The IMF and Fears of an Irish Default

The response to Brian Lucey’s article has been quite astonishing (over 300 comments at last count!).   Although clearly we don’t all agree, the debate has been enlightening – and entertaining – thanks to Brian and the many excellent participants on this site.

But with all the excitement over default, I think we passed over too quickly the important set of IMF fiscal policy papers that Philip linked to on Wednesday.   The papers provide a useful analytical perspective on Ireland’s fiscal challenge, which could frame a more productive discussion on fiscal (and indeed banking) policy.

Figure 1 [p. 8] in the Fiscal Space paper is something only an economics nerd could love.    But it is worth the investment if you have some background in economics.

While not always consistent across the papers, the empirical messages that emerge are quite positive for Ireland.   The Default paper suggests there is relatively little to be gained by restructuring the debt and also that there is capacity to absorb a substantial total bank bailout cost.   The Fiscal Space paper introduces the idea of a limit on the debt to GDP ratio before situation becomes unstable.   Even under quite harsh assumptions, the analysis shows that the limit is around 150 percent of GDP for Ireland, suggesting a greater degree of fiscal space than many commentators and investors assume.

(For both papers, a key variable is the gap between the real interest rate and the real growth rate.   Unfortunately, the two papers use two very different numbers for Ireland.   The default paper puts it at 0.4 percentage points; the Fiscal Space paper at 3.2 points.  An intermediate number somewhere around 2 percentage points is probably not a bad assumption, indicating more fiscal space than noted above.)

If these papers give a realistic picture of Ireland’s fiscal capacity, then the question arises as to why Irish bonds are being hammered.   Patrick Honohan took flack for saying the market rates were “ridiculous.”   But the IMF economists seem to agree that default risks are being overestimated for advanced economies.

A more positive message might be that the fiscal fundamentals are not in as bad a shape as many imagine, and there could be high returns to some attainable improvements in policy.   There is no excuse for the delay in bank resolution legislation that could help put a floor under the costs of bank rescue, for example.  And although the government has taken some hard political decisions to curb the deficit, it is hard to understand the unwillingness to follow best practice and make explicit commitments to future fiscal policy actions (a phased introduction of a property tax, legislated future increases in retirement ages, etc.)   

39 replies on “The IMF and Fears of an Irish Default”

Those three paper were not all good news from an Irish perspective. In particular the long-run deficit trends in the G7 are worrying since they will crowd out Irish borrowing and also potentially drag down the developed-markets average growth rate. There could be a global credit crunch (not a credit crisis like 2008 but rather an old-fashioned shortage of borrowing opportunities) somewhere in the near future.

I agree the fiscal space space paper is excellent but the default paper is waffly and does not in my opinion provide a fair and balanced overview. Just IMHO.

It is always possible to calculate fiscal capacity to pay ahead of default – you just need to make minor adjustments to long run growth and interest spreads et voila – it is all feasible! So the IMF thought Argentina could make it too – before it defaulted… But if we look at Greece today, with market yields at 11%, it is pretty hard to imagine the economy functioning with credits markets distorted by a soveriegn debt that people don’t trust. Growth can’t happen then. This is what we see across emerging market collapses: the economies grind down, politics weaken, tax revenues fall, and then it falls apart. Patrick’s “ridiculous” statement misses that point – if he and the government can’t give investors confidence that there is not even a small risk of default, then market yields must stay high and that will prevent growth – we’ll be just like Greece. Since our budget deficit is so large, and we are bailing out banks too, and it all still looks like a bottomless pit – it seems good odds Patrick and the IMF are wrong while markets are right.

Sadly I do not see how we can avoid the IMF running the state any more.

The EU uses the IMF as the ‘bad cop’ any time the EU itself intervenes , pace Latvia and Greece in the past year and with Hungary Ireland Portugal and Spain lined up next …and that was in alphabetic order and with Hungary marginally more likely that we to face severe liquidity problems. That is a matter of a month here and there, a bagatelle of no consequence.

The IMF only has one recipe. They cut public spending to the bone and devalue the currency. As the latter is impossible in the Eurozone they cut to the bone as well as amputate a few limbs for good measure.

Latvia shuttered Hospitals and Schools, sacked their staffs straight out and then cut the salaries of the remainder of their staffs by a third.

There is no reason to assume that the IMF will be any more delicate here. They are quite sanguine about a dole of €40 a week over there , pensioners don’t matter a jot.

They are the toilet cleaners of international fiscal policy, horrible job, has to be done, move onto the next festering cubicle.

The price of failure.


” …. there is capacity to absorb a substantial total bank bailout cost.”
Maybe to finance putting half a million people back to work would be a wiser allocation of capital.
“If these papers give a realistic picture of Ireland’s fiscal capacity, then the question arises as to why Irish bonds are being hammered.”
I believe the doubt created in the first part of this sentence gives the answer as to why we have the situation referred to in the second part.
“There is no excuse for the delay in bank resolution legislation that could help put a floor under the costs of bank rescue, for example.”
Please explain?


Don’t low global long-term interests rates indicate no (expected) shortage of global saving despite the high public dissaving of advanced countries? At present, there is a large private sector surplus in many advanced countries, and large overall surpluses in many emerging market countries. This is likely to continue for some time.


‘“There is no excuse for the delay in bank resolution legislation that could help put a floor under the costs of bank rescue, for example.”
Please explain?’

As it stands, the State faces a daunting contingent liability for losses of the banking system. This is most obvious for Anglo (though for that bank there is not a whole lot contingent about it) but it is also significant for AIB and even for BoI. If things turn out badly for the main banks, their central role in the economy would make it impossible to put them through bankruptcy. That means that creditors would bear no losses and the full cost of the losses would be absorpbed by the State. This risk, even if remote, is weighing on creditworthiness.

What we need are tools that would allow losses to be placed on effectively bankrupt banks without having to put them through bankruptcy. In other words, special (or non-bankruptcy instruments) for dealing with insolvent or “seriously undercapitalised” institutions.

This is an extremely complex area and the legislation would have to be carefully crafted, but there are international models — most notably the UK — to work from. Essentially, when risk adjusted capital falls below some minimum regulatory threshhold, the bank would lose its licencse and enter resolution. Typically, there would be a menu of tools available, with the possibility of forced debt-equity swaps getting the most attention in the Irish debate. This could be structured to allow for the almost seamless continuence of the banks clearing and credit operations.

I don’t want to underemphasise the technical challenges, nor the potential threat to property rights. It seems to me that there would have to be two constraints on any regime to make it legitimate: first, all creditors would have to do as well as they would in a bankruptcy; and second, the UK example makes clear that US-style despositor priority would not be consistent with European law (which limits the cost savings from resolution). (Effectively, if the government wishes to protect depositors, they would have to take over their claim in the bank, and then share losses with other creditors that rank on par with depositors.)

The bottom line is that such resolution tools create an effective mechanism to impose losses — what the banking debate should have been about from the start — and thus put a floor on the contingent liability.

Sorry for going on, but you did ask.

“If things turn out badly for the main banks, their central role in the economy would make it impossible to put them through bankruptcy.”

Is this not a sound argument for the immediate creation of a ‘good bank.’

As Dermot Desmond pointed out in his Irish Times article on September 16, 2009:
“If we want to take a pro-development route we need to have a competitive banking system. Does anyone believe that a nationalised group of banks, effectively controlled by the politicians/Civil Service, will provide a competitive banking landscape.
Ireland needs a minimum of three vibrant, competing institutions which are incentivised and able to make sure that Ireland develops. Ireland must at all costs avoid a comfortable duopoly or, worse still, a group of nationalised banks which quickly become a monopoly. Competition from overseas banks is less likely to be a feature as many foreign banks are leaving to focus on their domestic economies.
A competitive and vibrant banking sector must be created with management focused on developing Irish business and with a set of rules that protect the borrower from any abuse of the relative power of the banks in a less competitive world.”

@John – very interesting and I see what you mean about the need for credibility of such legislation. However, this government and Honohan lack the integrity and credibility to make a resolution authority ever appear legitimate because they have argued too long already that everything will be ok. This means that, were they to reverse their opinion, we could not really trust them. When it all fell done with ensuing defaults, and the losers are picked, absolutely no one will side with the current authorities. They know this – so they will make everyone suffer until the last moment, when either they are forced to act in haste, or, they lose power. It is no surprise that they don’t want the resolution authority legislation now – that would be admission of failure.

@John McHale
“At present, there is a large private sector surplus in many advanced countries, and large overall surpluses in many emerging market countries. This is likely to continue for some time.”
I’m not sure how likely this is. There are population bulges in many of the emerging markets approaching lift-off stage. Aside from the risk of asset bubbles, there are rising aspirations of living standards for an increasing number of people to think of, so while asset prices may not increase, the desire for, for example, larger houses/apartments may increase domestic consumption.

So even without asset bubbles, there is likely to be enough demand for domestic savings making them less available to international markets.

I’m afraid that it is invariably the same on this site. A doom-sodden article in the Irish Times by a prominent academic, who is on public record on this site (Dec 2009) as saying that, for political reasons, he wants to see the Irish economy crash, gets an ‘astonishing’ (John McHale’s word) response. Meantime, a more upbeat assessment from, of all people, the IMF gets such a derisory number of replies that a second attempt has to be made to elicit some response.

Meantime, in the real world, the first week of the month always sees a wealth of economic data being published. Most pertinent to this thread were the figures for government finances published on Wednesday. I notice that these didn’t get a thread of their own, which they usually do. These show that there is a very good chance that tax revenue will meet the original budget target in 2010. At end-June, it was 1.6pc behind target, at end-July 1.4pc behind target, at end-August just 0.7pc behind target. In both July and August, tax revenue was ahead of target – in August over 5pc ahead of target, the best since pre-recession. I do hope that’s not why they didn’t get a thread of their own. So, almost certainly tax revenue in 2010 will be very close to target, possibly a fraction below, possibly a fraction above. The trend of the past two months suggests the latter, although too close to call.

Another interesting statistic published this week, which I haven’t seen mentioned anywhere, either in any economic blog or in the media, but which will be relevant to this thread if the trend it indicates continues, was for the number of PPSN numbers issued to foreign nationals. This fell sharply between 2007 and early 2010. I noted on this site some 3 to 4 months ago that the fall seemed to be bottoming out and suggested that the number might start rising again before the end of 2010. This seems to be happening, although too early to tell if it is a blip or a trend. The number of PPSN numbers issued to foreign nationals each month in 2009 and 2010 is as follows:

Jan 2009: 8,499 – Jan 1010: 5,034 – down 40pc y-o-y
Feb 2009: 7,496 – Feb 1010: 5,167 – down 32pc y-o-y
Mar 2009: 8,125 – Mar 1010: 5,451 – down 33pc y-o-y
Apr 2009: 6,411 – Apr 1010: 5,087 – down 22pc y-o-y
May 2009: 6,533 – May 1010: 5,450 – down 17pc y-o-y
Jun 2009: 6,787 – Jun 1010: 6,103 – down 10pc y-o-y
Jul 2009: 7,277 – Jul 1010: 6,740 – down 7pc y-o-y
Aug 2009: 5,822 – Aug 1010: 6,601 – up 14pc y-o-y

As can be seen, the numbers have been rising since early 2010, and in August 2010 were 14pc higher than in August 2009, the first y-o-y increase since 2007. The turnaround in the y-o-y comparisons is very marked in the past few months.

Is this of any importance or of any relevance to this thread?

Well, it obviously depends on whether they are a blip or a trend, which is not known at this point in time. But, if they are a trend, they are important and relevant to this thread since they would mean accelerating population growth if they continue to rise, and this would eventually affect property prices and rents, which in turn would affect the banks’ balance sheets and NAMA. It is early days yet and I don’t wish to be making a sizzling summer out of one swallow, but the above PPSN figures may well explain why residential rents were flat between Dec 2009 and July 2010 (according to both the CSO and Daft) when most forecasts were for them to fall by 10pc in 2010.

The default paper has an agenda with a clear axe to grind. That is unusual for IMF research. What is usual for a diatribe (even at the IMF) is that it cuts corners. I’d be reticent to dismiss public default out of hand. One reason is that we have already seen it. We have already had defaults in state debt.
Defaults can occur in many ways. e.g. from “IOUs” see and in agencies (NSN K8C9LD0YHQ0X if you have a Bloomberg)
The commonest way of default for a bondholder is the creation of inflation. Indeed this was suggested by the IMF itself some months ago. And by its chief economist, Blanchard, no less e.g. .
Some of the defaults can be peculiar e.g. when the USA changed the indexation of its gold bonds. Or they can be dressed up as wolves in the clothing of sheep e.g. swaps of equity for debt. Anyway, default is here, and is probably not going away anytime soon.
The default authors cite academics that claim sovereigns don’t like defaulting. But more recent research, with the benefit of the experience of the past years, suggests that reputation may count less now for sovereigns. See e.g. a paper by Panizza, Sturzenegger, and Zettelmeyer here, mentioned by Brian Lucey in the earlier thread. Remember sovereigns – unlike other borrowers – do not dissolve after default. They always – without fail – get another life. And the IMF authors don’t show any awareness of work at the agencies. An omission or they just don’t know about it? Either way, it doesn’t look good.
It is clear that the IMF’s Default paper was written in an ivory tower and not by ratings analysts. Whatever we may think of rating agencies, they do at least try to differentiate risks (and to be honest, they have quite some worthwhile expertise). Risk isn’t a parameter that the four authors of the IMF Default paper want to countenance. They just want to dismiss it out of hand.
The argument in the IMF Default goes that that even a 50% haircut on the debt would have a negligible effect on the required primary surplus, so that there is very little to be gained by restructuring. This is quite trivial. And the reason why is well explained in footnote 7, page 6 i.e. the interest – growth differential is zero nowadays. They go on to note that defaulters in the past typically had high interest bills, while today’s sovereigns at risk are not hamstrung by interest. And indeed Ireland doesn’t (yet) have that much debt. So why are we all so worried then? The authors can’t fathom it, either because they simply can’t, or they don’t want to (either is outlandish).
We typically use measures around “ability to pay” to judge credit worthiness. On this score, the outlook for many sovereigns doesn’t look so poor at all. But “willingness to pay” is now looming as an issue (NSN L82WDA0D9L37, NSN L79N5Y3T6SQO).
All OECD countries are in a sense rich, even Greece. Greece has the particularity of having a relative poor an ineffective state. But it is still sovereign. And like we saw in the 1980s, and 1990s, before the euro, and before the EU fairy godmother got a bailout budget, sovereigns are well able to raise cash in extremis if the coffers are empty, if they really want to that is.
For investors in some of the smaller European countries, yield is not the issue now, but security. And when security is at issue, finding a market clearing price is well nigh impossible. Trading volumes drop off, and prices become sticky. So Greece is stuck to 10%+ in 10 years. Secondary prices though for small sovereign debt is not very representative should a sovereign wish to sell some chunky supply.
Given the difficulties of funding, smaller sovereigns are able to bide their time a while longer, in availing of alternative funding sources (e.g. NSN L5JJTV0D9L35, the ECB etc). But that doesn’t mean that government balance sheets are not becoming ever more fragile. Indeed some see the use of alternative funding as allowing governments just dig themselves an ever bigger hole.
There is however no inevitability whatsoever in the slow march of OECD countries towards default, should they not implement the IMF’s good advice in this trilogy of papers (even if one of the three papers minimises the work needed). Attempting to run a double digit deficit as a % GDP for several years on the trot is quite some stimulus. But ploughing the equivalent of several dozen percent of GDP into defending domestic banks and their creditors, while respecting a rigid external price peg, is an extraordinary feat.
John McHale’s valuable advice could help achieve such a triple whammy. There are long term measures with small upfront cost. e.g. bank resolution legislation, a phased introduction of a property tax, legislated future increases in retirement ages, and also, we could add, an independent fiscal board, the taxation of extraordinarily generous pensioner benefits and pensions etc. The focus is very much on the long term, and long term measures like these would prove very valuable indeed in helping restore confidence.
There is no need to wait till budget day (which comes far, far too late relative to norms in the rest of the eurozone). So yes, there could be high returns to some (fairly easily) attainable measures. So why aren’t they already along the way?

@John McHale

At present, there is a large private sector surplus in many advanced countries

JTO again:

Indeed there is, and Ireland is one of the countries with a large private sector surplus, as was explained on this site in January by ESRI economist, John Fitzgerald.

It is Ireland’s move to large private sector surplus in recent years which explains both the government budget deficit and the overall economy’s move towards balance-of-payments surplus. Pointless discussing one without the other.

No obvious requirement for bank resolution, the horse has bolted, all six banks will be nationalised and it is the state that now needs the resolution scheme having being unable to absorb the losses of the banks. The state has tried to place 70bn in bank losses on top of a tax payer who has over 1.3 trillion in private debt. Even as the IMF spout this stuff they are preparing their agenda for sorting out Irelands structural debt problems.

The state also has unfunded contingent liability of over 110 bn for public sector pensions according to the comptroller and auditor general. Where is that money going to come from?

Ireland is going to find it’s 150bn and later 200bn plus liabilities harder and harder to roll over. All these outgoings are going to descend on the state at a time when ordinary investors in BTL properties begin to default on their loans. What will Lenihan do? Extend the scope of NAMA to include small time commercial investors and ordinary residential middle class mortgages that can no longer be serviced?

From february 2011 onwards the banks will start to increase variable interest rates some more and play hardball with delinquent mortgages. Contrary to the the IMF stating that Ireland had a 40bn reserve of cash somewhere( and I would love to know what they mean by that) what Ireland has is a reserve of borrowed money on which it is prematurely paying interest. This money had to be borrowed in advance because of the fear of being locked out of the bond markets which is now an omnipresent fear.

Before the end of this year but more likely in the next two months Ireland will have to be bailed out by the EU and the IMF and Morgan Kelly will have been proved correct one again.


The real world takes what economists say with a pinch of salt because it knows most economists know nothing about the real world. The proof was the credit bubble and refusal to recognize asset inflation and the Kondratieff history. OK?

The real world knows waht is happening and who is doing it to whom. OPM? That is what it feeds on and the chum is running out! The credit collapse has yet to finish. The derivatives have yet to pop and unwind in fact, they are bigger than ever. There is no known method of matching them out. Failure of a major player, which will happen soon, precipitates the greatest collapse in stock values ever, you betcha!

What Robert Browne said! +1 The markets know this but the “economists” do not. Surely the real test of an economist is not certification by others in the rort, but wealth? Absence of say 5,000,000 in investment accounts etc should disqualify the wannabes who can read a text book?

What Hoganmayhew said +1 also shows what economists care about is there, merely to help banking! The Fabians like it and so do the Chicago school. The Austrioans show the truth and get castigated for pointing it out! Heartless they are called when they say the stupidity has to stop! They are not economists in the main, merely good historians of money debasement!

Tough you suckers! All your words amount to nothing! Demand is collapsing, except for Pikes.

@ Robert Browne

“The state also has unfunded contingent liability of over 110 bn for public sector pensions according to the comptroller and auditor general. Where is that money going to come from?”
Not to mention the banks ‘derivatives time-bomb’ ….

The likely events timetable:
Obama administration will immediately initiate another stimulus package to try and ward off meltdown for the Democrats in the November mid-term elections.
But cranking up the printing presses won’t do this time.
Paul Krugman is urging “bold and substantive” measures ….
But its looking like Obama has run out of time. His failure to tackle the bankers as a result of his reliance on Bernanke, Geitner and Larry Summers, to the exclusion of Paul Volker, will prove fatal.
In November, if the Democrats lose control of Congress and/or the Senate, this will have ripple effects for Ireland and the world.
Nouriel Roubini has predicted that more than 400 banks on the US problem bank list are eventually going to fail.
“We are in a liquidity trap and we have insolvency problems,” he said.
But Christmas holidays will keep the balls in the air until January.
After January ???


From green shoots optimism in the spring of 2009 to a greater acceptance of a fragile recovery in advanced countries in the medium term, uncertainty is going to be the dominant issue for some years for the unemployed and many workers in the Irish private sector.

Ireland’s fortunes are dependent on the recovery in the developed world but the multinational sector will not produce significant new employment.

The balance of taxes and spending and the challenge of reviving the domestic economy should have centre stage.

As to JohnTheOptimist’s comment on doom, the most ridiculous article on the economy that I’ve read in recent times, was Prof. Ray Kinsella’s ‘the country has gone to the dogs’ hand-wringing moaning in the Irish Times on Friday and not one credible proposal to counter the negativity.

For the diehards on this thread there is a good chance you are more interested in grappling with economics than navel gazing about the blog.  For students in particular, I hope at least a few have ventured into the model in the Fiscal Space paper.   While the model is largely in accord with common sense and does inevitably make certain simplifications, I think it provides a framework for a better fiscal debate.   

It might help to discuss it a little more.  

The model points to three main determinants of a country’s fiscal space — the gap between the current debt/gdp ratio and the ratio beyond which the fiscal deficit is unsustainable and default ensues.  

1.  The current debt/gdp ratio (we would usually take this as a given, but it is affected by the extent to which the government underwrites the losses of the banking system, and so is de facto a policy variable for Ireland at present; it is also affected by policy relating to debt restructuring). 

2.  The (longer-term) political/economic capacity to run a primary budget surplus (i.e non-interest surplus) at an given debt/gdp level.  

3.  The difference between the (average) real interest rate on outstanding debt and the long-run real growth rate.   Along with the current debt/gdp ratio, this determines the primary surplus that is consistent with a stable value of that ratio.   As a rough approximation we can take the real interest rate as given, so the key element is the long-run growth rate.  

You have to work through Figure 1 to really understand how these three elements come together.  With the model in hand, you should better understand my somewhat throw-away policy suggestions at the end of the post.   Putting a limit on the contingent liability effects the starting level of the debt that the markets perceive.   Making credible commitments to future fiscal actions — and also improving the underlying institutions for making fiscal policy as Ciaran suggests — can be thought of as increasing the expected primary budget surplus at any given debt level. 

I neglected to say anything about the long-run growth rate.   My weak reason is the importance of this variable goes well beyond fiscal policy issues.   But JTO, Paul, Michael and others are right to highlight its importance — it is probably the most important factor affecting Ireland’s perceived solvency.   Of course, we can’t delude ourselves by being optimistic about growth just because it is good for us.   But if there are reasons to be optimistic, and I think there are, then we should definitely be trumpeting them.  (If true, the stabilisation of immigration figures that John points to would be a very positive sign.)  Keep it up JTO.

I agree with Ciaran O’Hagan. The decision to default or not for a sovereign in the end boils down to a cost-benefit analysis. Who is to say that some sovereigns may not decide, once they have achieved primary surplus, that they would much rather not pay back their debts? It’s happened often enough in the past — which is why 100 years ago Halford Mackinder said that if you want to be a creditor nation then it’s a good idea to have a big navy. (Don’t think that would help nowadays though.)

I also agree with him about the importance of putting in place the sorts of long run measures related to pensions and so forth that can help bolster states’ fiscal positions.

Finally, I agree with John that our long run growth rate is perhaps the most important factor influencing our perceived solvency. You can’t cut your way out of a debt hole — in the long run you need growth, especially given how far our economy has fallen. But given the extent of our involvement in the international economy, our short run growth prospects depend largely, IMO, on factors outside our control. Which is why the question of what is going to happen to the European and US economies is in the short term of such great importance to us.

@ Michael Hennigan,

Indeed, I read that article, saw your response, and I agree with you.
But it was just a little piece of advertising for how great TASC is.
Somebody has to blow their trumpet for them.

@Michael Hennigan

The most ridiculous article on the economy that I’ve read in recent times, was Prof. Ray Kinsella’s ‘the country has gone to the dogs’ hand-wringing moaning in the Irish Times on Friday.

JTO again:

You are being far too kind to him.

@John McHale

Excellent papers you have put up, and ones which give a far more objective perspective on Ireland’s debt situation than is to be found on other threads. It is a tragedy and an injustice that the thread on Brian Lucey’s Irish Times article currently leads this thread by 353 posts to 19 posts.

I’ve ploughed my way through the papers, which is no mean feat for what might quite easily be the last half-decent weather-wise Saturday until next June. As a non-economist, I won’t pretend to understand them all, and leave that to the greater minds than mine on this site. As a statistics nerd, I found the public debt/GDP figures (table 2, page 13 ) extremely interesting. What they show is that Ireland is only about mid-table for public debt/GDP, which is at variance with the hysterical screeching in the media. Of the 23 countries covered, Ireland ranked only 14th highest public debt/GDP in 2009, and is forecast to rank only 9th highest public debt/GDP in 2015, even on the IMF’s pessimistic assumptions for GDP growth between 2009 and 2015. The figures for the countries with higher public debt/GDP rankings in 2009 and in 2015 are:

actual public debt/GDP in 2009 (table 2, page 13):

[ 1] Japan 217.7%
[ 2] Italy 115.8%
[ 3] Greece 114.7%
[ 4] Iceland 105.1%
[ 5] Belgium 97.3%
[ 6] U. States 83.2%
[ 7] Canada 82.5%
[ 8] Israel 77.8%
[ 9] France 77.4%
[10] Portugal 77.1%
[11] Germany 72.5%
[12] U. Kingdom 68.7%
[13] Austria 67.3%
[14] Ireland 64.5%

forecast (by IMF) public debt/GDP in 2015 (table 2, page 13):

[ 1] Japan 250.0%
[ 2] Greece 158.6%
[ 3] Italy 124.7%
[ 4] U. States 109.7%
[ 5] Belgium 99.9%
[ 6] Portugal 98.4%
[ 7] France 94.8%
[ 8] Spain 94.4%
[ 9] Ireland 94.0%

It is presumably because of these figures that the IMF, to the dismay of some posters, doesn’t lump Ireland in with the most vulnerable group of countries. They also lend support to Governor Honahan’s ‘ridiculous’ comment. My own views is that the IMF forecast for Ireland for 2015 is over-pessimistic, largely because their forecast for GDP growth in Ireland between 2009 and 2015 is over-pessimistic. I can’t prove this, of course, (come back to me in 2015) and have no desire to repeat ad nauseum all the arguments/statistics I’ve posted on other threads in support of this view. Except to say that some of the factors causing the large increase in public debt in Ireland, ie the fall in property prices, the fall in nominal wages, the fall in consumer prices, both nominally and even more so relative to other countries, are simultaneously causing a large increase in competitiveness and, in an economy where exports are now about 110pc of GDP, this will have a major effect on GDP growth. Indeed, from the GDP figures for 2010 Q1, is allready doing so.

Public debt/GDP is, of course, only one side of the coin. The other is the external balance-of-payments. As I went into at length on another thread last week (and have no wish to repeat here), both the Central Bank and ESRI are forecasting that Ireland will be running an increasingly large balance-of-payments surplus in the years up to 2015. Thus, while, according to the IMF forecasts given in these papers, Ireland’s public debt/GDP ratio will be deteriorating from 14th (out of 23) worst in 2009 to 9th (out of 23) worst in 2015, on the external balance-of-payments front, Ireland’s situation will be improving and Ireland will be one of the surplus countries by 2015, which is presumably another reason why the IMF doesn’t lump Ireland in with the most vulnerable group of countries. Much as it pains me to say it, knowing the distress that it will bring to so many here, being near mid-table for public debt/GDP and being among the surplus countries on the external balance-of-payments front (the likely situation in 2015 if IMF, Central Bank and ESRI forecasts prove accurate), simply does not provide the conditions for a debt default or for a ‘going bust’ scenario.

With regard to John McHale’s excellent point about trumpeting any reasons that are genuine grounds for optimism, I’d have to say that the Government have been pretty useless on this score. It is not a question of being blindly optimistic or blindingly pessimistic, but of trying to be balanced when analysing available economic statistics. The past week is a good example. The biggest concentration of economic statistics is published in the first few days of each month. In the past few days, statistics have been published for (1) number of redundancies in August (2) number of PPSN numbers issued in August (3) new car sales in August (4) number on the Live Register in July (5) retail sales in July (6) government finances in August. As ever, the media have highlighted the ones that were negative or apparently negative for growth (retail sales and live register) and ignored the ones that were positive for growth. On the basis of such lop-sided analysis, the media have more or less decided that Ireland is heading back into recession (sse today’s newspapers). In fact, if all six sets of statistics published in the past few days are taken into account, not just the negative ones, the picture is much brighter. If we categorise them, four of the six were strongly or moderately positive for growth, one was moderately negative, one was inconclusive.

The strongly positive (and therfore totally ignored by the media) ones were:

[1] number of redundancies in August:

down 24pc compared with August 2009, and the lowest monthly figure (4,400) since 2007 – note that there are always redundancies even when the economy is booming – in the years up to 2007, when the number in employment was increasing by 60k to 70k annually, there were still around 2,000 redundancies each month – by early/mid 2009, this had increased to well over 7,000 redundancies each month – since then, the trend has been down, and the August figure was down to 4,400, the lowest since 2007 and 24pc lower than in August 2009

[2] number of PPSN numbers issued in August:

as I posted above, these have been increasing since the start of 2010 and in August recorded their first year-on-year increase since 2007 – the number issued in August was 11pc higher than in August 2009 for all PPSN numbers and 14pc higher for PPSN numbers issued to foreign nationals

[3] number of new car sales in August:

although new car sales have been up on 2009 since the start of the year, the August figures showed the largest monthly y-o-y increase so far in 2010, up 125pc on August 2009 – compared with their pre-recession levels, new car sales in Ireland had fallen to an abysmal 25pc of average 2006/2007 levels by mid-2009, rose to 35pc of average 2006/2007 levels by end-2009, to 50pc of average 2006/2007 levels from January to July 2010, but jumped to 75pc of average 2006/2007 levels in August

The moderately positive one was:

[4] government finances in August

in June, tax revenue was 1.6pc behind target – by July, tax revenue was 1.4pc behind target – but, by August, tax revenue was just 0.7pc behind target – for the first time since 2007, tax revenue has been ahead of target in two consecutive months (July and August) – in August alone, it was 5pc ahead pf target, the best performance since 2007

The moderately negative one was:

[5] retail sales in July

having risen strongly in Q2, these fell slightly in July, which is very disappointing – however, the new car sales figures for August (the figures for which are one month ahead of total retail sales figures in terms of their publication) strongly suggest that retail sales will have increased in August

The inconclusive one was:

(6) live register figures in August

seasonally-adjusted by the CSO, these showed an increase of 2,500 on July, which is obviously negative for growth, although the y-o-y increase fell from 9% to 7%, the lowest since unemployment started to increase at end-2007

however, the debate here is about whether or not the seasonal-adjustment is flawed (which quite often happens in statistics) and, if so, whether or not the increase since April will turn out to be entirely seasonal and will be reversed in the final few months of 2010 – when the July figures were published, Minister Eamon O’Cuiv said precisely that (ie that it was entirely seasonal), but Kevin O’Rourke called his comment ‘stupid’ in the thread opened on this site – I haven’t decided myself yet which of these two distinguished gentlemen has got this one right, and I probably won’t know until the December figures are published – the issue arises because in 2009 there was such a contrast between the live register increase between April and August and that between August and December, which couldn’t be explained by other economic data for those two periods – thus, between April and August the number on the live register rose by 41k, but between August and December it rose by only 5k, which is possibly, but only possibly, an indication that the seasonal adjustment was flawed – this year the increase between April and August has been 21k, which means about 5k monthly better than in 2009 in that four-month period – if the same pattern holds between August and December, then Minister O’Cuiv will have been proved correct – but, if it doesn’t, then Kevin O’Rourke will have been proved correct – the other labour market figures published this week that I gave above (number of redundancies in August and number of PPSN numbers issued in August) marginally, but only marginally, support the Minister’s view, but at this stage its too close to call

@ John McHale

“The model points to three main determinants of a country’s fiscal space — the gap between the current debt/gdp ratio and the ratio beyond which the fiscal deficit is unsustainable and default ensues. ”

This is predicated on a normal country where GNP > GDP.

In Irelands case the key determinant of payment capacity is GNP

We are effectively maxed at 120% of GNP which is 100% of GDP, we shall be there in Q2 2011

JTO writes:

“Meantime, in the real world, the first week of the month always sees a wealth of economic data being published. Most pertinent to this thread were the figures for government finances published on Wednesday. I notice that these didn’t get a thread of their own, which they usually do.”

Three points and a question:

1. The monthly finances only get a thread if they produce something interesting. These were not particularly interesting or unexpected.

2. Nobody posted about the increase in the unemployment rate to 13.8%. No doubt if they had, JTO would have been on carping about the great consipiracy to talk the economy down.

3. As for the number of comments on BL’s article as a sign of some kind of bias, perhaps JTO missed that at least half the comments were disagreeing with him.

The question: Isn’t anyone else sick of JTO’s constant whinging about the “bias” and “agenda” of “this blog”? Personally, I find it unpleasant and paronoid.

Apologies to John McHale for the naval gazing.

@ KW

Are you proposing the censoring of JTO for his views. I find him a tad panglossian but we need a counterweight to the doom merchants here.

He is wrong on hoousing btw but that is because his source was wrong.

Maybe, what you really want is groupthink with all of us who disagree with you departing.

Thanks Tull — more paranoia.

Contrarian voices have always been welcome — have any of your contributions ever been edited or deleted which we can do if we want? If we want to get rid of dissenting voices, how come we never actually do so?

Pointing out that we’re not actually running some kind of biased consipiracy is now the same thing as saying we want groupthink?

Look. Make whatever arguments you want but give up the personalised whinging and complaining. Please.

In fairness to Karl Whelan, none of my posts have ever been censored or even been threatened with being censored. I have never claimed at any time that they were. I was absent from the site for five months earlier this year while working in the USA. Reading back over the threads that were started during that time, I noticed one or two posts asking if I had been banned. I’m happy to confirm that I wasn’t and that my absence was entirely voluntary. Only a few weeks ago some of the leading lights on this site were complaining that their posts had been censored on another site (I think it was Frank Convery’s). Was that paranoia?

The fact that threads espousing extreme pessimism receive a lot more posts than those that don’t, even when the latter come from far more authoritative sources (in this case, the IMF) has been commented on frequently by a number of people. But, whether justified or not, it is intended as a comment on the negativity of the majority of posters, not the site organisers. And, exasperation that this is the case seems to be behind the fact that a second thread was opened on the IMF papers by John McHale with comments contrasting ‘the astonishing response to Brian Lucey’s article’ with ‘we passed over too quickly the important set of IMF fiscal policy papers that Philip linked to on Wednesday’. I’m sure that John McHale was not making any comment on the site organisers in those statements, but rather on the posters, whom he referred to as ‘diehards’.

Regarding the absence of a thread this month on the government finances, I merely said:

“I notice that these didn’t get a thread of their own, which they usually do.”

This is simply an accurate observation, not an accusation.

Which I followed up with:

“I do hope that’s not why they didn’t get a thread of their own.”

There is no accusation contained in that, merely an expression of the hope that the reason was other than the fact that the figures were quite good. Karl Whelan has now explained that this is indeed the case and that the reason was simply that the figures didn’t produce anything interesting.

Other posters are making far more derogatory comments on the economists who run the site than I ever do. For example, Pat Donnelly in his post above. Clearly, referring to the economists who run the site, Pat says:

“The real world takes what economists say with a pinch of salt because it knows most economists know nothing about the real world.”

“Tough you suckers! All your words amount to nothing!”

I have never said anything about them as offensive as that. Personally, if I was one of the economists who run the site, I’d sooner be accused of bias in favour of a particular point of view (which I haven’t actually done) than be accused of ‘knowing nothing about the real world’ or ‘my words amounting to nothing’.

Finally, the economists who run the site are not whiter than white. In the thread on the July unemployment figures, Kevin O’Rourke called Minister O’Cuiv ‘stupid’ for the comment he made about their seasonality. If one wanted to, it would be possible to be offended by such a comment. Although, personally, even if he said it about me, I’d take it as nothing more than something said in the heat of debate and it wouldn’t worry me in the slightest.

Pessimistic threads get more comments because more people are currently pessimistic. Instead of whinging about that, you should ask yourself whether they are rational or irrational in their pessimism.

Nope. I didn’t call him stupid. I implied that he had said something stupid, which is quite different. I am sure that I say stupid things from time to time myself! My precise words were

“My apologies to the other Eamon for accusing him of saying such a stupid thing.”

(And yes. I do think that blaming a movement in a seasonally adjusted seres on seasonal factors is pretty stupid.)

Minister Eamonn O’Cuiv will only have said something stupid if what he said turns out to be wrong. That might turn out to be the case, or it might not. But, at this stage it is far from certain either way. What he is saying basically is that the CSO seasonal adjustment for the summer months (when the number on the live register always goes up) is underestimating the seasonal effect. There is no evidence that this was the case in any year prior to 2009, but there is some evidence that it was the case in 2009 (see figures in my post above). As of now, we simply don’t know if the figures for the remainder of 2010 will follow the 2009 pattern or the pattern in years prior to 2009. For Minister O’Cuiv to be proved correct, the CSO seasonally-adjusted figures for the remainder of 2010 would need to fall by roughly the same amount as that by which they rose in the summer months. If that doesn’t happen, then he was clearly wrong and the word ‘stupid’ may be a fair word to describe what he said. But, as of now, we simply don’t know. Normally, I wouldn’t waste time on whether or not a politician was analysing statistics correctly. Few of them can count beyond ten. But, in Minister O’Cuiv’s case, it might be different, as his grandfather was a Professor of Mathematics, so it might be in his genes.

Good to see the request for more civility. Passion and critical thinking are possible without the types of slagging we saw on the Brian Lucey thread.

I’m one of those pessimists you’ve been talking about. I should also add right up front that I love the balance you provide to this forum, even if I am more pessimistic. I put my thoughts down on electronic paper because I’d really like to understand your (optimistic) viewpoint more.

When I look at the economy, I can’t believe that the country won’t collapse under the weight of servicing its debt – or put another way – I can’t see how we avoid a Greece-style moment where the EU must step in (with tough budgetary medicine for us) because the market rates become unsustainable.

* We currently have an ongoing budget deficits of about 20bn a year and very little political strength to cut spending to balance it. I can’t see new taxes doing anything more than depress the economy further.
* banks are unable to get private funds to recapitalise thus adding billions more to our national debt (and 5% of those billions to our annual spending requirements).
* The cost of servicing the interest means we will move 3.5bn forward with December’s budget (in cuts/taxes), 2bn (?) back (in interest payments). That means we only shaved 1.5bn off our 19bn budget deficit.
* FF plan to continue the budget deficit for another 3 years to 2014 (when we’d still be about 5bn in the red, and thus still not able to pay off more than the interest).
* There is no visible job creation strategy nor enough strength in the banks to lend to small business which would normally form the basis of the recovery of our internal economy. I can’t see how our domestic economy (and its associated tax take) recovers. International growth is really slow and shaky – surely not the basis for assuming a significant growth in taxes either.
* And erm, don’t we have to pay back the 150-200bn at some point? How is a country with an ongoing budget deficit and a tax take of 30bn ever going to make a dent in that sum. In the 1980s, we had harsh taxes to stabilise the budget but then a property bubble/Celtic Tiger to really pay off the debt. I can’t see a second property bubble.
* All this in a country with living costs so high that we pay people 25K in social benefits to the point where they refuse jobs paying anything less. How do we humanely balance our books and yet get competitive unless living costs improve?

So JTO, even if the IMF says we have many years left because we run even higher deficits than suspected before, how does the budget get balanced, the interest payments met and the debt repaid in a way that still leaves you optimistic? Like the ‘car crash in slow motion’ analogy I’ve seen in other threads, surely all this ‘bottoming out’ you allude to will happen way too slowly to avert default?

@David in Dublin

Good to see the request for more civility. Passion and critical thinking are possible without the types of slagging we saw on the Brian Lucey thread.

JTO again:

I am pleased to say that I did not partake at all in the Brian Lucey thread. So, for once, I can not be blamed.

@David in Dublin

I appreciate your comments. You ask a lot of very sensible questions, and they deserve proper answers. I couldn’t do them justice at 1.30am on a Monday morning. I will try to answer them properly as various relevant threads pop up over the next few weeks. At this stage, I will simply say that I agree totally with John McHale and Kevin O’Rourke when they say that “our long run growth rate is perhaps the most important factor influencing our perceived solvency”. Spot on. If the economy grows, all the debt problems will dissipate, just like from 1987 on, when they were much worse, but in an economy one-quarter the size it is now. There are numerous examples of other countries growing their way out of much worse debt problems with quite modest growth rates. The next question then is: will the economy grow or do the factors you mention mean that the required growth is unattainable in the years to come? I would answer that, yes, it will grow, just as it has done almost every year since 1958. I do not know by how much it will grow. But, the IMF projections for 2015, which I posted above and which show Ireland just above mid-point in the public debt/GDP league table in that year, are based on an extremely modest assumption about growth. They are based on the assumption that growth will be much lower than, not just that which Ireland achieved in recent years, but lower than that which Ireland achieved in the vast majority of years since 1958. Ireland is one of the most open economies in the world. Exports are 110pc of GDP. Therefore, the economy can grow even when the government is cutting the budget deficit, just like from 1987 on, provided (and, of course, this is the most important factor) competitiveness improves. Regardless of whether they are optimistic or pessimistic, virtually all economists agree that there has been a very large improvement in Ireland’s competitiveness since the recession began. The factors that are causing the debt problems and low domestic demand in the economy, namely the falls in house prices, commercial rents, and wages are simultaneously producing a very large improvement in competitiveness. This is allready having an effect on growth. Manufacturing output and exports are up sharply so far in 2010. So, almost all economic forecasters are now saying that, contrary to what they said a year ago, the economy will grow modestly in 2010. This modest growth hasn’t yet been enough to turn the deficit around. But, it has been enough to stabilise the deficit. It looks like the core budget deficit as a percentage of GDP in 2010 will at worst be no higher than in 2009. Davy forecast that it will be about 1% lower. In addition, even this modest growth has allready resulted in the number of monthly redundancies falling very sharply, the number of PPSN numbers issued monthly rising very sharply, core retail sales rising, although not rising by much, new car sales rising a lot, and the underling y-o-y fall in the tax take dropping from about 17pc at the start of 2010 to 1pc in August. As I say, I don’t wish to paint too glowing a picture. I’m merely saying that the modest growth achieved so far has stabilised the situation, which is, of course, a necessary preliminary to turning the situation around. Based on past experience, there is every reason to expect that continued growth will indeed lead to it being turned around.

The second reason why doom scenarios are unlikely to prevail is political. The adjustments that governments need to make to reduce borrowing during recessions are quite small compared with what private sector companies do all the time. Lop a few per cent of spending. It is not a huge deal, compared with what private sector companies do all the time. You mention that we pay people 25K in social security. If it was reduced to 20k, they won’t starve. If my income tax was increased by 10pc, I wouldn’t like it, but it wouldn’t ruin me. I’m not saying that the government will need to do those things, but, merely that, if they had to, it woudn’t be a huge deal. The reason why countries occasionally go bust and default (and it is extremely rare) is not because their governments can’t bring their borrowing under control, it is because their populations won’t let them. They throw out the government and vote in a left-wing government pledging not to make cuts, or they go on permanent strike, or they riot incessantly, or they burn the place down, or whatever. Greece seems to be some way along that path, as are some easten European countries. Even countries like France, Italy, Spain and Portugal are at various stages along that path. All the evidence is that Ireland is simply not interested in going down that path at all. The number of days lost in strikes in the first half of 2010 was virtually zero. Apart from when Fintan O’Toole marched a few hundred of his followers up to the Dail back in May, there have been no street protests. There has been no increase in support for fascist, marxist, racist or other extremist political parties. The most that will happen politically is that FG will replace FF as the lead party in government for a period, which is TweedleDum swopping places will TweedleDee. So, whatever measures are needed to bring down the deficit will be done. There will be no uprising against it. If the FF-led government doesn’t do it, an FG-led government will. The population will not revolt, go on strike, or riot in order to prevent any measures needed to bring the deficit down. Neither will they vote in a left-wing government pledging not to make cuts. The most that they will do is to replace TweedleFF with TweedleFG in government. ESRI stated earlier this year that, having had two austerity budgets, which have been sufficient to stabilise the deficit, only one more was necessary to bring the deficit down. That budget will be introduced in December. In the unlikely event of the FF-led government being unable to implement it, an FG-led one will come to power and implement an identical budget, exactly as happened in reverse in 1987.

I apologise, David, for the inadequacy of this reply to your very sensible questions. As a statistician, I much prefer to answer questions with lots of statistics than the sort of politicians’ waffle I gave above. But, as I said, the lateness of the hour prevents that here. I’ll try and do it as various relevant threads pop up over the next few weeks.

I worry about where the growth will come from. The property sector won’t do it and the contribution made by financials is weaker. Pharma is going more generic so that will diminish eventually too. I accept your much greater expertise here but think we are being distracted at the moment and not safeguarding growth.
I think we can get through all this BUT it actually requires some seriously unsexy hard graft.
The country needs a thorough business plan. ColmMcCarthy has half of it written already. It’s time to look at income generation now.
I used to think default was the option for the banks but realize now we’re in too deep. However restructuring (e.g. spreading debt over 30 years/funding debt repayments with a source of cheap credit) is a way of dealing with this.
We need some creative solutions though.
We are losing precious time.

There are specific laws in various advanced jurisdictions that are aimed at preventing “predatory lending” The definitions vary, as do the sanctions, but repayments are invariably cut by “a reasonable amount” depending upon the false values of property and the excessive size of the loan.

Good news, surely, for those who argue that we should not repay tainted lending?

Ireland is not immune from EU ruilings on time worked. While Irish solutions can cover the problem for a while, the loss of doctors to Australia will be much appreciated. Thanks! Saves us that extra cent in tax! And just think! The public sector paybill will be reduced!

After a few decades of this, hospitals may have to become vitual, over the WWW!

I agree with what you say but you still do not accept that this is a secular depression. Recessions hardly ever last three years. What would you say Japan has suffered for the last two decades? They were domestically very successful too. They can even set their own currency, theoretically. Their position was therefore better than tjhat in Ireland, now! They have wallowed despite the boom of the last twenty years.

You must have a knowledge of the Kondratieff analyses?

Do you have a Maths degree?


You shouldn’t underestimate your expertise. I am sure it is much greater than mine. I am a simple hack who studies statistics.

I agree with most of your comments. I am not quite sure what kind of business plan Colm McCarthy is preparing. Do you have any more information? Any good ideas he comes up with are, of course, very welcome. But, I’m not really in favour of detailed 5-economic plans of the type that were prevalent in eastern Europe pre-1990. I’m not saying that his is like that. In fact, your comment was the first I heard about, but it is interesting to know.

I don’t really believe that governments create wealth or jobs. I see their role as assisting (just assisting) in the creation of the proper environment and society for others to do that, in particular they should: (a) encourage an entrepreneurial spirit (b) keep taxes low on businesses and keep labour taxes low (c) keep the income tax wedge as low as possible (d) ensure that everyone, including the unskilled, will have a greater take-home income from working than from social welfare (e) provide a good and business-friendly education system (f) provide a good road transport system. Do all these and growth follows naturally.

Most economists would agree with all the of above. More controversially, and probably in a minority now, I believe that a moderately socially conservative society is better for growth than an extreme socially-liberal one because (g) it is more likely to keep the birth rate relatively high, which generates population growth and stops the population ageing too fast, which is fatal for growth (h) it is more likely to maintain the traditional family, which helps reduce welfare dependence.

If I had to rank Ireland on a scale of 1 to 10 compared to other EU countries (but not necessarily all countries further afield), I’d give (a) 7 (b) 8 (c) 8 (d) 6 (e) 7 (f) 7 (g) 9 (h) 6. I am pretty sure that if I ranked other EU countries similarily, Ireland would be near the top. That’s the reason growth in Ireland has been higher than in other EU countries for a generation, not property speculation as some economists maintain. Looking at those rankings, I’d say that some have improved in recent years, such as (f), but others have worsened, such as (g). We should endeavour to bring about improvement in all of them for maximum growth and prosperity.

Regarding the nature of the growth, I have no idea where the growth or the jobs will occur in the future. But, that was true in 1986 and GDP quadrupled and the number in employment doubled in the next 20 years. Technology marches on. As it does so, openings for wealth-creation and job-creation always arise. If the government assists in bringing about the things I listed above, the private sector will take advantage of such openings. The job I’m in didn’t exist in 1986. A plan prepared then by politicians and/or economists would certainly not have envisaged me making my living from what I do now. Multiply that by a few hundred thousand for other people in Ireland doing jobs that didn’t exist in 1986. Even this blog couldn’t have been envisaged then.

@Pat Donnelly

You must have a knowledge of the Kondratieff analyses?

JTO again:

No, I’m afraid I don’t, Pat. Does he manage one of the Premiership teams?

@Pat Donnelly

Do you have a Maths degree?

JTO again:

Yes, I do, Pat. Well spotted.

Regarding Japan, I don’t have time to do a full comparison with Ireland tonight, But I’d just mention two big differences:

(a) Ireland is a far more open economy. In Japan, exports amount to 17pc of GDP. In Ireland, exports in 2010 will be almost 117pc of GDP. If demand in Japan falters, its buoyant exports are not enough to lift its economy, because they are too small a proportion of GDP. Not so in Ireland.

(b) Demographics. I’d refer you to points (g) and (h) that I gave in my answer to Eureka above. Japan’s birth rate is almost the lowest in the developed world, its natural rate of population growth has or about to go negative (c) its proportion of population aged 65+ is the highest in the world. Ireland is at the opposite end of the demographic spectrum. Ireland has the highest birth rate in the developed world, as well as the highest rate of natural population growth and the lowest proportion of population aged 65+. I am 61, so 65 in a few years. Ireland is very fortunate in that, over the next decade and beyond, compared with every other developed country, it will have to support via taxation far fewer clapped-out near-geriatrics like myself, who will need to be wheeled around by some taxpayer-funded young nurse.


I really appreciate your clarifying replies. I do have to say that you’ve pulled me back from the edge a little in terms of my deep negativity about Ireland, though a fair amount of skepticism remains in me!

I’ve seen so much spin come from official quarters (between FF, our Central Bank, NAMA) that it has been hard to find positive voices which you really feel are independent. Not that I blame the govt for attempting to give foreign bond investors confidence so that we get better rates on our billions of loans, but their spin is so aggressive (esp towards critics) that it has drowned out anyone who wasn’t shouting back.

I did think the following comment was particularly insightful: ‘The reason why countries occasionally go bust and default (and it is extremely rare) is not because their governments can’t bring their borrowing under control, it is because their populations won’t let them.’ We do seem to be in this temporary state of the government trying desperately to avoid the hard decisions (which would balance the books, e.g. wage cuts and property tax) – I think the time of extreme pain on the ‘populace’ has yet to come as we get that €20bn deficit truly corrected… but your comment is interesting as it indicates that public demonstrations should actually be a good indicator of the likelihood of default, not (just) the ratio of debt/GDP.

Ultimately though, I just can’t see fast enough growth to dig our way out of the mountain of debt and avoid a lost decade where one Euro in three goes into debt repayment and public services (not just wages) are deeply cut. I can’t see how my children get a world class education. I’m maybe pulled back from the edge in believing the economy would collapse, but I’m not Dave the Optimist about the next ten years. Though maybe you’re not feeling great about the next 10 years either… I guess I’ll have to keep reading your posts (and your critics’)!

+1 on the business plan for income generation.

Regarding the point I made above about certain countries, but not Ireland, being prone to large-scale social unrest which prevents their governments bringing borrowing under control, I see from RTE that France is on strike again today. Nothing running, 2 million in the streets protesting, and polls showing majority support for the strikers and protesters. And for what? To prevent the government raising the retirement age from 60 to 62. Yes, 62. Give me a break! I’m 61, but at work now. If I lived in France, I could presumably now be sipping wine on the Côte d’Azur, having everyone else on the site paying for it all. No wonder France’s economic growth in the past quarter-century has averaged just over 1pc annually (compared with 5pc for Ireland). The retirement age is 65 in Ireland, and recent government proposals to raise it to 68 aroused little controversy. Anyone who thinks France will grow faster than Ireland in the next decade needs their head examining.

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