Governor Honohan’s Address on the Banks and the Budget

Patrick Honohan’s address to the SUERF conference (Dublin), “Banks and the Budget: Lessons from Europe”, is available here.

While the address contained important observations on the interaction between the budgetary and banking crises, I expect it is his comments on the fiscal adjustment programme that will make most news:

I have recently been looking more closely though at the multi-year prospects for the budget. Of course it can be said, if the economy stays close to the track originally envisaged, the deficit would come close to 3 per cent by 2014. But as the IMF and others have noted, the real economy, the price level and also interest rates on Government borrowing, have evolved in a less favorable way. Servicing of the additional debt related to bank restructuring is also a negative factor.

Some explicit reprogramming of the budgetary profile for the coming years is clearly necessary soon if debt dynamics are to be convincingly convergent. Recent movements in the yield spread on Government debt – both for Ireland and for some other countries – readily demonstrate the costs that can result unless international lenders remain convinced that the budget is going to be kept on a convergent path, as indeed the Government is committed to ensuring.

During the 1980s Ireland paid a high price in terms of borrowing costs because the markets feared much steeper exchange rate depreciation than actually occurred. An equilibrium of pessimism, with the economy struggling, and investors requiring a risk premium that imposed additional costs on the taxpayer, displaced what could have been an equilibrium of self-fulfilling optimism. It is important now to re-set the fiscal path to ensure a virtuous cycle of lower borrowing rates contributing to even faster fiscal adjustment and a lower overall cost of the adjustment to society at large.

While there has been an international debate on this matter for larger countries, there seems to me to be no question, for Ireland and for other small financially-stressed sovereigns, but that national growth is best served by ensuring that the public finances are convincingly on a convergent path: the impact on funding costs and confidence surely more than offsets any short-term adverse impact on domestic demand from lower net public spending.

69 replies on “Governor Honohan’s Address on the Banks and the Budget”


would that high placed EU official be in the Commissioner’s office. Is it a case of an FF hack trying to undermine a member of the ECB GC.

Honohan is only talking sense.

The medium term projections published by the Government last December need to be revised downwards in light of:

1. tax revenue increases in 2011, resulting from economic growth, are unlikely to amount to the originally forecast €2 billion (+6-7%).
2. welfare costs are likely to be higher as unemployment is now at 13.8%. Last December the government forecast it would only reach 13.4% by year-end.
3. interest costs are likely to be higher than forecast in light of recent bond market developments.

If the government is to meet the 2011 targets it has already agreed with our European masters, it will be less able to rely on economic growth and will therefore have to rely more on addtional spending cuts / tax increases.

@ Cormac
But let the surgeons mind also focus on what expenditures shouldn’t have existed in the first place.
More An Bord Snip than bored cutting….

I’m a bit surprised by what the anonymous official had to say. The Minister for Finance has already indicated that the previously-planned €3bn in cuts is a minimum, suggesting that he is looking at a higher figure. If this is indeed the plan, and if Prof. Honohan agrees with it, it would be strange if he did not help the Minister to shift the policy narrative and prepare the public.

How many more people will €3bn of cuts put out of work? What’s the additional cost in terms of social welfare per annum and lost tax?

BTW is Partick Honohan any relation to Partick Thistle?

It is clear that Governor Honahan is attacking over-pessimism. He may even have this site in mind, although more likely the media. How else can we interpret?:

“During the 1980s Ireland paid a high price in terms of borrowing costs because the markets feared much steeper exchange rate depreciation than actually occurred. An equilibrium of pessimism, with the economy struggling, and investors requiring a risk premium that imposed additional costs on the taxpayer, displaced what could have been an equilibrium of self-fulfilling optimism.

Note his phrase: ‘self-fulfilling optimism’

If he believes in that, he must also believe in: ‘self-fulfilling pessimism’

How often have we been told here that neither of these exist?

What he is saying in that paragraph is:

In the 1980s borrowing costs were far higher than they needed to be because economists and markets were far more pessimistic about Ireland’s economic prospects than what turned out to be the case.

What we are seeing now is deja vu.

My mind boggles at the thought of what Messrs McWilliams and Kelly, had they been around in 1986, would have been writing about Ireland’s economic prospects in the subsequent two decades. They certainly wouldn’t have been predicting the 7% average annual growth that subsequently occured in that period.

He also says:

“I have repeatedly stated since the broad magnitudes became clearer in March of this year, it is manageable from the point of view of the national public finances and a good deal less than some alarmist commentary had suggested.”

Clearly coming down on the side of the Davy analysis posted here yesterday, and very much in agreement with what JohnMcHale said when he posted it.

Sorry to complicate things, but being bailed out by the EU/IMF is a good thing right?? i mean, can one be optimistic that this will happen?

One could take the view that optimism is the hope that the EU / IMF will help Ireland implement the reforms that it needs and that it cant implement using its political system. Onlu through these reforms can ireland start on a road to recovery.

Patrick Honohan is hardly going to agree with this becuase his employers are part of the problem. ?

What they were saying in 1986

I would be the first to say that no Government per se can create employment, but they can and must use the budget and their economic policies as an instrument to provide and create the sort of positive environment to which people can respond. No one is responding at the moment, and that is the basic problem. This Government have lost the confidence of decent, ordinary Irish working people who do not want to suffer the indignity of having to queue on the public street for unemployment benefit or assistance and who would regard it as much easier to go out and work a hard 40 hour week for only £10 or £15 more. They want their dignity and a sense of purpose in their lives and they cannot have that sense of purpose if the Government themselves are ungovernable. We saw last week the Taoiseach, the leader of the country, unable to shift personnel into the Departments in which he thought they would be best suited to try and pull the strings and do something better for this country.

There must be an alternative to the present economic policies being pursued by the Government. More importantly, there must be a political alternative to this Government. I can assure the House that this party will be the alternative. I travelled my constituency in the past two or three months through our Cumainn and our organisation and I was heartened by the response I got from ordinary people whose voices are not heard often enough. They have not the eloquence, the capability or the education to express themselves adequately, but what they want is a Government who care. This Government do not care. That is the perception out there in the real world.

That’s Deputy Brian Cowen during a no-confidence motion in the then government.


Come on, the bond markets dont care about Dave McWilliams and Morgan Kelly. Granted they might care about what S&P have to say (God knows why). Besides its the governments lack of credibility thats allowimg the (extreme) negativism to thrive. Youll always have nay sayers you just gotta may sure the cheer leaders are credible. Bond marlets and the ‘ordinary people’ are once bitten twice shy.

@Celtic Phoenox

I am not giving my own opinion. I am merely giving my interpretation of what Governor Honahan is saying.

That is one interpretation, but I think the key point he is making is that the budget projections are too optimistic and we will not hit the 2014 unless further cuts/taxes are introduced.

Glad to see that Prof Honohan has internalised the political preference of government in his new role as chief banking civil servant.

Unfortunately, the answer to your unemployment question is probably “Quite a few”.

Unfortunately, there’s another question that needs to be asked in parallel to yours. That is “How many people will be out of work or have to emigrate in the long term if we don’t cut the €3 billion and more? ”

Another is “How many jobs won’t be created if we continue to tax businesses to death and to tax income so much that there are no savings able to be invested in businesses?”

The answer is to both of these questions is “Lots, and for a long time.”

If given a choice between some pain for a little while and lots of pain for many years, I know what I’d chose. I realise, as I’m sure does Honohan, that neither choice is pain free. The pain is already in the system. It’s going to be felt. The only question is how much….quite a bit, or much more than that?

Of course, we could pay civil servants more so that they can buy new cars and stimulate the economy…a specific policy I heard advocated last year (or early this year) by a civil service union leader. We could pay social welfare recipients more so that finding and holding onto work – an already hard struggle in a recession – becomes an entirely thoroughly pointless idea. Those policies might help drag us out of the current troubles….or not. I’d bet on not.

Cutting isn’t an economic panacea, but Ireland is backed into a corner where it seems likely it’s the only realistic course of action.

found this somewhere

Even the most ardent intelligent defenders of optimism accept the fact that negative thinking is more realistic than positive thinking! It is a well known fact that optimists tend to gloss over obstacles and minimize problems. An optimist doesn’t create a balanced picture of circumstances and tends to idealize situations disproportionately.

Unfortunately, the world we live in isn’t perfect, and so the realistic thinking of the pessimist often leads to depression.

From a purely medical standpoint it’s a good thing that most of the people are self-delusional optimists.

Apart from JTO’s and Garret FitzGerald’s optimism on the production figures, the danger is that a foreign-owned sector which is producing few net new jobs will not provide a boost to the domestic economy.

Recent data from the UK, including lending figures today, suggest that the impact of the austerity program will hit the prospects of the indigenous export sector.

Lenihan will have to consider a property tax if he is to take an additional billionfrom the economy over the €3bn earmarked.

Even JtO seems a bit downbeat about the apparent lack of resilience of the non-financial economy. The short and medium term direct economic costs of the banking crisis are close to be contained and minimised – and the ultimate resolution is largely out of Irealnd’s hands. The Government is left with its ‘one club’ policy which is being determined by the sovereign bond market and the politcial and institutional EU and which largely consists of public expenditure cuts. Every whack of the club is knocking the stuffing out of the animal spirits required to lift the economy, but nothing is being done to tackle the other factors which are suppressing these animal spirits, such as the indirect costs of containing the bnk crisis in terms of the lack of credit and the direct burdens of excessive costs and inefficiencies in the state and semi-state sectors and anti-competitive practices in the sheltered sectors.

It may be time to dust down FG’s idea of a national recovery bank, to fast-track the privatisation of semi-states, to drive through public sector reform and to increase the powers of the Competition Authority to root out inefficiencies and anti-competitive practices.

The idea that an almost unqualified Irish bank bailout is somehow ‘manageable’ shows how little priority our leaders give to the imperative of lowering debt & encouraging growth and how they are prepared to reduce the welfare state and public services in the process. They get away with it because of the passivity of taxpayers and the newly unemployed.

What is really happening here? Just listen to Simon Johnson, former IMF economist,

“”Ireland’s debt is ballooning, while its capacity to pay has collapsed,” said Simon Johnson, ex-chief economist at the IMF. He said the country has made a Faustian pact with Europe, able to draw ECB loans worth 75pc of GDP so long as Irish taxpayers shield European creditors.”

This is all surely as bad as the sub prime debt created in the US, only now governments are doing it directly.

If the IMF come in, they will do absolutely nothing on the banking costs. We’re pretty much sticking to IMF mantra with what we’ve done so far. Any IMF mission will get fully stuck into public sector pay and pensions, and probably social welfare as well. There may be some increased taxes at the higher end, and certainly at the lower end, but nothing more than we’ve already seen from FF/GP over the last two years or can expect from them in the coming years. The only benefit to them being here would be that we could stop blaming party politics for the decisions, but id rather we were mature enough to make the tough decisions ourselves.

@Paul Hunt
“It may be time to dust down FG’s idea of a national recovery bank”
I don’t see the benefit in trying to create a new bank from scratch. Dismember INBS and EBS, sell off their branch network to one of the foreign operators who are deposit takers here, but not doing much else.
Fund them with a billion euro with a remit for small business lending as they see appropriate.

Basically keep the whole thing at arms length. Selling one set of semi-states to fund another is of questionable value. Another quango is more than I can bear…

“It is important now to re-set the fiscal path to ensure a virtuous cycle of lower borrowing rates contributing to even faster fiscal adjustment and a lower overall cost of the adjustment to society at large.”
” there seems to me to be no question, for Ireland and for other small financially-stressed sovereigns, but that national growth is best served by ensuring that the public finances are convincingly on a convergent path: the impact on funding costs and confidence surely more than offsets any short-term adverse impact on domestic demand from lower net public spending.”

The Greeks have cut their deficit massively this year and yet they are effectively excluded from international finance markets. In light of the Greek experience it is highly questionable whether further painful cuts will “ensure a virtuous cycle of lower borrowing rates”.
The good Professor as a member of the ECB must follow the party line but renowned independent economists such as Krugman and Stiglitz have questioned this approach and our own Prof. Ray Kinsella in todays Examiner
also sets out his opposition-“The Government had indicated that the forthcoming budget will take another €3-4billion out of the economy. This is utterly wrong. We now have had four such budgets and all of them against the background of businesses and families that were already deleveraging and adapting: the last thing they needed was such a budgetary strategy unsupported by any supply-side policy to rebuild the economy,”
It wouldappear that the wisdom of the current strategy needs to be reassessed.

What cannot ever be questioned by the ideologues are the agendas of ‘convergence’ and ‘ever closer union’, leading to a federal union. This is ‘manageable’ if the people are prepared to pay the price for the fantasies of the leaders, just as well they don’t have to slug it out down with their fellow citizens.


2014 is over three years and nearly 40 months away ….. bit of an abstraction …. can we predict tomorrow, let alone next month? 3% is also an abstraction ……… neither figure has any innate validity ………

bit of pragmatic realism on these projections over next 40 to 60 or more months ………..

@Michael Hennigan
‘Lenihan will have to consider a property tax if he is to take an additional billion from the economy over the €3bn earmarked.’

Don’t think we have the data, the logistics, or the means of implementation ….. yet.

@John the Optimist [& G. Fitzgerald]

Small Irish exporting wealth creators are dying – no credit.

@Bond Eoin Bond

Boys an Gals in the IMF are absolutely terrified of gettting directly involved in the most complex adaptive political and economic system in the world ……. they have no idea whatsoever of how the place works or doesn’t – can find no discernible logic whatsover in political discourse …. the data apparently are all over the place and liable to morph at a moment’s notice … econometrics of all varieties fails to find any discernable patterns in the randomised available data .. and there are unsubtanciated rumours that rather than decline any improbable invitation that they would offer the present cabinet massive consultancy fees (equivalent to the diff between 2006 GDP & GNP) on how all in the IMF could take early retirement on 300% pensions the afternoon that The Governor might come calling.

Other than Katie Taylor, who else for President?

“renowned independent economists such as Krugman and Stiglitz have questioned this approach”
Eh, Krugman and Stiglitz both say we are backed into a corner and as a small, open economy we probably have no choice but to be austere. The bubble has robbed us of our freedom of movement, unlike, say, Finland.


not exactly re Krugman and Stiglitz – who, where, what, and how on the AusterityAusterityAusterity [the new TripleA+] is where one needs a little more depth …….. plenty of wealth in this little island and a substantial herd of so-called untouchable sacred cows that can be milked so as to DO SOMETHING about MAINTAINING wealth creating indigenous potential and alleviating the effects of recovering from unbridled so-called freedom-lovin aliens and their self-promoting ideology.

Blind Biddy, for example, will be cold this winter as she cannot afford that extra bag of coal as her welfare was CUT in last budget – nor on a a point of principle [due to Ministers Mary – take your choice] can her daughter from abroad visit due to penal entry travel tax ….. while CEO in New York Big Dev in Switzerland and Drop_Kick_Johnny swan around etc etc

“Ireland’s struggle to revitalize its economy after the country’s worst recession on record shows the risks of focusing on deficits, Stiglitz said.”
“The belief that markets will get new confidence has been shown wrong” by Ireland’s austerity drive, Stiglitz said.
The point I was making was that a fresh wave of austerity will not necessarily have an appreciable effect on bond yields and secondly, as Ray Kinsella points out austerity without any support on the supply side to rebuild the economy is utterly wrong.

@ Frank Galton

Appears Cowen is somewhat of a clairvoyant being able to write about the demise of his own government as far back as 1986. He diagnosed the then current situation in ’86 then proceeded to make it become the future in 2010. That is some feat!

Dont worry folks, the Apprentice is on now, one of these fine young resourceful budding entrepreneurs will get us out of this mess….eh wait, they just spent 10 mins coming up with a team name…

@pod & DoD
Mr. Stiglitz also said:
“”The Irish Government is squandering large amounts of money to bail out banks,” Mr Stiglitz said at conference in Dublin today. “There’s a sort of a view that there’s no alternative.”

That view is “nonsense”, Mr Stiglitz said. “The rule of capitalism says that when firms can’t pay what they owe, they go bankrupt.”

“It’s a massive transfer of money from the public to bankers,” he said today.”
IT in October 2009

“”Obviously, Ireland by itself is too small to determine what happens to Europe as a whole,” Stiglitz said. “But if Germany, the UK and other major countries follow this excessive austerity approach, Ireland will suffer.” ”
Economic Times August 2010

Sentiments I can’t argue with. But we are where we are. Put there by the Goin’ Forward brigade. We are trapped by both past mistakes and present boundaries. Those who have the influence to give us scope don’t want to (because it is their money we have squandered).

I agree with you both (and Professor Stiglitz) about the capital program. Now should be the idea opportunity for it to be implemented; money should be cheap, opportunities still abound, and costs have come down. Unfortunately, we do not have the fiscal room to borrow for investment while we are thrashing so much on current spending and while we are pouring our wiggle-room into the banks. By the end of the financial crisis we will have put 50+ billion into the banks with little to show for it. That sort of spending could have properly cushioned the depression.

As for Mr. Krugman:
“But there isn’t much disagreement about the need for fiscal austerity. As far as responding to the recession goes, Ireland appears to be really, truly without options, other than to hope for an export-led recovery if and when the rest of the world bounces back.”
“And the lesson of Ireland is that you really, really don’t want to put yourself in a position where you have to punish your economy in order to save your banks. ”
(Erin Go Broke April 2009)

The last choice was the economy or the banks. The government chose the banks. The social partners agreed, bought off, in part, by the Croke Park deal (as the unions retreat to core public service support) and in part by the continuation of quango pork. The next choice will be debt or jobs. Relieve household debt or provide some jobs. Which will it be guys?

Meanwhile, the quangos will continue, the protected sectors will remain protected, the capital budget will be slashed, and there’ll be more than a shilling of the OAP.

I saw a historic graph of Greek 10 yr spreads similar to the irish one krugman uses in his pithy intervention somewhere earlier today (twitter?) and it went vertical once it reached 6.5. I sense scientists, auditors (and maybe troops) will be heading to this juristiction quite shortly.

Aha – here it is:

I quite like the Argentine phrase (about their politicos who conspired to rape the population) which defined their crisis: ‘They All Must Go!’

Personally, I take exception to being fodder for Mr Krugman’s political and economic prejudices. If we improve or disimprove to no longer be an example to prove his claims then he will look for a different country.
Say that we are in the shit arent we…..

“Which will it be guys?”
Was Dr.Krugman alluding to the inevitable in his blog today –
16 March 2001 – Mr Lopez Murphy unveils a tough $4.45bn two-year austerity program with deep cuts in education.
19 March 2001 – Mr Lopez Murphy resigns after six government officials quit in protest over his policies.
30 November 2001 – Argentines withdraw about $1.3bn from their bank accounts.
1 December 2001 – Mr Cavallo announces restrictions on the amount of money the public is allowed to withdraw, aiming to halt the run on banks.
5 December 2001 – IMF announces it will not release $1.3bn in aid to Argentina because the austerity measures are not tough enough.
6 December 2001 – Mr Cavallo says private pension funds will be transformed into treasury bonds or government backed loans to service debts.
21 December 2001 – President de la Rua reportedly charged with treason for unlawfully renegotiating the country’s external debt.

When doing a final cost assessment for the banking crisis, I think the impact it has had on deepening the recession by leading to higher cutbacks than would otherwise have been the case must be factored in.

This seems like a great case in point. Yields go up because of concerns about the banks and people — not just PH, the minister as well — start talking about higher cutbacks. Seems like a clearcut case of cause and effect.

Just focussing on the final direct cost to taxpayers misses these indirect effects, which could be extremely large.

@Kevin O’R
You mean it’s not the cheapest bailout ever? The ECB aren’t flooding the Irish economy with liquidity? It wasn’t Ledermans at all?

I am not convinced by Professor Krugmans position in regard to Ireland. We are pouring money down quango drains – it’s not comparable to Argentina – where they were imposing real hardships. We should of course also and primarily, stop pouring even more money down bank drains.
We are in trouble because of the banks. It always goes back to this, and endless reading of this blog has never uncovered a plausible and provable reason why we are bailing them out. It should even be illegal under EC rules (anyody like to explain why the EC allowed it?).

Anyway, Mr. Keynes, were he alive today, would recognise the austerity dynamic at work in the bond market. It is a beauty contest, or perhaps a ‘less ugly’ contest might be a better term. We’ve had evening wear, the singing, and tossing the caber. Now it’s swimsuit time. Like an episode of the apprentice, we don’t have to win, we just have to not come last. For a while, we were doing well covering our spots. Unfortunately, we’ve had a few massive growths pop (the bubble in the economy in general, the bubble in government income, the bubble in the banks) at an inconvenient time. Meanwhile the Spain has had a brazilian and Portugal is thinking of one too. Sadly for the Greeks, their moustache doomed them early doors…

So what do we need? A diet, cut down on the booze and fags, start working out. A plan, that’s still what we need. Two flippin’ years in and we still don’t have a plan for getting out.


“Two flippin’ years in and we still don’t have a plan for getting out.”

This is the crux of the matter.


Rebuild the economy.

Wjhat do you mean? Another bubble based on free and easy credit? The whole point was the bubble was in non-productive areas!!!!!

The productive areas were all over looked because the ease of credit required the largest return even if it was a fake return.

You clearly do not understand what you are saying.

The lack of borrowing means that savings will be paramount. Savings cannot exist in competition to easy credit.

Get used to it, you lazy people!

Honohan is spot on when he says that convergence is necessary.

The economy is terrible, but that does not mean that it cannot get much worse. It will. Much worse!

Taxes are necessary and reliance on VAT and PAYE simply means that shortfalls will become surprisingly common! Taxes that are inescapable and self collecting are required and urgently.

Land tax is easy. So much per acre. With a provision for donation to common land or national trust or whatever, for land that is not worth keeping! Every house must pay a certain amount. Easy. But very hot politically. Even a window tax has a great deal of sense behind it! Bad news for glaziers though!

Cutting is not really necessary except as deflation bites. And it will! Get rid of the pretentious and expensive armed forces. Stop building schools. Use the internet.

It is not a case of rebuilding but of building! As banks are not lending, savings will be the only available capital. But land will be chaeaper as will wages. Get used to the new, old, pre easy credit economy. There will be no growth unless in a new industry. Gentle decline is the best to be hoped for with abrupt collapses as the lies are found out over the coming decades. Look up the history of business in the sixties in Ireland, for a clue. When a house was sold, it was an event! How many properties sold in a year then? Those who went along with the bubble must now relive history. Edmund Burke is indeed relevant.

A McGrath

I did explain it. Sad that you haven’t read what I wrote? No one else will explain it. They will lose friends. Treason never prospers. After a while treasonous people become TPTB! There is a power shift underway and Fabian economics is at the heart of it. Ultimately a good thing, except that incompetence bedevils every endeavour.

David O’Donnell on a property tax:

“Don’t think we have the data, the logistics, or the means of implementation ….. yet.”

The biggest problem seems to be that the ‘Irish Mind’ isn’t very good at multitasking i.e. being able to chew gum and walk in a straight line, at the same time.

We could kill two birds with the one stone by temporarily employing tens of thousands of people with admin experience who are unemployed.

In urban areas there is data on prices and declines from peak; the majority of houses in any distinct urban property sub-market are clones.

How hard would it be to determine values based on floor area, road etc from say the canal down to Blackrock?

A system of exemptions and appeals could be devised.

In the 1970s, the Revenue sent out field teams to log unregistered businesses across the country.

There’s a house in Blackrock where the owners receive a tax credit for maintaining the garden; visitors are allowed in during a 6wk period in Jan/Feb. So enchanting!

@ Bookworm

thats a great snapshot of what is going on in the market. The reputational/thematic side to the story is often underplayed or simply ignored (its not just fundamentals). At the start of this year Ireland was the ‘recovery’ play, it was easy to convince your credit comittee that you should buy. It’s now the tail risk for 2011, and you don’t have a hope of being able to buy even if you thought it was a great buy. What we need to do is get control of the story again, start bringing in measures or announcements which can convince the markets that we are in control of the situation, no matter how dire it is, and that we have a plan to get back on an even keel in the medium term. The markets like a recovery story, we sold it to them brilliantly last year/start this year, but we have to sell it to them again between now and the end of the year.

I agree that selling the story better would definitely help reduce the borrowing costs. But I think we over sold the story earlier in the year and reality is catching up with us and the market a bit.

I think the market still believes we will get the deficit close to the 3% target by 2014, I am just not sure they think the outstanding debt will be that ‘manageable’ when we get there.

To change the story we would need to publish a realistic multi year budget with realistic growth projections and with precise details of what taxes/cuts we are going to introduce.
The problem is politics will mean that this will not happen this side of a GE and the Irish public seems to be getting much angrier and could reach a breaking point.

A property tax could be very simply and cheaply introduced if it were based on the square footage of a given property. The owner would be responsible for calculating the tax liability. Checks on compliance would be along normal Revenue lines.

This also seems equitable to me. I don’t really see why those living in, say, small houses in Dublin should pay more than those living in large houses in rural locations.

This I found the most convincing in Stephanie’s piece:
“Sometimes it’s regulation that’s hurting demand for bonds: many institutional investors are simply not allowed to invest in assets after the credit rating falls below a certain level”
Back to the ratings agencies:
BTW anybody know what happened to the National Solidarity Bond. Should’nt they up the returns to make it more attractive than bank deposit rates, and get a lot of local money which is not being spent right now?
Interesting to see in Michael McDowells presentation on Michael Collins last night, how Collins managed to raise a lot of cash back in 1920 through the issuance of bonds in circumstances a bit more difficult than we face today!
@Pat Donnelly
Link me your explanation of why the bailouts are not breaking EU rules

I don’t understand how our yields could rise and yet have lots of poeple clamouring for our debt? If that was the case the bids would drive the price up and the yields down. Why would they all wait for a new issuance to get in on the game? So presumably there is a group out there who would rather wait for a new issue and bid high rather than take the discounted offerings (with comparable yield) that were in the market yesterday. Something within that isn’t making sense to me.

It really makes no sense when you can buy 8yr existing paper for less than the new shiny edition today. Maybe Eoin understands this.

@ Karl D/Podubhlain

(a) bond yields quite often get pushed up ahead of an auction (though not by this much). Basically if you’re a primary dealer you sell into it figuring you have a good chance of getting it back cheaper in the auction (though if you’d have done this only last night you’d have lost!)

(b) it’s been a generally low volume few days with some negative headlines, so markets went on a one way ride with people knowing that dynamic (a) was also going to be in play as well.

(c) primary dealers like to sell into auction and then buy them back, even if at no profit/yield advantage, as this generates ‘flow’ in the eyes of the NTMA, and they then have the chance of getting cut in on juicy syndicated deals. Obviously if you (the issuer) dont especially need syndicated deals, then the market can’t push the markets around like this, or you wouldnt reward them for it, but we do need the syndicate outlet right now.

(d) primary dealers have to participate and put some bids on the auctions (they are obliged to) – so they probably run slightly short/underweight into them as they sorta have to buy some bonds. Sometimes, in bull markets, it’ll cost them (sell them and then they issue more expensive), but at the moment its generally going to benefit them for reasons like (a) and (b).

@Michael Hennigan

Yes. Revenue can certainly handle it – but they need data.

In terms of overall public admin – key problem is that various databases are not linked into [capable of ‘talking’ to] each other. Data, information, and IT systems integration has quite a ways to go ……… I won’t mention PPARS ………

In terms of The Governor’s ‘suggestion’ least we might expect would be a note that property tax will be introduced at such a date etc ……….. nor will I mention the lack of a ‘land market’ and the Physiocratic nature of policy in this area since the C19th up to the present …….. or the abysmal broadband in so many areas etc K-Gov or Smar-Gov demands e-Gov …. Revenue, and a few pockets of other Depts [national archives, South Dub CoCo, etc] are top notch and I know that the PRAI are making some strides in recent times ……… bit more systems and operational Go and less BS and it can be done ………… & Blind Biddy might get her bag of coal back and the extra €tenner that makes a difference ……


Over the past few days I’ve seen various interpretations of this comment in The Governor’s published address:

“Some explicit reprogramming of the budgetary profile for the coming years is clearly necessary soon if debt dynamics are to be convincingly convergent.”

This is open to interpretation – and not necessarly implying that the lower-order serfs be immediately sacrificed at the altar of the (all genuflect now) God_Bond_Holders in the modern version of Swift’s Modest Proposal.

The Banks are not the Sovereign – I’m totally opposed to Sovereign default ……. but where is it written in the Annals of this Republic that The Cowboys must be conflated with the Sovereign? Off with their heads I say – and while chopping of said heads, simultaneously publish an all party agreed reprogramming of the budgetary profile for the next 6 years which both maintains the productive wealth creating potential of indigenous sector and protects the basic, and I mean basic, living rights of the most vulnerable Irish Citizens.

Zero_back_bone slime eel capitulation to the cowboys is bringing us down.

@GRB IMF direct blog
The types of things they suggest were all but (politically) impossible to impose when times were good. Now that things are difficult, all retreat to their own bunkers to defend their territory. We need to build change processes into institutions and set up review mechanisms which award positive innovation from without and within.

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