clear that failure to account for them, to my mind, makes youre argument appear disingenuious.

    Your argument proceeds from the basis that we have a demand problem that if remedied would fix our public finances – however, others take the view that the growth we experienced over recent years was at least in part illusory and temporary. Output and tax revenue have shifted down to a new lower trajectory.

  66. @ Ahura Mazda,

    Government spending in 2007 was too high. The exchequer’s coffers were bulging with tax from private sector borrowing. Elements of expenditure would also have benefitted from the credit frenzy (e.g. less dole etc). If anything, 2007 was peak madness! You need to go back several years.

    The whole 2000s decades is a period of Irish history which we will only learn about properly in 30 years time, when official documents etc are released. As Eddie Hobbs said on The Frontline, we will be in nursing homes by that time most lightly. I formulated one possible theory in a blog entry, I called Corporate Tax, to try and explain some of our difficulties as a nation. What I have noticed in particular is the double pumped action which the Irish economy experienced during the period of the boom. I read a newspaper article penned by a member of Barclay investment managers a while back who noted, Irish people believe if they invest in a company which is down the road from them, that is safer in some way Than investing in something across the globe. Not necessarily so. If that theory were true, companies such as Intel who started in California should be gone out of business a long time ago. Which isn’t the case. Bear in mind, the public service in Ireland added a huge number of senior people to its ranks during the Celtic Tiger years (maybe that was the right thing to do, in addition to upgrading of railway tracks, funding more Phd thesises etc through the NDP). It follows that funds in the national pension reserve fund would have bulged all of a sudden. My suspicion (somewhat confirmed for me by talking to different people) is that much of the national pension reserve fund never left the island of Ireland. It stayed at home and it caused a lot more trouble than if it had left the country. Like the private money of Irish billionaires created by the Celtic Tiger from construction. We are all familiar with the story of Sean Quinn and Anglo. I use the phrase, double pumped action, to describe what the Irish economy was doing. There was simply no plan or no blueprint for the amount of capital and funding available on this small island (either from public sources, private sources, pension funds or otherwise). If you look at entreprises in Ireland which are somewhat robust today – CRH, Ryanair, Food companies and even Irish bank subsidiaries – they haven’t been wiped out, like much of what was linked to the domestic Irish economy. BOH.

    http://designcomment.blogspot.com/2010/04/corporate-tax.html

  67. @ Michael Burke,

    I’d project the 1997 numbers as follows (it’s back of the envelope but looks reasonably ok). Between 1996 and 2009 CPI increased 42.6% (source: http://www.cso.ie/quicktables/GetQuickTables.aspx?FileName=CPA04.asp&TableName=Annual+Figures+1996+to+2001&StatisticalProduct=DB_CP )

    So €19.7bn * 1.426 = €28bn,

    As a proxy for the increased size of the economy, I’ll use population which increased by approximately 21% over this period.

    So €28bn * 1.21 = €34bn.

    Budget 2010 plans for €58bn in expenditure, with current expenditure being €50bn. This is very rough work, but a 16bn gap would take some filing.

    @ Brian O’ Hanlon,

    I’d encourage Irish investment in Irish companies. Though IIRC a number of Irish people took leveraged punts on off-plan apartments in Bulgaria etc.

    What I’m not a fan of is indivduals and large amounts of credit.

  68. I don’t believe the move in Irish spreads is solely related to Greek contagion. I believe the admission that Anglo is to be wound down has become known in the market. The Eurostat reclassification was the first leak, others have followed.

    The effects of adding the wind-down costs of Anglo to the national debt are not inconsiderable (increasing it by about 25%). There must also be a question as to how this wind-down is to be effected. Can it be done with NAMA-type bonds? Or must ‘real’ money be used? What is the timescale?

    The NTMA could find that its mountain of cash becomes something of a molehill…

  69. Christy

    Rather than what we hear on TV or the radio, I’d prefer to rest an argument on some evidence. The bond yields provided above are just that.

    On the deficit, where most EU economices adopted fiscal stimlus the EU’s estimates for the deficits of the Euro Area as a whole have been 2008; 1.6% (Provisional) 2.7% (Final), 2009 3.0% (P) 3.3% (F), 2010 3.1% (P). That is the deficit rose initially under the combined effects of recession and stimulus and are now projected to stabilise/fall modestly. For Ireland the equivalent data are 7.9% and 8.2% in 2008, 11% and 10.3% in 2009, and 14.2% in 2010.

    So, stimulus led to an initial increase in the deficit an then stabilisation, whereas slash&burn has proved utterly counter-productive.

  70. There is a strange tendency on his thread to use spurious or dreamt up numbers

    Ahura

    Why use a (very poor) proxy for GDP when GDP is available? In 1997 nominal GDP was €67.9bn and by 2007 it was €189.8bn, an annual average growth rate of 10.8%, compared to an annual average growth rate in voted expenditure of 6.5%, as per a previous post.

  71. @ Mike Burke

    Hi
    Surely in considering questions of economic stimulation one would also have to consider the existing/historical condition of the economy.
    I am not saying that I am against it, I am just asking what is the historical level of stimulation as a reference point for what is achievable and affordable for the present day.

  72. Al

    The most recent NDP was due to be equivalent to 29% of GDP over 6 years, of which all evaluations were extremely prositve in their impact on growth via the output multipliers and the long-term increase in productive capacity.

    Currently, a €50bn increase in government spending would directly replace all the lost output and bring growth back up to trend. However, concentrating on government investment would produce an initial multiplier of 1.6, reducing the government outlay to €31bn. To simply recover the lost output of €26.3bn would require an outlay of €16.3bn. Half that amount would restor half the output lost, and so on.

    Of course any stimulus would be helpful. But, given the elasticity of taxation revenues, the greater the proportion of tax revenues arising from the larger stimulus and therefore the quicker the outlay would be recouped.

  73. Thanks Mike

    My point, is that we cant really start from here!
    We are in a compromised position, without any reserves wiped out cleaning up real and imagined messes.
    Would you see ‘getting our house in order’ as a preconditional step or something that can be done as we go on?

    Looking at the multiplier projection I have to ask whether there is a cyclical of tidal multplier observable.
    Consider alot of the farmers who sold land to the NRA and bought bank shares.
    Or is that beside the point…

  74. @ Michael Burke

    its as simple as this – any stimulus will be funded from abroad. Fact. Not just this year, but for the next 5 years. So any stimulus is not really “our” decision to make. At this point in time its extremely difficult to say that external funders would be willing to go along with an increased stimulus package beyond a 14% deficit when you see what is happening to Greece, Portugal and Spain on the markets and what is happening to the same three from the ratings agencies, who referenced deteriorating budget deficit situations as being one of the mains causes for the recent downgrades.

  75. @ all
    That’s a most impressive and lively exchange, by any standards. Even if some parts are not accessible to the generalist, it is a really hopeful sign.

    @ Michael Burke

    ‘Ireland’s economic success over decades is a function of its openness; its participation in the international division of labour”

    That is true, but the even more significant reality is our role in the international distribution of profits, via transfer pricing. It can be argued that we have failed abjectly to manage the flow of FDI investment and EC support , so as to achieve a critical mass in terms of economic development.

    I suggest that is because we have too many gatekeepers and rent seekers. The bloated aspirations of our monpolist ‘professional’ classes are a large part of the bubble.

    It’s pretty telling that:
    1 Our ‘native successes’ like CRH and Ryanair are moving offshore
    2 Our failed banks represented such a huge share of our stock market
    3 Our domestic sector is falling further behind FDI.
    4 Manufacturing remains a marginal activity for Irish workers and entrepreneurs
    5 We haven’t really moved in general, beyond the relatively low tech areas of property and construction.

    @ BO’H

    ‘There was simply no plan or no blueprint for the amount of capital and funding available on this small island (either from public sources, private sources, pension funds or otherwise)’

    Exactly. Too many poseurs and self-advertisers on the bench.

    @ Christy

    ‘Your argument proceeds from the basis that we have a demand problem that if remedied would fix our public finances – however, others take the view that the growth we experienced over recent years was at least in part illusory and temporary. Output and tax revenue have shifted down to a new lower trajectory’

    That’s what the psychoanalysts call the Depressive, or reality-oriented, Position. It follows on from the Omnipotent phase. No disrespect to MB intended, as everyone has some of the truth.

    @ Ahura
    ‘If anything, 2007 was peak madness!’
    Failte romhat. Please carry on with your enquiries.

  76. @ Eoin,

    its as simple as this – any stimulus will be funded from abroad. Fact. Not just this year, but for the next 5 years. So any stimulus is not really “our” decision to make.

    I’m shocked tonight. Absolutely shocked. The reality had never quite struck home to me, how dependent sovereigns are on external funding sources, until I switched on the news at nine and I heard this massive figures being bandy-ed about to cater for a three year period for Greece. Whenever I read about the IMF or aid packages for sovereigns in the African continent or somewhere in Asia in the past, it always seemed so far away from me in terms of culture, economics, politics and so on. But it has come right home to roost this evening. It is the first time I ever watched the news with the IMF talking about some country where my friends would have gone on sun tour holidays for a week. What an extraordinarily sedate and peaceful time we have enjoyed in this part of the world for the last several decades. Notwithstanding the Yugoslavian conflict, the crumbling of the soviet system, Chernobyl accident and so forth. All big events, but not large enough to de-stabilise this part of the world.

    @ Paul Quigley,

    On this: ‘There was simply no plan or no blueprint for the amount of capital and funding available on this small island (either from public sources, private sources, pension funds or otherwise)’

    This is probably something which Elaine Byrne and other political scientists out there need to focus on. I haven’t heard any of them approach their commentary from this particular angle as yet. The real trouble as I see it, (full credit to George Lee for pointing this out in a Pat Kenny interview a while back), we have people who talk about innovation. We have people who talk about bond spreads. We have an expert consultant or ‘voice’ for just about everything. Be it Colm McCarthy, Peter Bacon, Chris Horn, Michael Hennigan or whomever. The government loves having things that way. All of these specialists are neatly cordoned off from each other, toiling away like monks in their own little work cells. But realistically, the big issue for innovation at the moment is forming the right European wide blueprint to produce some level of growth. The big issue for European wide growth may involve much of what Colm McCarthy talks about. And so on. The things are all interlinked, and require thinking which is interlinked. But instead we have a vested interest in the middle, called a political class, which serves almost no function, irregardless of whether you pay it less, or pay it more. But then again, politicians create policy, create legislation. I was watching the news on registration or deaths of Irish citizens abroad this evening on the news. Clearly, there is where government fits into the equation, and is required. But in terms of management of the economy, I am dubious to say the least of how the ‘experts’ in the various areas are ‘managed’ by Brian Cowen or Brian Lenihan, and the FF/Green government in general. Even in the debate on the motion proposed by Fine Gael’s Simon Coveney to do with the green economy and energy security, Green TD Ciaran Cuffe had to raise the point, we are separating ‘energy security’ from climate change, and other dimensions of the same problem. I would fully expect Ciaran Cuffe to see that problem, his mind having been formed by the same training as myself in architecture. BOH.

  77. @Michael Burke
    As I already said, I’d love to have a meaningful discussion about multipliers, etc,. but it’s simply not meaningful to have it. Our deficit would have to be pushed too high to be fundable. Also, I’m afraid I simply do not believe that the multipliers would be high and NDP estimates for the DoF from 2006 might as well have been written in NeverNever Land for all the credibility or meaning they have today, but it’s still a moot point.

    As for improvement in education increasing the long term capacity of the economy, I agree entirely but with several important caveats.

    One is that improvement does not necessarily require increased spending.

    Second is that improvement in education has long term impact and we are in a short term crisis as well as a long term problem. Investment in improved life-jacket technology cannot save a man who is drowning today.

    Third is that – as an open economy in a post bubble credit world – domestically driven inflation does not strike me as a serious risk. Inflation driven by European issues, maybe. But not domestic.

    Ultimately, the issue is still simple. Yes, you’re right that governments have often aimed to borrow for fiscal stimulus and yes you’re right that our current debt yields are less than Greece’s. But the yield is already high and it’s not astronomical primarily because lenders see that Ireland is cutting and not spending. Any attempt to spend would result in yields going through the roof and a rapid end to the stimulus experiment.

    The issue is not an intellectual discussion. The issue is that lenders want to be sure they’ll get repaid and embarking on a risky debt funded stimulus increases their assessment of the risk that they will not get repaid.

    A fiscal contraction may or may not be a better risk for the country. That is beside the point. If we need the lender’s money we must play by his rules. If we did not need his money we could ignore his rules.

    We need the money. Lots of it. For a long time to come. If our spending base was lower we wouldn’t need it, or not as much, and we could have our nice little discussion.

    We may tell fairy stories of the magic money sock and the golden sovereigns that will save us all, but we must still face the real world in the morning.

  78. BTW, I’ve been considering setting up a new political party. The key value proposition is mentioned in my excessively long post above (sorry).

    I’m considering setting up the “The Magic Money Sock Party”.

    This party is for high spending, full employment, low emigration, defined benefit pensions, increases in public sector pay, long holidays, perpetually growing house prices, the NDP being implemented in full, free health care for all, generous welfare benefits, free university education, flexible financial regulation, and steeply progressive taxes on the “rich”, since it has to pretend to have a funding plan.

    The party is against saving, studying Maths for the Leaving Cert, having a competitive economy, strict financial regulation, application of the law equally to all residents, and leaving anything other than a wet and mossy pile of rubble to our children.

    As an aside for Richard Tol, who may be on this thread, the Dutch could call it the “Partij van de TGS”. It sounds much more serious in Dutch.

  79. Hugh

    IF you se up this party, I will run for you.

    BTW, Greek spreads are in 17bps this moring, Ireland is flat & the states holding in BOI is worth more than it was yesterday. Can we have a thread with 80 Panglosses on it rather than 80 Cassandras…just for the sake of balance.

  80. @ Tull

    dont be silly, that’ll never happen….however, lets at least try….from today’s Lex column….

    “Ireland
    Published: April 28 2010 09:33 | Last updated: April 28 2010 16:58

    The injustice of it all! As fears of a Greek default escalate, Ireland’s 10-year borrowing cost rose above 5 per cent on Wednesday, a 2 percentage point premium over German Bunds.

    Irish finance minister Brian Lenihan has led the way among ailing peripheral eurozone economies in taking the harsh fiscal measures needed to regain investor confidence. He set the example months ago that Athens should follow now, slashing public servants’ salaries, and welfare payments. Investors rewarded him: the yield spread over Bunds narrowed.

    Now Dublin has given up those gains as Greece, the European Commission and the International Monetary Fund fail to agree on similar draconian measures for Athens.

    Ireland is no saint. Like other peripheral economies it became uncompetitive, paying itself too much and producing too little. And unfettered bank lending and limp regulation during its property boom brought deep recession when the bubble burst. The 12.5 per cent contraction in Ireland’s gross domestic product since the end of 2007 is the eurozone’s worst. Output could shrink 1.3 per cent this year. Furthermore, Ireland’s budget deficit, at 14.3 per cent of GDP, is higher than Greece’s. Its banks need to raise another €45bn this year, Deutsche Bank estimates.

    But Ireland is not in the same league as Greece: the former Celtic Tiger has a credible recovery plan and has bounced back before. Its public debt, now at 64.5 per cent of output, from 25.2 per cent pre-crisis, is certainly more manageable than Greece’s ruinous 110 per cent, not least because Dublin – unlike Athens – has completed its funding requirements for this year.

    As Athens forces the eurozone to confront its principal defect – one currency, one central bank governor, but no single finance minister – investors should not forget Mr Lenihan’s first-mover advantage. He is at least 18 months ahead of his peers.”

  81. @ Tull

    also, from the IT opinion pages today….

    ““The example of Ireland shows how ambitious austerity measures and solid structural reforms are the basis for successful crisis management,” said Mr Westerwelle (German Foreign Minister), responding to an Irish Times question on Greece.”

  82. Maybe dodging bulletts here…

    11:02 RTRS-MOODY’S SAYS IRISH ECON REFORMS THE RIGHT APPROACH, FUNDAMENTALLY REASSURED BY THIS PROGRESS
    11:02 RTRS-MOODY’S SAYS RISING FUNDING COSTS A RISK FOR IRELAND BUT IRISH CHARACTERISTICS DIFFERENT FROM OTHER EURO ZONE PERIPHERALS
    11:02 RTRS-MOODY’S SAYS FUNDAMENTAL ASSESSMENT OF IRISH RATINGS NOT CHANGED BY RECENT NERVOUS MARKETS

  83. @Michael Burke,

    “Why use a (very poor) proxy for GDP when GDP is available?”

    Very simple. Irish GDP is special. Other posters have identified reasons why it’s not a great measure. I don’t believe there is a linear relationship between the increases in our GDP and the amount of taxes we can raise.

    Current expenditure mostly pays for services to the population. So step 1 is to use the CPI to index the level of service provided in 1997 to current prices. Step 2 recognises that there is a greater for government services. As most of these services are to individuals, I increase the current price by the change in population. If you want to say the 1997 level of service was inadequate, then fair enough but it’s not what I’m addressing.

  84. @ Eoin
    3 so far-77 to go.

    Tne NPRF is in the money on its 15.7% holding in BOI acquired at 1.38 too. About 66m by my reckoning. Will I mark this to market on the hour!!!

  85. @ Tull

    I’d prefer if you operated as a running ticker with 30 secs updates, but decent chance the moderators would boot you out for over-posting… 😀

  86. eoin
    While Ireland clearly has done more than any of the other PIIGS the reality is that we still have far more left to do

    The Irish 10 year is spread is wider again today while the Greek and Portuguese spreads are both significantly tighter.

    So while many commentators think we are doing a great job the markets clearly don’t fully agree

  87. @ DE

    10yr is actually tighter by 7bps and the 2yr is massively tighter by 65bps. 5yr CDS is also tighter by around 30bps. Not sure how you can spin that as a negative. Unless thats your sole intention?

  88. @Eoin

    No my intention isn’t to spin what I see as a negative.

    The point I was trying to make is despite all the good work and positive commentary Ireland is still regarded as among the very bad boys of Europe.

    Rather than talk of Ireland leaving the PIIGS, the PIIGS has become the PIG. With the Italy and Spain (despite the downgrade) are now trading significantly below us.

  89. @ DE

    ireland suffers from being geographically peripheral and lacking a large domestic investor base. Italy, for instance, has a huge domestic bond market base. This affects the liquidity of our bonds, especially as we have gone from selling almost no bonds to selling quite a lot in the space of 3 yrs, vs Italy running a big deficit for the last decade or two. These two combined explain some of the spread between us and Spain/Italy.

    On a CDS basis, where liquidity is much less of an issue in pricing, the spread is far narrower, for instance.

  90. @ Hugh Sheehy

    “As I already said, I’d love to have a meaningful discussion about multipliers, etc,. but it’s simply not meaningful to have it. Our deficit would have to be pushed too high to be fundable. Also, I’m afraid I simply do not believe that the multipliers would be high and NDP estimates for the DoF from 2006 might as well have been written in NeverNever Land for all the credibility or meaning they have today, but it’s still a moot point. ”

    If we can move on from beliefs and assertions, and perhaps return to evidence.

    One fiscal approach has been tried in Ireland, and clearly failed. Growth is weaker and the deficit and bond yields are higher. Another iscal approach has been tried elsewhere in Europe, and gorw is recovering, deficits have stabilised and bond yields are lower.

    Yet we are invited to believe not only that no other course of actio is or was available, but there threats to repeat the dose if (when?) things do not turn out to goverment plan.

    I think it was Einstein who argued that madness was repeating an experiment and expecting to get a different result.

    I note that all objections to stimlus have revolved around the alleged impossibility of borrowing, even though in my origianl post borrowing was only the last option on a list that includes NTMA’s pre-funding, NPRF funds and adjustments to the tax regime that would amount to targeted transfers to the poor. None of these would require additional borrowing. We could also include the balances at the semi-states, accessing EU ‘Green’ subsidies, etc.

    Maybe you should tell Mr Lenihan about your prohibition on further borrowing. He is ignoring you, repeatedly. Yet any investor, in sovereign debt or otherwise, is more likely to lend money where there is an incom-stream to support it such as taxes, rather than to a zombie like Anglo.

  91. I am indebted to Michael Taft for pointing me in the direction of this quote,

    “Officials from Standard & Poor’s said the main reason for downgrading the debt of Greece and Portugal was the prospect that forced austerity packages would be an even bigger drag on economic growth.

    It is the most vicious of circles: stagnating economies are forced to cut back more, which reduces their ability to generate revenue and thus pay off their debts. As part of the euro zone, these countries do not have the ability to print their own money to stimulate growth and bolster exports, so increasing debt and an increasing prospect of default result.”

    @ Ahura

    Ireland is not that special. Like everwhere else it also has a GNP. Even those who insist on not using GDP, despite the fact that exports are no less taxable in Ireland than anywhere else, will admit the use of GNP.

    GNP grew at an annual average rate of 10% from 1997-2007 (compared to GDP’s 10.8%), whereas voted expenditure grew at an annual avge. rate of 6.5%. So, the point remains, the crisis in govt. finances is not a function of overspending.

  92. @Eoin
    I accept that liquidity is an issue. But I don’t think it would explain a 110bps spread on the Irish 10 year bonds vs the Spanish or Italian?

    Especially when the spread was only 50 to 60bps 2 weeks ago.

  93. @Michael Burke.
    Here’s your proposed list of things we could do “NTMA’s pre-funding, the surpluses of the NPRF, tax hikes in areas that will not hit domestic demand combined with targeted transfers to the poor, abandoning bank bailouts and endng NAMA, and borrowing on the international markets could all provide a surfeit of funds for fiscal stimulus.”

    I note that “borrowing on international markets” is indeed placed last in your list, but I doubt that it would be last in importance or in size.

    I’ll add one more potential option. If we use the magic money sock in addition to all the other proposals then we’ll have a perfect suite of funding solutions.

    As for the government’s current and historical actions, it’s hard to know where to start.

    It may well be too late to undo the damage caused by guaranteeing Anglo, but I’d love to see how the government’s income, expenditure, taxation and net debt balances would look under your proposed fiscal stimulus.

    I suspect it wouldn’t be a pretty picture, but go right ahead and provide the evidence that it would.

  94. @ Michael Burke

    what do your multipliers have to say on a policy of an across the board cut in public sector pay of say 15% and the redistribution of the proceeds towards capital spending?

  95. @MB

    “One fiscal approach has been tried in Ireland, and clearly failed. Growth is weaker and the deficit and bond yields are higher. Another iscal approach has been tried elsewhere in Europe, and gorw is recovering, deficits have stabilised and bond yields are lower.”

    The preformance of countries like belguim is not a good basis of comparison – for clear reasons. This evidence is not persuasive. I would ask you, to play devil’s advocate for a minute, and try to consider whether there are any problems with using this evidence as a guide to the likely reaction of bond markets to a stimulus package in Ireland especially in circumstances where your view about how market participants welll react is in direct contrast to the expressed views of the very market participants whose behaviour you are predicting.

    In fairness, your original post does attempt to address the funding issue. Trying to take your case at its height, it could be argued that all existing and potential resources be deployed to boost aggregate demand straight away – that this effort will be succesful before these domestic resources are depleted and tax revenues and GDP figures will improve quickly enough for us to attract interest from foreign lenders to enable us to fund future deficts.

    However, there is, I hope you would accept, a different view of how that course of action would in fact pan out. First, when the program is announced, yields will rise and substantially on Irish debt, and this will happen immediately.

    What happens next is obviously less clear cut. But I would suggest various potential consequences.

    1 Downgrade of irish soverign debt and perhaps bank and other corporate debt. perhaps stock market falls (wealth effects here perhaps)

    2 The cost of funding for Irish banks could rise, and interest rates to customers could rise – this may offset potential increases in aggregate demand brought about by the policy (and could happen before stinulas
    has effect)

    3 EU/Eurozone seriously pissed off – implied bail out support removed or reduced – further increase in yields and downgrades – further problems in private repos of governemnt debt for the banks – further funding problems for banks. Solvency of banks once more a clear issue, but now no soverign backstop. Bank runs.

    would irish banks need to mark to market paper losses on the value of irish government debt? How would Bank of Irelands capital raising be affected by this decison?

    I for one would move any asets i had out of irish banks immediately on the announcement of such a policy

  96. @ Ahura,

    Very simple. Irish GDP is special. Other posters have identified reasons why it’s not a great measure. I don’t believe there is a linear relationship between the increases in our GDP and the amount of taxes we can raise.

    Interesting point. This was a central issue in George Lee’s lecture to the journalists at university of Limerick too i thought (the lecture is linked at Stephen Kinsella’s blog. George talked about growth in GDP without growth in employment. So the upshot of what George was saying was, we need Ireland to become a safe place for capital again, and generate jobs and gradually the figures begin to sort themselves out a bit. George contrasted sharply what they are doing in the UK with all economic policy instruments, compared to what we are doing in Ireland, as in reading from the ECB hymn sheet, verbatim. George claims that exports are not the silver bullet we all hope for, in terms of job creation. He believes corporate taxes are one of the last remaining instrument we could use, and the EU can’t really stop us manipulating it. Maybe by applying that lever in the right way it may help to create some employment. BOH.

  97. paul quigley
    Correct! +1

    However, the gombeen rentseeker type is still cocky. Only when they have been humbled will we rise again. In the meantime, we all suffer. The weakest suffer most of all. Suicide rates, murder rates of families will increase.

  98. Michael Burke

    You appear to be a mercantilist? You do not appear to understand capital or banking. Massive handicaps for someone who espouses solutions. Fabians are usually more sophisticated in their economic analyses? Clearly you are not mainstream left wing. Perhaps you think you are a Keynesian? Your ideas are radical, particularly at this point. Let us know more about where you “come from”?

  99. “Officials from Standard & Poor’s said the main reason for downgrading the debt of Greece and Portugal was the prospect that forced austerity packages would be an even bigger drag on economic growth.

    It is the most vicious of circles: stagnating economies are forced to cut back more, which reduces their ability to generate revenue and thus pay off their debts. As part of the euro zone, these countries do not have the ability to print their own money to stimulate growth and bolster exports, so increasing debt and an increasing prospect of default result.”

    I dont think people are really disputing these points – but it does not logically follow therefrom that increased government expenditure is better then retrenchment – we are caught between a rock and a hard place

  100. Christy

    I am indebted to you for actually engaging with the points raised.

    There is one assumption in your argument I would like to highlight, though.

    “However, there is, I hope you would accept, a different view of how that course of action would in fact pan out. First, when the program is announced, yields will rise and substantially on Irish debt, and this will happen immediately.”

    There is indeed a different view to mine and one that frequently finds robust expression here. But I want pose a question to you.

    Are you sure that the initial bond market reaction would be so negative?

    Of course, certain bond market participants tend to make it onto the airwaves, some every day. But in general, these tend to be on the sell side, not the very large buyers. Bill Gross is so well-known precisely becasue he is the exception. Gauging what the buyers do, or anyone in financial markets, in aggregate, is best discovered by prices.

    I wouldn’t possibly claim to have followed the daily or longer gyrations in the bond market prices of all Euro Area economies, with particualr reference to the reactions to their fiscal packages. Perhaps others here have. But general trends are readily availale from charts, and they offer a clear vedict of who’s policy is in favour (or, more precisely, the consequences of whose policy is in favour). And who is not.

    I do recall 4 fiscal events, though, the stimulus packages of Germany, France and the much-reviled comparator Belgium. German yields fell in the wake of the post-election fiscal stimulus anouncement late last year. And both Belgian and French yeild spreads were stable/lower after their respctive announcements. I don’t know of any major sell-off occasioned by announcement of a fiscal stimulus.

    There was too a sell-off in British govt. debt late last year, which was widely reported as being in response to ‘lack of a plan’ to reduce the deficit in the Pre-Budget Report. But the strange thing is, Darling announced there would be no more stimlus in 2010, and gilts sold off. Yet in 2009, yields had fallen when he was trying to stimuate the economy, with moderate success.

    But I am open to further information on this point. Can anyone show a country-specific sell-off in a Euro Area govt. bond market as a consequence of announcing fiscal stimlus?

    On the rock/hard place position- the government has thrown itself on the rock, wholly voluntarily, unlike Greece and Portugal but with the same consequence. It is conceiveable that it will dust itself off and do it all again.

  101. @MB

    Not sure if this really counts but this might be such an example (in fact it doesnt count as not euro area, but may still be instructive)

    “… Hungary’s premier-in-waiting stated that the country, which was bailed out last year, will not be able to meet IMF fiscal targets and should widen its deficit even more to stoke growth. Traders went into risk-aversion mode, with emerging market and junk bonds also suffering. And as we mentioned, quite a few people in London expect a significant devaluation of the pound after their elections.”

    http://www.nakedcapitalism.com/2010/04/greece-downgrade-what-shoes-will-drop-next.html

    Also, it could arguably be shown the reduction in the spread after we implemented our budget.

    At the end of the day it is not easy to conclusuively show what the reaction of bond markets would be either way, but in my view the balance of the evidence suggests that the fallout would be bad and could be very bad.

    What do you think of the argument that, our eurozone brethern are less likely to bail us out in circumstances where we pursue a stimulus, and therefore, lending to us is riskier in those circumstances?

    Also, it is politically diffciult to cut spending – if a potential lender took the view that, in the long run, we need to reduce gov spending significantly, (ie structural deficit), he would not be encouraged by any sign of failure to address this problem.

    I suppose it could be argued that this is a question about how the stimulus is designed – we could cut spending that is likely to recurr – such as public sector wages and entitlement spending – while simultaneously substantially boosting spending that has a natural end point and is unlikely to recurr, thereby (to take the case at its height) credibly commiting to future cost savings, helping to reduce wages and improve cost competitivness, while simultaneously and perhaps even directly increasing employment as a result of the government spending.

    However, too often, proponents of stimuls appear to see it as a way of avoiding these types of required cuts, instead of taking what is in my view the far stronger argument that these policies are, or at least could be, mutually supportive.

  102. @Michael Burke
    From IMF, May 2009. Now I don’t always agree with the IMF, but I won’t disagree with this paragraph.

    “A rule of thumb is a multiplier (using the definition ∆Y/∆G and assuming a constant interest rate) of 1.5 to 1 for spending multipliers in large countries, 1 to 0.5 for medium sized countries, and 0.5 or less for small open countries. Smaller multipliers (about half of the above values) are likely for revenue and transfers while slightly larger multipliers might be expected from investment spending. Negative multipliers are possible, especially if the fiscal stimulus weakens (or is perceived to weaken) fiscal sustainability.”

    So, for Ireland we should expect a multiplier of 0.5 or less…since we’re a small open country…whatever the DoF claimed in 2006.

    For every €2 that the Irish government borrowed in addition to the €400 million we’re already borrowing per week, we’d see a €1 increase in output…and that’s at best.

    We might even expect a negative multiplier since it’s reasonable to say that a fiscal stimulus would be widely expected to weaken Ireland’s “fiscal sustainability”.

  103. Also forgot to say my frist and most basic point which is – countries in our position don’t dare implementing fiscal stimulus policies – and therefore you dont see the kinda of bond market responses that i am suggesting.

    Also , we are implementing stimulus – ie G – T is about as large as youre likely to see.

    arguably the only realistic way to stimulate our economy, given the scale of the meltdown we are facing, is by a substantial money financed expansion. The bang for your buck from printing money could well be higher then fiscal spending, despite our banking fiasco, and it has the benefit of being potentially unlimited. Allowing drops in nominal GDP is a situation nobody wants to be in – but given our size and membership of the euro its all we got.

  104. Praise from the FT (whoppee!!!!). We must be on the right track!!!!
    In fact it only praises Ireland to criticise Europe (especially the Germans) and, in fact, it later goes on to criticise Ireland for it’s slack regulation. (Hardly taking the lead from London were we!?)
    That old superiority complex coming out again – ah well – plus que ca change!

  105. Hugh

    Philip Lane’s analysis suggests that the initial multiplier for Irish government investment is 1.61, and the cumulative multi-year multiplier effect close to 3 (if I remember correctly).

    Of course, that’s a long-run average based on Irish experience. In the current depression, and with low rates and constrained access to credit, the actual multiplier should be much higher.

    Analysis based on the HERMIN model suggests the multiplier from EU CSF funds is 1.44 on average in the first 5 years, rising to 1.88 and then to 2.83 as an average of the last 5 years.

    Compared to the IMF rule you cite, maybe there is an Irish exeptionalism after all.

    There’s an argument here, based on ESRI modelling, which shows how those multipliers have worked in reverse under current policy

    http://www.progressive-economy.ie/2010/03/economically-damaging-and-fiscally.html

  106. @Michael Burke.
    Sorry, I had forgotten your connection with TASC. We’ve been over this ground before when the TASC letter was published a couple of months ago.

    As for expecting me to believe that Ireland has a multiplier of 3, ehm, how should I put it? Let’s just say that I’ll pass on trying to believe that. It would hurt my imagination too much.

    Similarly, reading the ESRI report referenced on the website is actually difficult. If those conclusions are what comes out of the HERMES model, then I have a slightly tapered conical device with one open and one closed end in which the model’s disks should be placed, and I do not believe that Ireland is so exceptional that it can have an economy that reacts so diametrically opposite to what common sense and the IMF study think.

    As for the Moody’s report also referenced in the article, its conclusions are pretty clearly rubbished by the later San Fran Federal Reserve article.

    If you ask me to believe that Ireland’s economy can be saved by the government borrowing even more money and giving it to public servants or welfare recipients, which is what you’re saying the HERMES simulations argue, then I simply cannot oblige. Nope, no way, not going to happen.

  107. @Michael..
    perhaps you’ll have to make allowances for my scepticism about the whole idea of “priming the pump” and “a rising tide lifts all boats”. I remember how many people emigrated or spent a decade unemployed when that was tried before.

    Anyone remember the 1977 manifesto? Didn’t work too well, did it?

  108. @hugh

    I share your scepticism based on past experience with this policy. It took us a decade to work our way out of the 1977-81 period.

    Howwever, it really does not matter what HERMES spits out. We are under an “edict” from Bruessels tighten fiscal policy over the medium term whiel Greece is under pressure to do it in an even shorter time frame.

    I am also quite sure that if we announced the policy favoured by TASC our access to the bond markets would be closed in about 48 hours.

  109. Hugh tull

    I, the ESRI, Lane-Benetrix, HERMIN, HERMES, and a host of more recent IMF research will of course have to bow before your scepticism. So much more powerful than pesky data.

  110. Michael,
    As a matter of interest, why are the ESRI not advocates of a more expansionary fiscal policy?

  111. I note also, you did not address the 2nd point about the possibility of implementing such a policy given a) our medium term agreement with Brussels b) the constraint imposed by bond markets.

    Also, perhaps your contention is that an expansion in the deficit would bring down interest rates. Yet the evidence from Greece is the opposite.

  112. Again, all pointless speculation. The lenders will not fund the experiment.

    Other than that, would love to see the “host of more recent IMF research”. What I linked to was IMF from May 2009.

    Either way, I’m done here. Without a clear electoral victory for the Magic Money Sock Party this discussion is mooter than moot. Realisation of TASC fantasies will have to wait for a clear MMSP victory.

  113. tull, hugh

    Ireland’s ‘medium-term agreement with Brussels’ by which I assume you mean the comitment to the stability and growth pact, is exactly the same as everyone else’s commitment. They adopted fiscal stimulus and and are now much closer to meeting that comitment. Ireland is the furthest away on the deficit and, if that should persist, will ultimately be the furthest away on debt.

    Whatever bond market constraint against borrowing for stimulus you imagine does not seem to have applied to the many countries which adopted it. However, there is a growing (yield) constraint against Irish borrowing, based on fiscal contraction.

    I agree that an expansion in the deficit pushes yields higher, as Ireland amply proves. However a temporary expansion in government investment produces a return, known in business circles as a profit. This lowers the deficit. As has happened in the rest of Europe.

    On IMF research, the most recent, but by no means the sole research I would cite is the March 2010 IMF WP/73 Effects of Stimulus in Structural Models, where the highest multiplier is attached to government investment and is 3 over 5 years.

  114. Michael.
    Did you actually read that IMF report?

    Try reading it and looking at these two charts which show that any comparisons of Ireland’s openness with the US or EU levels of openness need to bear in mind the HUGE differences. This data is relevant even if you don’t read through and find all of the other assumptions from that report that either don’t apply to the current circumstances at all, or that don’t apply to Ireland at all.

    Again, if we lived in the world that the assumptions in that report describes then we could possibly argue about the accuracy of the models – but we don’t live in that world and the authors don’t suggest that we do.

    http://data.worldbank.org/indicator/NE.IMP.GNFS.ZS?display=map

    http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS?display=map

    Other than that, I asked before if you were prepared to outline your forecast of your proposed fiscal stimulus package on Ireland’s financials. As I’ve said, I believe the discussion in moot since it’d be unfundable, but I’m sure you’d love to show me and other sceptics how profitable you believe such a scheme would be. Go on then.

    Surely with the resources of TASC behind you you can produce a persuasive estimate of how a borrowed deficit stimulus would get us out of trouble. I, on the other hand, am a mere sceptic who doesn’t believe you can do any such thing.

  115. Hugh

    the charts you cite are world bank representations of exports and imports as a percentage of GDP. These are not news.

    However, returning to the IMF research I am accused of not reading, they rely on2 models from the Fed and each from the IMF, ECB, OECD, EU and Bankf of Canada. They do indeed estimate the multipliers at a cumulatitve 3.

    And, as I am sure you have read it, I am surprised you didn’t address the researchers’ enquiry into the apparent I am guessing issue you allude to, namely Ireland’s openness. The researchers examined this issue, and found it to have only a marginal impact. Other more nuanced research suggests a large, balanced external sectorsuch as Ireland’s increases the efficiency of all investment- as one would expect- and therefore increasesthe effects of multipliers.

    But it is not necessary to pursue that point, as it it is self-evident that any investment with a multiplier of 3 will of course be more than self-financing.

  116. Michael.
    You’re either misreading or misrepresenting or simply misunderstanding.

    The degree of openness they considered was 17-18% approx for the Euro area, and then they modeled half that as a control case, so maybe 9% openness. They found that it made a difference. What they said was “The conclusion that the more closed economy has a somewhat higher fiscal multiplier holds for all the temporary fiscal stimulus measures considered in this paper, and for the same type of experiment on the US economy.”

    Ireland’s openness number is 70-80%, ~4 times more open than anything they modeled and with the clear implication that the multiplier would be considerably lower than anything they modeled.

    Meantime, not even you can seriously assert that Ireland would have a multiplier of 3 and serious people have suggested the multiplier would be negative for a small open economy like Ireland.

    So once again it’s in your court to produce actual forecasts using actual numbers. Commit to a multiplier. Commit to growth forecasts. Commit to forecast debt costs, tax income, etc. Otherwise you’re wasting everyone’s time, and if you persist with your fantasy multiplier of 3 in the model you’ll continue wasting everyone’s time even if you do make forecasts.

    Of course, it’s a free country and you’re free to believe in a multiplier of 3, just as lenders are free to disbelieve.

    Their opinion matters. Your opinion doesn’t – not unless you can construct a compelling case, which you manifestly can’t.

  117. @ Michael Burke,

    Re GDP/GNP – it suits some agendas to quote as % of these measures. And to be fair, it doesn’t suit my agenda/ the point I’m making. To set my logic in a different context, how would you project the cost of a retail outlet five years from now? I would use an inflation measure and adjust for increased volume. I wouldn’t use GNP or GDP. I think this is a reasonable approach to use on gov current expenditure.

  118. @ Ahura

    It’s the ”agenda’ of the EU Commission

    @ Hugh

    Your designation of ‘serious’ is interesting, as the idea of ‘expansionary fiscal contraction’ is wholly discredited since Ireland has had the FC, but not the E.

    On misleading, etc., the key word in your quote from the IMF paper is the word ‘somewhat’, whose usual meaning is a small degree, a little. The preceding sentence (and Fig. 88) provide the authors’ precise meaning of the word, which seems to be very different to importance you seek to attach to it. Here is their preceding sentence,

    “With the more open calibration of the euro area, real GDP is 1.2 and 1.1 percent higher than baseline in years 1 and 2, respectively, in the case of two years of monetary accommodation. In the case of the more closed economy, real GDP is somewhat larger, at 1.3 and 1.2 percent higher than baseline.”, ie, the somewhat refers to a difference of 0.1% of GDP in both years when an economy is only half as open as the baseline. It does not at all alter the thrust of the IMF analysis, or its validity in the Irish context.

    It should be noted in passing that these growth projections demonstrate the effectiveness of fiscal stimulus in the first two years alone.

    You also ignore all the Irish-specific analyses, which have a cumulative multiplier of 3 as the lowest estimate. Why this is a cause of irritation, rather than rejoicing, is incomprehenible. I have to say, this is a first, as the constant refrain is that Irish fundamentals are so unique that all foreign research detailing the extent those multipliers simply does not apply to Ireland. Yet these Irish-specific analyses include, Lane-Benetrix, ESRI, evaluations of the NDP and the application of HERMIN to CSF funds in Ireland. All of these were cited above but disregarded by you, for some reason.

    With 3 as the lowest cumulative multiplier, the case for stimulus is self-evident, and more than self-financing.

  119. @Michael.
    Tell ya what. Off to London with you and convince the lenders that we should run an even bigger deficit. Then, you know something, I’d pay attention to your arguments.

    Meantime, I’ll just have to continue to live in the less optimistic world where the multiplier for an economy like Ireland isn’t 3, where the DoF/NDP bull*** analyses from 2006 aren’t taken seriously, and where economies being 400% more open than the model is cause to doubt the applicability of the modelled outputs.

    Oh, the Greek government could probably use your skills of persuasion about now. They seem to be struggling.

  120. Hugh

    You are mistaken about the Lane-Benetrix/ESRI.HERMIN/NDP evaluations as these are Ireland-specific (not DoF, by the way). They might have other faults, but they cannot be accused of ignoring Ireland’s extreme openness since they only analyse Ireland.

    Re borrowing, you are mistaken that London is that important.

    The current account deficit was just €166mn in Q4 2009 and for the whole of the year was €4.8bn. This is important, but dwarfed by the general government borrowing requirement of €23bn. This means that Irish savers are funding the overwhelming bulk of Irish government borrowing. And convincing them, or even the dullards in London, that investing in anything which trebles your money over 5 years should be easy.

    The only prerequisite is that it needs to be tried. If advice is needed on how to do this; borrowing to invest that make a positive return, then the recent actions of the following governments might prove useful;

    US, Japan, Germany, China, France, Austria, Belgium, Netherlands, and so on.

    Conversely, if you want to scare the investors (in any jurisdiction), into lending just show them an example of where taxes are raised, spending is cut and and then tax revenues plummet. Greece would work as an example, or even closer to home.

  121. @Michael Burke.
    You’re absolutely correct when you say “convincing them, or even the dullards in London, that investing in anything which trebles your money over 5 years should be easy.”

    We’ll just have to mark it up as odd that people don’t seem to believe that lending money to an Irish government which proposed to engage in a debt financed stimulus under current circumstances would be a good bet.

    They must be particularly dull. Well, someone must be.

  122. Oh, one other thing.. I remembered seeing a note on who holds Irish government debt, and in Sept 2009 82% of Irish government debt was held by foreigners.

    http://www.tribune.ie/article/2009/sep/06/revealed-who-owns-our-government-and-bank-debt/

    Of course, it’s true that they’re not in London only, but also Milan, Brussels, Frankfurt, etc.

    They’re all gagging to lend the Irish government money to spend on a debt financed stimulus. The guaranteed return is so compelling that they’re begging the government to borrow more – to the point that the NTMA is rushing extra bond sales onto the market. That 300% multiplier is so obviously correct that they have no doubt whatsoever about Ireland’s ability to pay back even more borrowed money.

  123. “people don’t seem to believe that lending money to an Irish government which proposed to engage in a debt financed stimulus under current circumstances would be a good bet.”

    What we are witnessing is an increasing reluctance to lend to an Irish government whose taxes continue to plummet on the foot of weak activity, to which its own cuts have contributed, and yet is willing to borrow huge sums to hand over to zombie banks.

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