Eurostat: Irish Deficit 36% of GDP in 2010:Q1

I know that the NTMA have already admitted as much but just in case there were any remaining doubts that Eurostat are counting the promissory notes towards this year’s budget deficit, the picture below is a screencap from Eurostat’s publicly available database. Yes, our deficit in the the first quarter of 2010 was 36.51% of GDP. I believe the figure for the year will be about 20%. (Yes it’s my first time using a picture! Perhaps now you can see why.)

97 replies on “Eurostat: Irish Deficit 36% of GDP in 2010:Q1”

Yippee the deficit has peaked as in a downward trajectory. That economist’s for you. great at telling you where you have been but utterly useless at mapping a forward direction. CJH was right. You lot should be left in a room and a porter sent for your work.

The debt number is also an eye-grabber: EUR 124 billion. We’re close to 80% debt/GDP and 100% debt/GNP.

Maybe the Moodys guys are on their holliers and won’t check the database till September. Buys us some more time to strengthen the banks.

Looks like you have had one of those days? In terms of where we are going, this and previous threads have essentially been pondering the growth trends in the economy, the employment intensity of that growth and relevant tax elasticities. Why any of this becomes emotional rather than a considered view of the data is beyond me. Without wishing to invite the wrath of JtO, surely we can agree that the answers to how much growth, how many jobs thus created and how much extra tax raised is, in all cases ‘not much’.
The thing about this that is worrying is that the disappointing answer, common to our three questions, arises at a time of extremely vigorous expansion in world trade, something that is supposed to benefit a small open economy. I think if you had given most forecasters perfect foresight on World trade so far in 2010 they would have suggested more growth, more jobs and more taxes than we have so far observed.
Perhaps Jim Power was right; we can’t tax our way out of this.


its 2-3 years after the bust. We know where we are. We do not lead multiple threads spelling it out. What we need are solutions. All I see on this site are placebos and not panceas. Can we have some solutions please. And please do better than laying the Anglo losses off on the bondholders. These guys have left town.

For the record, I think the solutions are in the following order
1. hope for a global recovery in nominal GDP
2. regain competitiveness
3 cut public expenditure-renege on the Croker deal
4. raise fees and service charges
5 cut marginal tax rates on labour
6 recapitalise the banking system through diluting existing sharehoders to death
If all of the above does not work, default on sovereign debt and leave the euro.

@ Tull

Ahh right. This is one those “Karl, why don’t you solve the world’s problems?” threads (a la “Why won’t Karl fix Bono’s back?” from a few months ago).

Well, I’ve done my bit over the past year or so. But sometimes we just post the facts as well.

Reminds me of Geoffrey Howe’s jibe at economists. Something about knowing the kama sutra by heart but not knowing any women.

I am thrilled that you managed to post a picture on the site. i could not do that.

I can assure you I do not. i contribute nothing to society other than taxes and some voluntary community work. Keep up the good work though. Thit site gives a social outlet for some really sad people.

There must be an internet version of Gresham’s law.

Why this concentration on the fiscal side of things as Government is only the more administrative sector of the banking industry.
They are effectively powerless when the banks decide to make or destroy money.
But maybe I missed the articles regarding the M3 money supply and if so I apologise.

Why this concentration on the fiscal side of things as Government is only the more administrative sector of the banking industry.
They are effectively powerless when the banks decide to make or destroy money.
But maybe I missed the articles regarding the M3 money supply and if so I apologise.

The 2009 numbers were/are scary enough. One wonders whether the press will pick up on this piece of data.

Proposals to solve the country’s problems are valuable and will be rare, but don’t underestimate the value of gathering/presenting/regarding the facts as best as we can find them.

If you’re looking for solutions to a problem, it’s worthwhile to look in detail at the problem.

For what it’s worth, I’d support all but two of your suggestions. I can’t see that raising fees/charges or leaving the Euro are likely to drag us out of the shit. Not sure that a sovereign default is a good plan either, but it’s debateable.

Can some economist tell me why a fiscal deficit is so bad given the fact that we had huge monetary flows during the so called boom years.

Both in my opinion did not increase the industrial productivity as one created obscene housing while the other at least has the benefit of keeping our bellies full.
What is the difference.

@ KW

Don’t let Tulls outburst put you in a sulk. You’re contribution to this site is very much appreciated, whether facts or plans.

“hope for a global recovery in nominal GDP”
HOPE? That’s it? I had written an angry riposte, but actually I’m a little disappointed.

The reason it is worth banging on about the situation we are in is because “hope for a global recovery” in the government’s only strategy. They seem to even forget the bit about “hope we can get a slice of it” since they are doing little or nothing to increase the likelihood that we will.

As for your suggestions, apart from number 6, they are high on aspiration and low on detail. How, for example, do you propose to regain competitiveness? International or domestic?

Personally, I think domestic competitiveness is what is required and the drag of the non-traded sector must be removed. That means simple things like reform of libel, reform of insurance payouts, reform of compensation processes. It means huge changes to the professions. Now look and see what most of the Dail is composed of…

By domestic competitiveness, I mean that companies must be able to start up and trade and compete with foreign companies in the domestic market. We need to be making a lot more of the stuff we consume. Not just from some autarkical self-sufficiency, but because it provides employment in SMEs.

Come on, you can do better than that. What does “raise fees and increase service charges” even mean. You mean the indirect costs of interacting with the state? How on earth does that make us more competitive? We should be reducing indirect costs and having a minimum of direct costs on individuals and companies. If the state charged nothing for its services, it wouldn’t need to hand out so much in benefit. It wouldn’t need to administer the charging of those services. Whole colonies of aucracies would be wiped out.

@ Hogan

“reform of libel?

Are we going to gossip our way out of this recession?? Please say we are!

@Karl Whelan
It’s not just the promissory notes, it’s the December 23rd capital aswell?

It’s part of a more general transparency regime that is required. That more can be said without fear of being sued. That we move from a secret cabal society to one where cronyism is in the open… oh, hold on, that’s not right…

@Karl, you need to charge your laptop battery.

I’m in Iceland at the moment (where there seems to be incredibly little public support for the idea of joining the EU) and they are at least facing up to the fact that they are unlikely ever to be able to pay their debts; with figures like the above, it seems that it is only a matter of time before we will have to face the same reality.

I’m kinda with you on this one except I really think economists could have a very important role here.
if I go to a doctor with a sick relative I expect him to aim to make the situation better
if I go to a mechanic with a broken down car I expect him to make the situation better etc etc
in all jobs there is some expectation of making the situation better. If your profession is to be seen as valuable it must not be merely descriptive but prescriptive
BUT the government’s tactic, ever since economists wrote their letter against NAMA has been to put economists back in their box. As many are dependent on the powerbrokers for their pay (and survival) in one form or another staying in that box has become easier and more justifiable over time.
It’s all about survival now. And who can blame anyone for that!

This entire thing is sad. Because looking from the US …the Irish public come across as a bunch of docile sheep. Hardly what the world hope to see from the the ‘fiery’ Irish. At least the Greeks went on the streets to protest.

Why are people not on the street protesting?

Why is Fianna Fail still in power?

Why has no one gone to jail?

Might the moniker for Ireland for the the future be ‘The Land of Saints, Scholars and Idiots “.

As an Irish emigrant who by dint of hard work and some luck has established himself in another place I hate to think of the poor souls that are going to be stuck in the ghettos of the Bronx and Woodside grafting because of the lousy crooked Irish politicians who could not spell the word economic policy much less understand the implications of bad economic policy. They are the kids that will suffer because of this …and shame on the Irish people for taking it lying down……. its embarrassing looking at it from across the Atlantic.

Fiery Irish? Good to see stereotypes still going strong in NY. As for ‘at least the Greeks took to the streets’, what did that get them apart from a couple of dead bank workers including a pregnant woman. They didn’t even bring down the government.

@ Hogan

Ah ok, gotcha, reasonably sensible idea then. Not at all like my gossip-bubble idea, though i still think that has merit too…

@ NJ Celt

the Greeks lie stole and borrowed their way to where they are now, and then they decided to tear up the streets of Athens when someone shouted ‘stop!’. The response from the public there is more comparable to a prison protest than a backlash against wrongdoing. Tax avoision and corruption are endemic to the economy there, from top to bottom (note im not saying every single Greek is corrupt, simply that its par for the course throughout their economy). If we had reacted the same as them the EU would have been well within its rights to let us drift off into the Atlantic. Instead we decided to act like grown ups and face our problems head on, and though some obviously disagree with the policy route we have taken, no one can deny that we haven’t tried our utmost to solve our problems.

Whats are the odds on a new global financial crisis early next year triggered by Ireland sovereign junk bonds. We are getting pretty close with everybody not working, leaving the country or working for the government on unsustainable wages. And we are going to build a metro for 20,000 people in swords and the odd deranged tourist for 3 billion. Why don’t we lay on a fleet of electric busses running down the port tunnel, to keep the yellow greenies happy and give every tourist a free bottle of champagne and a free night in a NAMA four star with the interest on the 3 billion and we would have tourists flocking to the country, more jobs and at least chance of not going bust. The bottles of champagne could then become systemic.

What percentage of the current deficit is the one off banking recapitalisations and what percentage is structural?

We have probably have about 30-40 bn left of a credit line before moodys and the bond markets cop whats going on. We can either burn this on more enevitable bank bail-outs and nama schemes and finance the huge structural deficit caused mainly by a large and hugely paid public sector which in terms of performance to cost ratio is probably the worst in the world. We can burn the rest building motorays to no-where. We now have about 5 times the motorway milage than scotland a country with similar population and are competing with north Korea on empty motorways. The country is full of NAMA follies, apartment blocks in Cork with three occupants, 5 and 4 star hotels and more hotel rooms than NYC. We have goverment that nobody wants and is frightned of having a by-election because they are scared shitless of democracy. All this is a structural because oor finance minister said he would meet any debt and made private vanity debt public.

“Morning all”. So ye are starting to get the unpleasant message that what we have here, is a Predicament. Bus-as-Usual solutions will not work. They have been tried: QE, bailouts, NAMA, whatever. Heroic, successful failures.

Tull, good on you! Some raw rage is what we need – and new political, economic and financial paradigms. Any chance of these. Not on your nanny.

If ye believe those deficit figures are scary – just watch the price of Crude. (Difficult to get a real value – currency changes and all). If this price stays above 80 USD/bl, we, (the developed economies) are in real bad trouble. There are no chemical substitutes for liquid fuels. None!

I have mentioned this before. We are not in a traditional cyclical Recession/Depression (I know it does seem so), but in the early stages of a Structural (economic) Regression. The Permagrowth trendline is inflecting and will trend lower or flat (with some Dead-cat bounces) for some time. Then its down!

Its somewhat moot whether I am correct or not – at this time. Just try some ‘What-if’ cognitive exercises for a Flat-line or Permadecline economy. Real interesting!

Brian P

As i understand it, the first 8.3 billion euro paid into anglo has already been classified as a financial transfer as opposed to a capital investment — which is eurostat jargon but means it counts towards the GGB for this year. Adding in the further payments already made to anglo and INBS and a rough calculation for the year gets you to around 20 per cent. EBS will be another factor in the equation.

Further money is likely to go into anglo before the end of the year — Brian Lenihan has indicated that more will be needed, the only question is how much goes in this year and how much next . So the final GGB figure is anyone’s guess. Could be mid 20 per cents.

Couple of thoughts, dumping on academic economists with an interests in immediately relevant public policy issues is absurd.

If Tull had his way then policy would be formulated on “feel” rather than evidence based all the data/info at hand. Sadly, this is likely what got is all into this mess. Dr. Whelan is presenting info, which you should use to adjust your personal opinions according to your values.

“you have been but utterly useless at mapping a forward direction”…if Dr. Whelan offered a forecast or projection he would surely be attacked for daring to do so after so many “rational economic models” failed to project the big crash on 2008. forensic analysis has its merits. if you want an answer nice and tidy in a box, hire a consultant. they will give you any answer you want.

More importantly, as Brian Woods says energy and food (wheat right now) prices are going up. not good at all.

Lastly, this talk of competitiveness is disconcerting. That term could mean many things when actually it means nothing, like ‘sustainable development’ or ‘green growth.’ As Krugman famously said, countries don’t compete, period. “Ireland Inc.” is a political construct and doesn’t mean anything in real policy terms or in having a useful conversation about such matters.

talk about labor or capital (or other) costs explicitly. leave “competitiveness” broad strokes to the politicians.

\rant over 🙂

@Karl Whelan / Cliff Taylor

Can you clarify exactly which transfers / “promissory notes” you think are included in the Eurostat figures for the year to date? Is it the Anglo transfer of €8.3b that is making all the difference? Or are the additional €2bn to Anglo and €2.6bn to INBS also included?


Hypothetically, what would be the impact of an Irish debt restructuring on the rest of the EU be at this stage? (Presumably it is not likely in the short term as our borrowing costs are not huge at the moment but will increase as more debt is rolled over in the less propitious market.)

Also, does anybody know how much of Anglo’s debts would remain guaranteed by the Government, under the eligible liabilities scheme or otherwise, if the guarantee were withdrawn?

“the Greeks lie stole and borrowed their way to where they are now” and we’re different because …….
Oh yeah I forgot only some of us lied stole and borrowed to get us where we are today …. and now thise criminals keep screwing us over and over again.
It’s a bit like a prison too – isn’t it. Just hope they’re gentle…!

The russian is not impressed with the good bank-bad bank-shake it all about bank plans for anglo – he picked up on my comments on the MLRA and has some numbers
IF hes right then more losses are likely to land on the taxpayer


i hadn’t seen the quarterly figures that Karl referred to and am not sure how they were calculated.
My information was that the 8.3 billion euro to Anglo had already been classified as a finacial transfer and will thus be in the GGB. This is clearly stated elsewhere on the eurostat website The additional 2 billion to Anglo and the INBS money had not yet been classified in this way, up to a couple of weeks ago anyhow and it appears contacts with Brussels are continuing on this. But I think it is 100 per cent certain that they will, in time , also be classified as financial transfers and that they, too , will be added to the GGB. The only way this can be avoided is if a case can be made that they are financial investments on which a return is likely…. !!!!!

Depending on how the EBS money is counted this, on my sums, brings the total to around 20 per cent. If further money is sunk into Anglo this year, I think it is likely to rise further. The only sum that would be excluded in this is whatever might be used to recapitalise the ” good” bank which Anglo hopes to create and which the commission have yet to rule on. However most of the cash will go towards cleaning up the bad bank and thus, sooner or later, will go towards the GGB.

The final (nerdy ) point is that it is counted by eurostat for borrowing purposes when the promissory note commitment is made, not when the money is paid out. This is because, technically, the exchequer gives the money to the bank in one lump and the bank then lends it back to the exchequer. The cash is then dribbled back to the bank, with interest, over a period of years.

I presume it will thus affect the exchequer borrowing requirement differently from the general government deficit……..

will leave your hypothetical question to the greater academic minds


There seem to be rumblings that the von Rumpuy task force on economic governance is working on a European Debt Restructuring Mechanism. I have my doubts that any unlilateral Irish action would be entertained, but there seems to be an increasing recognition that some PIGS-wide orderly restructuring will be required eventually.

Similar to Cliff Taylor, I would be interested in the views of the greater academic minds.

When you say “Hypothetically, what would be the impact of an Irish debt restructuring on the rest of the EU be at this stage? ” one assumes your looking for views beyond the mass panic it would engender?

@ BL

At last the cent is beginning to hit the floor. We have people on this site running around shouting “we should not pay 25bn euros to bail out Anglo, burn the bond holders now.” Well the news is there are no outside bondholders other than a few quivering wrecks who still own subbies and the owners of 12bn of govt guaranteed paper who get their money back in September.
If the taxpayer choses to forego the loss it will be bourn by a) CB of I b) ECB or c) depositor or d) defaulting on GG paper in the next 7 weeks. Good luck with those negotiations. The Anglo debacle is the logical outcome of regulatory capture, not nationalising it on 9/08 and not resolving it then. The horse has long since bolted.

Oh Tull, now we are on the same page….dammit!
Our slavic friend has noted these same issues – can someone however tell me what would be the effect on the CB of having to absorb a few billion anglo MLRA losses? It would seem from their balance sheet that their capital base is not so large as to allow them do this.

“The Anglo debacle is the logical outcome of regulatory capture, not nationalising it on 9/08 and not resolving it then. The horse has long since bolted.”

Now what other horses haven’t bolted that we *could* do something about?


This nationalisation sounds fantastic in the way it allows you to wind up a bank without taking on liabilities and without causing a run on the financial sytem!

Hang on a sec… has this been mentioned here before…

Paul hunt

Dream on. The EU may be working on debt restructuring in the same way as some secret project tema is working on defending Earth from an attack by giant spiders from Mars.

It is not the nationalisation that would enable a wind up, it is a resolution process. If the other banks were guaranteed, but Anglo was just nationalised and the deposits guaranteed, there wouldn’t have been a run (or more than a run than there was).

Yes, it’s all been talked about before. You are one of the few still arguing the toss…


I thought nationalisation had been put to bed, especially re Anglo!

As a matter of interest, I recently looked at Elizabeth Warren cross-examining Tim Geithner about the money paid to AIG.

Geithner was saying that they had to bail out AIG notwithstanding the lack of clarity of the counterparties because of the contagion risk. He said they needed greater resolution powers to deal with such organisations.

I don’t know if resolution would have reduced contagion but it is an interesting concept.

We could in theory start implementing resolution procedures for all sorts of scenarios in order to preserve companies of systemic importance. This could get very interesting.

Is this right? Anglo folds -> cb and ecb lose out. But CB will have to be bailed out by ECB. And so ultimately the loss is borne by the ECB which can afford it. So Anglo folding is a problem for ECB – Anglo living is a problem for ireland. Have I any logic in this?

Jesus this is beyond a joke now.
Default on all bonds except government paper and I mean all bonds including AIB and BOI or else default outright and go back to punts.

Its that simple and given that we have no choice the possible consequnces are inevitable anyway although the longer this goes on the more wealth is extracted from this sad little country.

I seem to remember from “Letters of an Irish TD” that Tull McAdoo was a government TD with awful problems controlling spending. God knows what kind of follow up volume John B. Keane could produce today.


I agree whole-heartedly – it is depressing loking at this from afar. I was a returned emigrant (arrived back in May 07 and left who left again in Jan 10) who just could not believe the scam that had been perpetrated on the general popolous by greedy bankers, politicians, developers, and the real estate industry with all it’s associated services. It was easier to leave in the end as my situation became more and more hopeless and I have a young family. McWilliams is right – there are insiders and there are outsiders and if you are on the wrong side forget it.


Comparing Ireland to the Greeks is like the pot calling the kettle black. Ireland has endemic corruption fromt the top down – Charlie , Bertie, Callelly, O Donoghue, Burke, Flynn need we go on. It’s no wonder the ordinary Joe believes it’s alright to scam when he looks at his leaders and sees them doing the sam

Stupid questions probably but what would the consequences of Anglo defaulting on bondholders but not depositors be for:
1: AIB and BOI
2: the central bank
3: the ECB

@ Mark Dowling

John B. may have been influenced by the myopic cartoon character Mr. Magoo, who was too stubborn to admit he had a problem!

@ All

There are plenty Mr. Magoos still calling the shots and I wonder if we may regret someday that the IMF did not get the opportunity to force through change in such a conservative system?

At the brink of national bankruptcy twice in a generation, should surely warrant a demand for radical change?

It’s early days in Greece but George Papandreou sees it as a once in a generation opportunity to change a sclerotic system:

Greece has made a "strong start" in bringing order to its its public finances but what are the challenges ahead?

Assume you are the MOF. How would you do this? Taking BOI as an example. the govt does not own it -only 36%. It has just passed a stress test organised by the FR and another one organised by the CEBS. It has raised private capital
Of course, if the govt passed legislation allowing those in negative equity to cram down the principal, then BOI would be insolvent. But then the 1.8bn or so ploughed in by the NPRF would be gone to money heaven. You could perhaps just perhaps go to the bond holders & “negotiate a debt for equity swap.
I supect the bond holders might twig that the senior bonds that they held were in default due to govt. action. If I was a sovereign bond investor, I would never ever touch the paper of a country that did that to me. I have other countries in the Eurozone to punt around in. Now you as the Irish minister for finance have a big problem-you have a primary deficit of probably 14-15% -how do you fund it?

There are plenty Mr. Magoos still calling the shots and I wonder if we may regret someday that the IMF did not get the opportunity to force through change in such a conservative system?



Look at the numbers, Anglos losses =25bn
Anglo subbies 2bn -wipe them out
Anglo senior debt in issue post guarantee 4bn of which maybe 1bn is held by outside investors
Anglo Senior Debt maturing end Sept issued under the guarantee -I think its 12bn

I assume that you would not default on GG paper. Therefore there is maybe 3bn of stuff that you could default on.


When BNP took over Fortis. BNP insisted that some of the dodgy assets be ringfenced & put in a sperate structure with the first loss taken by the Belgian state. It is likely that a foreign entrant would insist on the same…ie “take AIBs bad loans away and now we will talk”.

Big global banks are not charitable institutions.

“Is this right? Anglo folds -> cb and ecb lose out. But CB will have to be bailed out by ECB.”
No, as Mr. Lucey alludes to above, the Irish state is responsible for the losses to the Irish Central Bank.

First let us assume that the Irish State is still sovereign – a big assumption and indeed a false one but given the negative dynamics in global and European credit creation it is imperative that what is left of the glorified city council known as Dail Eireann will have to learn again from scratch.

I also assume that we can agree that the massive extraction of money via interest payments on private bonds is the primary reason for the contraction of the domestic economy now that the Ponzi scheme is no longer capable of increasing credit.
The fiscal deficit is a sideshow in comparsion , indeed the rising deficit is a direct result of the contraction in money supply and its function now seems to be based on a triage system that prevents the worst from happening while continuing to pay private external debt costs.
This is obvious when you see the collapse of domestic deposit income and the rise in mortgage charges to service foreign holders of bank paper.
Now if the domestic economy continues to contract or even stabilise the payments will continue to rise over time until no wealth is left in this country.
So therefore it is a question of choices, none of them pleasant but doing nothing is also a choice.
A government assuming it has sovereignty can always backtrack and state the current arrangements are unsustainable because they are unsustainable.
A emergency powers act along the lines of the second world war could be appropriate if legal obstacles are produced given the graveness of the financial situation.
When or if we no longer have to honour our private debt to foreigners the remaining surplus if any in the economy can be recycled via higher interest on domestic deposits and higher spending and saving power amongst mortgage holders.
This will then reduce the fiscal deficit hopefully by a very large amount as the government will no longer have to pay out large amounts of money so that its citizenry can eat bread.
Obviously the powers in Frankfurt, London or elsewhere will not like this turn of events as they will no longer be capable of extracting wealth from this country to the extent that they have grown used to and will use their powers in the money creation and destruction to threaten us.
If we concede defeat then we are official serfs but if we have nothing left to lose then we can threaten them that we will mark down all our debts in new punts at maybe 10 to 20 % relative value to their sterling and Euros.
This could obviously threaten their hegemony and therefore they could be willing to do a deal.
But I suspect that this absurd situation will continue for some time until we are at or close to total society breakdown and then only then will there be political change and maybe possibly too late.
The first step to recovery is to identify the cuckoos in our system and deal with them but this will take sometime as they are all pervasive in a society that honours outside papacies above all else.

@ Nollaig

you seem to be missing my point about corruption from “top to bottom”. In Ireland we had a lot of corrupt or semi corrupt politicians. No argument there. That constitutes the “top”. In Greece the corruption and/or deliberate mismanagement has spread through to their statistics office, the local tax collector, large scale tax evasion being a fairly standard affair for doctors and accountants, civil servants being paid for 14 months a year, truck drivers being paid the most of anywhere in the world (by some distance – the first new truckers ‘licence’ for 30yrs was issued this week), and an estimate that 20% of Greece’s economy may be “off the books”. And the Greek response to being told that this wasn’t on? Setting fire to some banks and killing a couple of people. Comparing us with the Greeks (or wanting us to react like them) is one of the stupider ideas roling around at the moment.

@ Tull

whoa whoa whoa! If we default on the Anglo/BoI/AIB debt, foreign bondholders will punish us? I’ve read round these parts that they will in fact respect us for this move and seek to replace their now decimated investment with brand spanking new funds! Hmmmm. Also, what do ya mean we’d have to cut 20bn from our spending literally overnight??? We need someone to right a letter pointing out this fact, stat! We could always sell the Anglo depo book to cover that shortfall though i suppose…


I do really believe this. In a former life, I was a minor bond vigilante. I know that if a default by Irish banks was perceived by the market to be induced by the sovereign then the big international bond funds who hold 60-80% of the Irish paper would not get involved for many years. Remember,for the most part the bank bonds and sovereigns are held by the same firms.
A fund manager might have say 2-3% in Irish sovereigns and a tiny allocation to bank paper. In the event of a bank default, he would have to explain why he holds any Irish paper to his boss and his trustees. He would be going to meetings explaining his case. The easy decision is to opt out.
So he would just leave his Irish position as was and commit new money to some other sovereign. In perhaps 5 years when he gets fired/promoted or leaves, his successor might review. It is not fair but that is the way it is.

Ireland is in a state of delusion.

Nollaig mentioned names, and I agree wholeheartedly as to the analysis that Ireland was and probably still is corrupt. Haughey, Ahern, Flynn, Callely, …and that is only a small few …probably the tip of the iceberg. Its likely that a lot more politicians and public servants in Ireland were on the take, corruption is nothing more than a tax on the general population. Why did none of these guys go to jail.? I think because it was beyond Irish consciousness to put these corrupt politicians in jail. Irish people in a flawed reasoning believed that a ‘little bit of corruption was a good thing’ .

The people of Ireland are still hanging onto a little of that reasoning …and this why they are not on the streets, maybe all Irish people feel a little guilty..

In the Irish context active public protest would be a healthy thing and might concentrate the minds of the establishment. The people of Ireland are being hurt and will suffer more. This is not academic., as an emigrant I have seen Irish people suffering the consequences of mismanagement of the Irish economy. In a general sense emigration is a consequence of economic mismanagement where a state cannot create or prevents the creation of circumstances leading to sovereign full employment.

There need to be a complete cleaning out of the political establishment and it takes and engaged public in Ireland to do this….alas this is not apparent in Ireland…YET.

@tull mcadoo
Well tull in a not so former life I was also a bond market vigilante.
And I would take a completely opposing view to yours.

I would rather purchase Irish sovereign paper that didn’t have the liability of the banks weighing it down. Rather the sovereign that is “wasting” €15bn of their scarce resources repaying a private companies bonds.

To me repaying debt of hopelessly insolvent banks adds nothing to the states credibility or credit worthiness.

Maybe you worked in a different type of firm but anywhere I have worked the distinction between corporate debt and sovereign debt was clearly understood.

“I would rather purchase Irish sovereign paper that didn’t have the liability of the banks weighing it down. Rather the sovereign that is “wasting” €15bn of their scarce resources repaying a private companies bonds.”


“corruption and/or deliberate mismanagement has spread through to their statistics office, the local tax collector, large scale tax evasion being a fairly standard affair for doctors and accountants, civil servants being paid for 14 months a year”

Think FAS, CIE, HSE – doctors and dentists earning >500K off medical cards alone – civil servant pension top-ups, – we are not not exactly the same as Greece but you cannot say there is no comparison

Way back in the day, I too was under the understanding that govt and bank bonds were had differant risks-hence govvies traded at a yield discount to bank bonds. That was in the day when banks were well regulated institutions. The other certainty was that senior bank bonds were part of the funding and not capital. However the past is a different country.

In this cycle, every country has put in public money to shore up the status of senior debt. This has been done through asset protection schemes, prefs, toxic loan purchases, equity injections. Senior Debt has for the most part not been touched for fear or whatever it is the the authorities fear.

We are also members of the EU/EMU which seem to operate a “no senior bond left behind policy”. I can only guess that if there was a default in one country there would be an immediate freezin up of senior debt issuance in other countries. In a system such as EMU that has a funding gap this would require massive deleveraging culminating in a sovereign debt crisis.

A secondary issue arises in Anglo there is not enough senior debt to absorb the losses even if you defaulted on the GG paper.

Beyond that, Anglo, IN are probably going to cost the exchequer 30bn. this represents 18 months borrowing absent any further fiscal adjustment.

I too would rather purchase Irish Sovereigns without bank losses but that is not possible & it is not going to happen. The only way to avoid the bill is to default at the govt level. That of course raises a different set of issues.

“The other certainty was that senior bank bonds were part of the funding and not capital. However the past is a different country.”

Senior bonds are part of the funding but why or how does that mean that should be considered risk free?
I have never worked anywhere that funding was considered risk free. Senior bonds yielded higher than government debt because they are considered riskier. If you want a “risk-free” investment buy a government bond not a bank senior bond.

Firstly the time has past for us to adopt the perfect solution. The guarantee was an unqualified mistake IMO but we do have to live with it and its consequences and I wouldn’t advocate defaulting on those guaranteed bonds.

But the state should still pursue every option to reduce the cost to them.
There is still €5bn left in senior Anglo bonds and about €2bn in subordinated bonds. These should get virtually nothing back IMO as Anglo is hopelessly insolvent.
It isn’t enough to absorb all the losses but €7bn is €7bn!

There is also plenty of un-guaranteed senior bonds and subordinated bonds excluding BOI, these should all face discounts or forced debt for equity swaps to help with the recapitalization.

Yes, the Anglo losses are equivalent to just 18 months of borrowing but the two are very different.
Filling the €30bn hole in Anglo does very little if anything positive for the economy. Borrowing to pay social welfare and PS wages does have a positive effect on the economy as it is recycled though the economy in spending.
I am not for one second advocating continuing the high spending, it has to be cut, but the two are very very different.

I think while the EU may have operated a “no senior bond left behind policy” at the height of the crisis I think that is changing and rightly so.
As I have pointed out many time here and elsewhere, the IMF is saying we should introduce banking resolution legislation immediately. And it seems to be after discussions at EU level.

“More immediate attention is needed to establish a special bank resolution
framework. Recent discussions at the European level emphasize timely bank resolution, triggered by more prudent thresholds. This, in turn, requires a legal framework allowing for broader resolution tools such as the establishment of bridge banks and the assumption of liabilities and the purchase of assets. Some European countries have begun to establish special resolution regimes, with the U.K. taking the lead.”

@ DE

“If you want a “risk-free” investment buy a government bond not a bank senior bond.”

So you obviously think that Greece should be bailed out by the EU? Do you consider Irish government debt to be “risk free”?

Ireland issued feck all government debt between 2003-2006. If you wanted a play on Ireland, buying Irish bank debt was the obvious route to go. They were more liquid than government debt and paid about 20bps more. Given the systematic failure of the Irish banking sector, many people would view the failure as quasi sovereign in nature. Funding possibly shouldnt be perceived as “risk free”, but most investors assumed they came with a virtual risk free state under-writing. In theory this doesnt make sense and wasn’t written down anywhere, but to deny the reality of the situation is incredibly naive and somewhat fanticiful.


I stated risk-free as “risk-free” because I don’t believe there is or ever should be any such a thing.

“but most investors assumed they came with a virtual risk free state under-writing.”

They got it wrong Eoin, so why should the state pay for their poor investment decision?

As I’ve said previously on here a particular company I worked for won’t touch Anglo debt about 5-6 years ago because they knew the risks and knew weren’t worth taking for the 20bps extra return.


I have said it before but I seriously doubt that thre is 5bn of senior debt in the hands of outsiders in Anglo. Even if there was there is only 5-7bn max to offset against a likely 30bn loss. The hole in INBS is also getting bigger.

Your point about AIb is interesting. It might be a test bed for a bank resolution but I would not hold my breath.

@ DE

i get your point about there being nothing truly “risk free” in life, but such a position obviously creates major problems for how we go about all our investment decisions. How do we accurately reflect credit risk if there is no risk free alternative to measure against? How would the banking system operate if there was a perceived real risk to deposits? Like it or not, we need risk free investments, even if only in theory, if only so that we can compare to everything else.

I also think you’ll agree that the particular company that didn’t invest in Anglo 5 or 6 years ago was very much in a minority, and those investors buying senior bank debt were very far from being speculative in nature. The yield on bank debt was nowhere near high enough to be considered so.

“I have said it before but I seriously doubt that thre is 5bn of senior debt in the hands of outsiders in Anglo. Even if there was there is only 5-7bn max to offset against a likely 30bn loss. The hole in INBS is also getting bigger.”

I think €7bn is always worth pursuing tull and it would be more if AIB and INBS was included.

I think a truly “risk-free” investment is very hard to find Eoin even just for comparison purposes.
Maybe a very over collaterized ABS with a couple of layers of additional credit protection provided by an extremely strong balance sheet.

Those investors may not have been speculative in nature but they were searching for that extra bit of yield and no yield is free.
Whatever their reasons or motivations they made a poor an investment choice, I see no reason why they should be made whole by the state.

“The yield on bank debt was nowhere near high enough to be considered so.”

The yield on many if not most assets wasn’t enough to compensate for the risk involved but that doesn’t mean the risk wasn’t there.


I hope you are not suggesting defulting on AIB seniors to fill the hole in Anglo.

”Think FAS, CIE, HSE – doctors and dentists earning >500K off medical cards alone”

The doctors one is one that seems to get very little attention – not sure if it featured in Bord Snip nua but it certainly didn’t get much air time.

My partner and I have 3 kids and the five of use recieve medical cards. We recieved them list year in July becuase they were held up for some reason (how it could take 7 months to process an application I don’t know).

I work full time so never have the time to go to the doctor and generally work through any colds or flus I get (My doctor doesn’t open on saturdays just 3-4 hours during the week). We generally wouldn’t bring the kids to the doctor unless they were in a bad way. Last year i’d say overall we went 4 times (I never went) and this year we have gone one so far.
OUr doctor gets approx. 250euro per medical card holder. So for my family he gets about €1250 for approx. 1hr work (based on 2009, 4 * 15min visits), courtesy of my(our) children, who will end up paying back the state debt amassed.

Shameful and illogical – the doctor should be paid per visit. Actually they should do away with medical cards altogether and use the tax and SW systems to redistribute wealth further if this is deemed nescessary.

The discussion about the existence of risk free investments is surreal.

If a financial model doesn’t match reality the solution should be to adapt the model to the reality. The suggestion that the reality should be adapted to a model is ludicrous and on the same level as if a map is inaccurate the reality should be changed.

Btw, I believe that the risk professionals claiming there are risk free investments are also by making that claim stating that there is no need for their job. I wouldn’t employ them anyway.

@ Jesper

while we all understand that there is no actual risk free investment, many people would obviously consider some assets (ie Treasuries) to have such a low probability of default that the underlying risk is negligible and approaching zero. As such, they are seen to be essentially “risk free”. In the boom times such assets considered to have near negligible risk attached to them started to encompass cash deposits and some bank debt at systematic institutions. Given how basically zero senior debt has been defaulted on in Europe despite the problems at the banks, it seems like this implied risk outlook has ultimately proven correct, no matter how in theory it should not have been.


as you say, the risk was there. The models that failed to incorporate that risk were and are faulty. The risk professionals that said that there were no risk were incorrect and anyone listening to the so called risk professionals should have known better.

I’ve been offered risk free investments on numerous occasions. I know I’m being lied to but I investigate and analyse what the risk is. That is my responsibility as it is my decision to make the investment.

When the facts are as clear to see as they are now, then anyone claiming that their risk advise and decision was good are either deluded or lying and should therefore be removed from any and all positions of responsibility as they have shown themselves to be untrustworthy.

The implied risk outlook has not been proven correct yet and if rule of law is to be upheld then it won’t.


Nobody viewed bank debt as risk free and I agree with you that one of the biggest problems in recent years was the mis-pricing of risk. However, senior bond investors at the end of the day were taking no more risk than depositors. Now you can claim that as professional investors they should be treated differently but that is not how insolvency law as it currently stands works.

Gavin S,

I might be wrong on this but I seem to remember that depositors were before the crisis only guaranteed up to a certain amount. Beyond that amount there were no 100% guarantee. Depositors and senior bondholders might be ranked the same, however, the senior bondholder should have been aware of the limit of the guaranteed amount as they did have a risk when making their bond purchase above and beyond the guaranteed amount.

@ Jesper

you refer a few times to depositors being protected up to a “guaranteed amount”. But obviously this was never a real, risk free, guarantee, given that the State itself may be unable to make good on it. 😉

@Gavin S
“Now you can claim that as professional investors they should be treated differently but that is not how insolvency law as it currently stands works.”

There is no need to treat depositors and senior bondholders any differently during an insolvency.
With proper banking resolution legislation they would both get exactly the same proceeds from the sale of the banks assets. However, the state could then top up the depositors claims to the full value of their deposit.

@Dreaded Estate

But we don’t have a bank resolution scheme and you can’t do that under current insolvency law. That’s my point.

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