Puzzling Budgetary Reporting

This post was written by Karl Whelan

I’m having trouble making sense of most of the reporting of the budgetary discussions.

Two issues are particularly puzzling. The first is the consistent referencing of the idea that the higher requirement for budgetary adjustment is due to a relatively recent worsening in the forecasts for the Irish economy. (Indeed, a number of government politicians have also made reference to the idea that this worsening stems from a recent downgrading of the outlook for the international economy.)

The second is the dismissal of the €7 billion figure for budgetary adjustment mentioned by Michael Noonan and the lack of reference to the 10% deficit target that had been set for 2011.

Starting with the idea there has been a sharp recent worsening in the budgetary figures, this story is puzzling because, as far as I understand it, the main reasons for the worsening in the budgetary outlook have been known to the government since early summer. Here’s another one of my spreadsheets with budgetary calculations (apologies if I’m being a bit repetitive for those who read my previous posts on this issue.)

The single largest upward adjustment to the required budgetary adjustment has stemmed from the fact that the €30 billion or so of promissory notes carry an interest rate of 5% and hence there will be €1.5 billion in promissory note interest payments that will count against the general government deficit in 2011. The government issued most of these notes by May of this year, so one would have to assume that they have been aware since this time that this would add to the required adjustment for 2011.

In addition, there was a downward adjustment of €5 billion to 2009’s level of GDP in the CSO’s summer annual revision. Even if the government’s growth forecasts for 2010 and 2011 were held to, this would have implied a reduction of €5 billion in the projected value for GDP in 2011. Hitting the target of a deficit of 10% of GDP would have required an increase of €0.5 billion in the amount of adjustment required.  Indeed, the July Central Bank Bulletin showed a level of GDP that was €6 billion lower than the December 2009 budget projections. Combined with the promissory note interest payments, this would have brought the adjustment required to meet the 10% target to €5.16 billion.

Since the summer, there has been some negative news such as the publication of the decline in GDP in the second quarter. However, the overall effect on the Central Bank’s October projections was pretty small. GDP in 2011 was €8 billion less than the December 2009 budget projections. Thus, the changed forecast from July to October only raised the required adjustment to €5.33 billion.

Now, of course, these calculations are very static. Worsening growth projections for 2011 have probably added a billion or so via assumptions of lower tax revenues and higher welfare payments. However, for example, the transition from the last budget’s forecast of 3.3% real GDP growth in 2011 to the 2.8% in the July Central Bank forecast to the Bank’s more recent 2.4% has been a very gradual one.

In addition, the contractionary effect of having to cut more than the originally assumed €3 billion, will have raised the adjustment required to hit the 10% target in 2011 to at least €6.5 billion and perhaps €7 billion. All of this must have been known by early September and yet the government was clinging to the €3 billion adjustment figure.

I suspect it is the rapid change from this official line to a quite different one that has convinced the media that something dramatic happened to the adjustment requirements during September. However, this does not appear to be the case.

Turning to the reporting of the €7 billion figure, there’s plenty of evidence to suggest that this is exactly the amount of adjustment that will be required to hit the 10% of GDP target that the government had previously indicated to the EU that it would meet in 2011. Not least of this evidence is Michael Noonan’s statement after his meeting with the Department of Finance.

Despite Noonan’s statement, however, almost all the recent media reports have dismissed the idea of a €7 billion, instead focusing on the idea that the adjustment planned in the upcoming budget will be about €5 billion. But I have yet to see a report that notes that this adjustment is unlikely to meet the 10% deficit target that had been previously set out or explores the implications of the failure to meet this target.

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53 Responses to “Puzzling Budgetary Reporting”

  1. Winston Smith Says:

    Reasons:
    (1) politicians make up stories to suit their agenda and by keeping on saying it they begin to believe it. However, as the adage goes “just because you say it does not make it true” and keep on saying it does not change this.
    (2) don’t forgot the politicians have been on holidays since early June

    I agree with your summary of the Irish position

  2. Keith Cunneen Says:

    When the very conservative American bank anylast Chris Whelen is suggesting that states should instruct their citizens to not pay mortgages and stay in their homes and pay their taxes due to the foreclosure crisis - perhaps the executive here should tell people not to pay their mortgages because of the fiscal crisis here.
    That and a 50% dirt on Bank deposits should make a huge impression on our fiscal deficit and would accelerate a restructuring of our banking sector rather rapidily.
    There is no need for fiscal tightning here - we need fiscal expansion.
    To hell with the ECB and their insane fiscal percentages and if they don’t like it lets do it anyway.
    We need to invest in the physical economy not engage in useless monetory games that have little effect but to increase our componding national debt for exactly zero capital creation.

  3. Andrew Says:

    Seems to me most of the mainstream media are unwilling to challenge whatever line is fed to them by government for two reasons:

    1) The relationship between journalists and politicians is mutually beneficial and most people would rather not rock the boat and upset their brethren.

    2) Media is a sales business and any complexity in the message is discouraged in todays dumbed down society.

    Thats my take, love the site by the way

  4. grumpy Says:

    Karl,

    Trust you are suitably shocked, SHOCKED at the apparent inability of Irish politicians to be straight.

    Everybody will be shocked, SHOCKED that the press might take the easy option of repeating a line given to it by politicians.

    Remember, the press and electorate have no culpability for the mad economic experiment that was the Celtic Tiger.

  5. Keith Cunneen Says:

    Economic dirt map ?

    This guy could have been talking about the Irish Bog hole - although his references would have to be a tad more dramatic.
    http://www.youtube.com/watch?v=CfVDqNSkDpg

  6. Frank Galton Says:

    What’s important about September?

    It’s when the ministers and officials are back from their holliers. 2-3 months of updates get compressed into a few days. Cowen himself was completely out of circulation for 5 weeks, and had probably tuned out another few weeks either side of the formal break. What’s driving the process is not when the “news” was generated, but when it was briefed to the principals.

  7. Karl Whelan Says:

    @ Frank

    The promissory notes were mainly issued by May if my recollection is correct.

  8. ObsessiveMathsFreak Says:

    Starting with the idea there has been a sharp recent worsening in the budgetary figures, this story is puzzling because, as far as I understand it, the main reasons for the worsening in the budgetary outlook have been known to the government since early summer

    The government has known a lot of things for a long time. The single biggest problem here, and the cause of these recent budget cut estimate hikes, is that the government won’t release the real figures until it absolutely has to. Not even the opposition is allowed to see the real books.

    It’s no exaggeration to say that the government and the Department of Finance have been co-conspirators in a plot to hide the true state of the budget. We’ve recently had €1.5 billion tacked on from these “promise notes”, not to mention the lump sums paid to the banks, and who knows what other toads lurk at the bottom of the murky pond. Economic contraction be danmed; our real problem is these additional expensive which keep getting piled onto the national debt.

    My opinion is that when the real figures are revealed(probably when the government changes), the country will default in short order. Given the current policies, default is actually looking like a better and better option as this goes on.

  9. Celtic Phoneix Says:

    It does seem like everyone, media & politicians, has just decided to completely ignore the affect of the interest on the promissory notes.

    Perhaps Mr. Lenihan has another magic trick up his sleeve. Promissory promissory notes perhaps, spreading each 1 year interest of 1.5 billion, over a further 10 years, making each years repayment a modest 75 million.

    I wouldn’t worry about it Karl, Europe wont be long adding things up for our over paid lot.

  10. Hugh Sheehy Says:

    @Karl
    At least two separate populations are making some horrid realisations. Most TDs and most press believed that Dec 2009 was the worst of it and did not see any reason to disbelieve the stories of green shoots that were coming from the MoF until quite recently.

    The TDs, or at least the ministers, are now seeing that arithmetic has a funny habit of not going on summer holiday and not responding to PR. Similarly, the press are starting to realise that the budget is now only weeks away and the govt hasn’t a clue what to do, or at least has made no effort to communicate what will have to be done. Neither group quite knows what to say next and they’re suspecting that there simply isn’t time to communicate the situation to the wider population before the Budget. Neither has any interest in causing unrest.

    I would not be surprised if we have a budget with about €5 billion in Dec and then a supplementary budget in Feb, with about €2billion more austerity, before a return to borrowing in Feb or March. Hopefully Brian L will have been clearing all this with Brussels and I suppose I should hope that the comms approach from press and govt will align.

    I only saw one reporter who reported on what Mary Harney was really saying recently with her statements on cuts in the Health service. She was saying “the Croke Park deal has to go”, and from my POV she was saying it loud and clear.

    There isn’t time to make enough PS workers understand this before the budget. It’ll take some time. Hence the messaging starts now, with a painful but survivable €5billion before we start to move towards the painful €7 billion story a little later. Of course neither TDs nor press can go around saying “crikey, we just realised…” so the fable of significant worsening needs to start ramping up.

    Hey ho…it’s not really much of a conspiracy theory, but maybe..

  11. Pat Donnelly Says:

    KC
    Not likely and not productive! Learn to live with less. Move elsewhere if you can or must. Tune in, turn on …….. Otherwise your rant is funny! Thanks!

    Hugh Sheehy
    Yes. The death of hope! They had hoped it would all go away and that this would merely be a recession. It is a depression. Twenty years of bad economy in Japan. Once the masters of the manufacturing universe, they watch in horror as the Chinese steal all their ideas and make goods at a fraction of what they can. Japan was mighty and now has had decades in which to reconsider their strategy. They have gone beyond panic!
    Time to roll up the sleeves! Depression will even affect the ECB and Berlaymont or wherever they decide these things. They will engage in work for money schemes that are truly productive. Ireland blew its own bubble and succumbed to economic attack years ago. The disease and war is over. Now is the recovery phase! Geddit? Now is the time for team work and realizing that the Irish were to blame for the Irish mess. You were warned but chose to ignore every warning. So now you work! Arbeit macht frei! Whine if it helps! (It doesn’t but we can get economists to prove it does if you wish!)

  12. Pat Donnelly Says:

    Taxes are needed. Disunity is not good and if ever there was a time for the representatives of unions, capital and government to combine, it is now. Whining about the public sector, etc is pointless. The flawed policies of FF are known but they were partly adopted by FG also. We have gained housing stock that is too expensive to be desirable, but it is here now. It must be used, not bull dozed! Destroying wealth in the form of assets will be a sign of madness. Destroying liabilities that are paper based will be Alexandrine! Best left to Europe? Ireland has a future by showing the character strengths of its people. It can lead these processes and guide more people than most can countenance now. But change begins in the mirror.

    Change also denotes intelligence. Sometimes. Let us try to get a better strategy than trickle down, this time? No rising tide? Sharing the pain might be more like it?

  13. Dreaded_Estate Says:

    A cut of just €4.5bn will leave the underlying deficit at about 11.5% for the 3rd year running.

  14. Michael Hennigan - Finfacts Says:

    A lot of people are puzzled and astounded!

    A spokesman for NAMA is reported to have said the agency was “astounded” that insolvency professionals had asked for up to €800 an hour for a 500-hour assignment – a fee of €400,000 for one job – in a competitive tender for contract work with the agency.

    This is at least one puzzle that could be solved by NAMA.

    Lift the veil of secrecy from the tendering process.

    What a radical idea?

  15. Paul Hunt Says:

    I suspect the real fire under all this smoke is that the Government is in heavy duty negotiations with the EC/ECB. The latter have made the judgement call that the 4-year fiscal adjustment programme is the minimum necessary to allow the NTMA to re-enter the market. The Government is saying that is there is no way, politically, it can implement the scale of adjustment required in the first year - and that it risks plunging the economy into a deflationary spiral. It’s testing how far it can make the EC/ECB back off and provide a bit more space and time - while providing some assurance that the markets will be squared. The EC/ECB wants to keep Ireland out of the treatment room as much as the Government wants to stay out of it.

    Let’s see who blinks first.

  16. Al Says:

    @ Paul Hunt

    Wouldnt the interest rate costs deal with the issue you outline?

  17. Paul Hunt Says:

    @Al,

    Not sure what you’re getting at. Neither the Government nor the EC/ECB knows what will be needed to allow the NTMA back into the market - though I wouldn’t be surprised if the EC/ECB weren’t strong-arming some of the big EU players to participate in a syndicated deal for the next NTMA issue. If you mean that the height of the yields prior to the NTMA’s re-entry will determine whether or not it is shut out, I agree. But this is what the Govt. + EC/ECB wishes to avoid at all? costs.

  18. JohnTheOptimist Says:

    Karl Whelan is completely correct in dismissing the idea that there has been a worsening of Ireland’s budget outlook in recent months. It is a nonsense. In fact, if anyone could be bothered to check the figures, they’d find that there has been a modest improvement in the budget outlook since May-June. Tax revenues picked up over the summer. At end-June tax revenues were 1.6% below profile (target). By end-September, they were 0.2% below target. Over the period July-September (Q3), tax revenues were above target, the first time that this has occurred for a whole quarter since 2007. In addition, on the back of lower-than-predicted inflation, government spending fell below profile (target) over the period July-September (Q3), resulting in the gap between tax revenues and government spending being around 800m less than profile (target) at end-September. This modest improvement is almost certainly linked to the clear improvement in other economic idicators that occurred during the summer months. As I am not Mystic Meg, I have no idea if the improving Q3 trend will continue in Q4. It is possible (I simply don’t know) that the upsurge of media-generated gloom to manic levels, that has occurred in recent months, will depress consumer spending in Q4 and nip in the bud the modest but real improvement, both in tax revenues and in economic activity, that was clearly occurring in Q3. That, after all, was the media’s intention, although it is too early to know if they have succeeded. But, as of now, ie on the basis of exchequer figures up to end-September and of other indicators of economic activity in the summer months, the factual position is that Ireland’s budget outlook had shown a modest improvement by end-September as compared with a few months earlier. So, Karl Whelan’s point, namely that there is no truth in the view that was some dramatic worsening of the budget outlook in recent months, is indeed correct.

    What has worsened dramatically in recent months is economists’ forecasts for future economic growth. The faith that people show in these forecasts is touching, but absurd. As anyone who has read my posts will know, I consider most Irish economists’ forecasts to be not worth the paper they are printed on. Some examples:

    (a) In the Stability Programme, published on 9 Dec 2009, the Dept of Finance predicted tax revenues to be €32,570 in 2009. When the December figures were published on 5 Jan 2010, they turned out to be €33,043. That is, they were €473, or 1.5%, higher than forecast just a few weeks before. The Dept of Finance economists couldn’t forecast the 2009 figures on 9 Dec 2009. So, why should anyone believe that they can forecast them correctly years ahead?

    (b) In summer 2009, the Dept of Finance, the Central Bank and ESRI all forecast that GDP would fall by 3% in 2010. It clearly won’t. Most forecasts are now for the range 0% to 1%. I predict higher, but ignore that. Yet, we are being asked to base budgetary targets on the GDP forecasts of these organisations for years ahead.

    (c) In summer 2009, the Dept of Finance, the Central Bank and ESRI all forecast that the volume of exports would fall in 2010. They attributed this to the ‘great loss of competitiveness’ that Ireland had experienced in recent years. In one of my first posts here, I rubbished these forecasts. I showed that the ‘great loss of competitiveness’ was largely a myth. The only economist who shared that view was Ronnie O’Toole. Last week, ESRI made the sixth consecutive upward revision to their forecast for the volume of exports growth in 2010. In summer 2009, they were forecasting that these would fall by 2.0% in 2010. Last week they revised it to a rise of 7.5% in 2010. This was very close to my own forecast for volume of exports growth in 2010 (except that I made mine a year ago).

    We are being subject to the tyranny of economists’ forecasts. People, who have continually been proven wrong, yet their guesses (for that is all they are) about what is going to occur in 2011, 2012, 2013, 2014 and beyond are being used by the media to whip up pessimism about the economic outlook in the years ahead to manic levels. No doubt, it is all linked to the media’s desire to force an early election and to their longing to see the end of the evil FF for once and for all.

    While forecasting what WILL happen, (ie proper unbiased forecasting done scientifically by qualified statisticians), does have its place, we should give equal attention to what IS happening. On this basis, from the wealth of statistics published in recent weeks, there have clearly been some positive developments. Among them:

    (a) Manufacturing output growing strongly - up around 12% in July and August over a year ago.

    (b) Manufacturing turnover growing even stronger - up around 20% in July and August over a year ago.

    (c) Merchandise exports growing strongly - up around 13% in July and August over a year ago.

    (d) Services exports surging ahead.

    (e) A big rebound in the number of foreign tourists arriving in Q3.

    (f) Agriculture having its best year for decades, with output prices up over 10% in July over a year ago, input prices down, and output up on the back of good weather.

    (g) Number of redundancies falling month-by-month since the start of 2010, down almost 30% in September over a year ago. In contrast, figures from recruitment agencies show a 30% increase in the number of jobs advertised in September over a year ago.

    (h) Number of PPSNS issued to foreign nationals up by around 10% in August and September over a year ago, the first time this has occurred since 2007.

    (i) Tax revenues above target in July, August and September, the first time this has occurred over a whole quarter since 2007. Government spending below target in those months, resulting in (as I said above) the gap between revenue and spending being €800m below target at end-September.

    (j) Net emigration in year to April turning out to be less than half what ESRI forecast. And the Q2 QNHS showing the first sign (along with the PPSN numbers above) that it may have peaked and started to come down.

    (k) Dept of Environment Survey shows the overhang of empty recently-built houses to be far less than what NIRSA, and other politically-motivated economists, had claimed.

    (l) A fall of 5,400 in the number on the live register in September. The y-o-y increase in the number on the live register has fallen every month in 2010, from around 30% in January to 5% in September.

    (m) New car sales running at double their depressed 2009 levels, with an acceleration in recent months.

    These figures do not show that the Celtic Tiger is back. But, they do give grounds for modest optimism. In any other country, they would be used as such. They would be highlighted to show that the worst was over and to try and instill a modest degree of confidence among both consumers and investors. In Ireland, the opposite happens. All the modestly-improving indicators of what IS happening are ignored by the politically-motivated media or buried under a deluge of gloomy prognostications from economists, with a track record of being always wrong, about what WILL happen.

    One particular aspect of recent economic commentary is particularily absurd, when set alongside the figures above for various economic sectors given above. That is, the ludicrous significance attached to the fall in GDP in Q2. Anyone who knows anything about quarterly GDP figures in Ireland knows that they fluctuate wildly, largely on the basis of changes in net exports (ie exports relative to imports). This is particularily the case in an open economy like Ireland’s, where exports and imports are both about the size of GDP. The actual underlying level of real growth is frequently submerged below volatile changes in net exports. In Q1, exports increased more than imports, so this exaggerated the level of real growth in Q1, which came out at 2.2% (or Celtic Tiger levels). In Q2, the opposite happened. The actual level of real GDP growth in the first half of 2010 is probably best derived from combining the Q1 and Q2 figures, ie 1% real GDP growth over the two quarters. Based, on the merchandise trade figures for July and August, which are allready out, exports are going to grow by a lot more than imports in Q3. So, Q3 will be more like Q1, with a large, but partly-freakish, increase in GDP. So, just like the Grand Old Duke of York, it looks like the Dept of Finance, the Central Bank and ESRI, having repeatedly had to revise their 2010 GDP forecasts up since this time last year, then having ludicrously revised then down in the past few weeks, will have to revise them up again when the GDP figures for Q3 are published.

  19. Stringer Bell Says:

    What reporting are you referring to Karl?

    There was much discussion about these issues in the Sunday Business Post over the weekend.

  20. Al Says:

    @ PH

    It would depend how much love is in the room. We are being kept afloat to suit their rather than our interests.
    They EU/ECB will only carry water for us for so far…
    Conjoined twins it aint!

  21. Karl Whelan Says:

    Before people are misled by some of the above commentary, it might be worth clarifying that I was making the point that deteriorating growth forecasts for next year have played a relatively limited role in the deterioration in the budgetary figures for 2011.

  22. Karl Whelan Says:

    @Stringer

    I said most of, not all. I can’t claim to have read all the media coverage can I?

  23. Paul Hunt Says:

    @Al,

    I agree, but keeping us out of the treatment room will postpone the inevitable debt restructuring. The EC/ECB has been able to sit on this with the Greeks - much to the IMF’s annoyance - but if Ireland were to enter the pressure would increase. Frau Merkel recognises that some form of orderly debt restructuring will be required eventually, but it will need a rock-solid legal basis. That is why she has opened the treaty revision Pandora’s box. And she has traded some of Germany’s desire for severe fiscal governance to get the French on board. You will see more member-states coming on board over time. It will need at least 3 years (until, say, mid 2013) to get something solid in place. Ireland will have to be kept out of the treatment room until then.

  24. Hugh Sheehy Says:

    @JtO
    There may be room for optimism that there are parts of the economy that can survive and even do quite well. Parts of Irish industry are top class.

    The question is more whether there will be enough of them, and enough tax from them, to pay all the bills. That’s a much closer call.

  25. dreaded_estate Says:

    @JtO
    “In addition, on the back of lower-than-predicted inflation, government spending fell below profile (target) over the period July-September (Q3), resulting in the gap between tax revenues and government spending being around 800m less than profile (target) at end-September. This modest improvement is almost certainly linked to the clear improvement in other economic idicators that occurred during the summer months.”

    As I have said on numerous other threads the €800m under spend by the state so far this year is no due to lower than expected inflation.
    As pointed out by the DoF €900m of this is due to timing of capital projects and is expected to be made up over the remainder of the year. On the current side spending is above forecast

  26. JohnTheOptimist Says:

    Just out in the past hour.

    “UK economic growth (in Q3) twice as fast as EXPECTED.”

    http://www.rte.ie/news/2010/1026/britain-business.html

    Expected by whom? Waybe Rooney? No, the UK’s economic forecasters.

    Great to know that their economic forecasters are as useless as our’s.

    But, was not predicted low growth in the UK one of the reasons why the Central bank and ESRI downgraded Ireland’s economic outlook? Think again, chaps, or you are in danger of beating your 2010 GDP forecasting error.

  27. Al Says:

    @ PH
    Agreed,

    Forgive my fataliam here, but this deflationary spiral etc is the actual price to be paid for fecking up. There be sharks and monsters in these waters.

    The permanent and politcal government seem to have forgotten this, perhaps softened mentally by EU membership…
    Now if ‘it’, in whatever manifestation ‘it’ will occur, is inevitable then it is cowardice to avoid ‘it’.

    There seems to be alot of debate over whether the ‘it’ is necessary/inevitable, and this is a distraction to the greater issue of what can we do???

    If we have to absorb the ‘it’…..
    Back to Croke Park, we need to drop wages but this can only be done with some form of mortgage/debt intervention. Wages cannot be looked at without the debt.

    But at the moment we seem to be like an idiot on the way back from the Galway races after blowing the lot, and working out how to deal with the Missus….

  28. Eoin Says:

    @ JtO

    re UK figures. Release was twice “forecast”, but was actually probably more like 3 or 4 times what most in the market had really expected - all the talk this morning was actually to watch out for a negative figure, so the markets got it even more wrong than you are suggesting!!

  29. Eureka Says:

    @JTO
    If our economic data is really that good - why is it so hard for us to raise money on the bond market?
    Wouldn’t they be looking at the figures too?

  30. Eureka Says:

    @Eoin and @JTO
    Yet again thanks for the causes for optimism but I’m actually more worred now than before I read your posts.
    As a complete lay man I base my assessment of the economy primarily on what I hear about the bond markets. It makes since to me because these guys ultimately seem to be calling the shots.
    But the glorious markets have proven themselves yet again to be a bit thick. So why oh why are we doing all this to please them? They probably won’t get it anyway.
    Since the quality of the expertise is so poor as to make actual economic fundamentals irrelevant is it not just time to seek some shelter from the bondmarkets and call in the IMF? Then implement an austerity package that will deliver real value (i.e. not wiped out at the whim of a bond market)
    It seems daft that these guys are driving things so much.

  31. Keith Cunneen Says:

    @Al
    You hit the nail on the head - imagine how competitive our middle class would be without a mortgage - if there was a grand deal of writing off Mortgages for lower pay it would transform this economy.
    However it would not work if we continued to pay risk bank debt via the conduit of higher taxes.

  32. JackH Says:

    “The government issued most of these notes by May of this year, so one would have to assume that they have been aware since this time that this would add to the required adjustment for 2011.”

    I wouldn’t assume they’ve been aware for that long. We’ve seen little evidence of omniescience from the government/DoF during the crisis.

    If it was obvious it would have been pointed out by independent observers when the notes were announced. In as much as I remember it wasn’t.

    On balance, it has all the hallmarks of an EU/ECB led realization from a couple months ago. Perhaps around the FF “think-in” as that seems to have been around when rumours began that a 3B cut wasn’t going to be enough and they’d need, coincidentally, 1.5B more.

    It’s being reported they now think they can get away with a 4.5B cut where many figures are pointing towards 7B. Why wouldn’t they have thought they’d get away with 3B if they’d no idea about the 1.5B in extra interest.

  33. hoganmahew Says:

    @JohntheO
    You miss one of the points of government targets/estimates: the surprise must always be to the upside. In the same way, companies massage their earnings announcements by revising them down between the first estimate and the actual announcement. It used to be called a profit warning which was followed by a ‘beat’ of the revised estimate. Bonuses all round.

    In our case, the bonus would be that:
    a) having revised down 2009 so much, the chance of 2010 beating is improved.
    b) a beat will provide an uplift to future estimates in the minds of outside observers (”the government is being conservative, so we can assume better than their estimates”).
    c) a beat will lessen the need for fiscal contraction in later years of the adjustment, further improving the growth possibilities for those years.

    I’ve argued for a good while that it is better to take ‘planning’ pain now - plan for severity, hope for upside risks, and reap the benefit of “aren’t we a flexible economy with a flexible workforce and a sustainable growth trend above our European neighbours”. At worst, we won’t get any upside shocks, but we won’t be derailed by downside ones, so we will know what is coming. At best, it won’t be as bad as it looked, so we can moderate the adjustment (or overshoot it).

    There’s more to political economy than economics…

  34. Brian Woods II Says:

    @Karl

    You are probably right. 7bn is needed to meet that 10% 2009 Plan. Noonan was, I understand it, shown a range of possibilities. An obvious possibility for any Powerpoint presentation would be “what does it take to achieve that 10% target?” Noonan probably interpreted that as the key slide.

    We will know next month what the revised Plan is. One can take bets that the 2011 correction will be less than 7bn and the deficit will be more than 10%, this latter was not cast in EU marble. What will be kept sacrosanct is that Plan 2013 will be 3%. But having recently acquainted myself with such things as automatic stabilizers there isn’t a snowball’s chance of achieving that IMHO.

    Maybe it will turn out to be 6%, we’ll get away with that. A smoker promises to cut out his 60 a day habit by next summer. As it happens he gets down to 10 a day, we’ll forgive him that.

  35. Paul Hunt Says:

    @Hogan,

    There is indeed more to political economy than economics. And, in addition to the valid points you make, I suspect there is concern, both in the EC/ECB and in the market, about the ability of a government that is stretching its constitutional legitimacy to govern to the limit and to whom most of the electorate desire to administer a good kicking being able to deliver anything that comes close to the first instalment of a 4-year programme.

  36. dreaded_estate Says:

    So the next question is if we aren’t going to hit the 3% target by 2014 what will that do to our debt to GNP ratio?

    Even assuming fairly optimistic growth rates I think the national debt could hit 125% of GNP! The GGD is obviously going to be even worse

  37. Robert Browne Says:

    Pat Cox sees the writing on the wall, just recently he accused Olli Rehn of ‘duplicity’. The Irish he said, voted “Yes” to Lisbon on the explicit understanding that Irish Government would retain sovereignty in the tax area.

    Yes! what a noble people we are! As we have seen on this blog for the last two years the Irish government are incapable of being explicit about anything.

    I have to laugh at Cox now, resorting to quoting Thomas Jefferson. see below. I opposed Lisbon because I knew the Germans would carry out a vivisection on us if we rolled over and played the obedient servant. I am sure Ganley is more patriotic than me and is not laughing.

    Quoting Thomas Jefferson, he said, “Thomas Jefferson when drafting the American Declaration of Independence wrote that: ‘Governments are instituted among men, deriving their just powers from the consent of the governed’. The consent of the governed in Ireland for the Lisbon Treaty was informed by the guarantees, including the tax guarantee. Its nullification without their consent would be an act of duplicity unworthy of any law abiding and self- respecting institution”.

  38. Hugh Sheehy Says:

    @Dreaded..
    Colm Mc wrote this article before the scale of the Anglo bill was known. http://archives.tcm.ie/businesspost/2009/10/04/story44762.asp

    If we add the banking bailout to his numbers from October 2009 then we’d hit 2017 with national debt >~125% of GDP. That’s GDP and not GNP.

    I saw an article recently with a 2017 estimate of €200 billion debt by 2017 if we don’t make the correction now. I can’t find the link.

    My own take was in the papers more than a year ago too. Of course my opinion shouldn’t be taken as competing with Colm Mc, but it does make clear that the conversation has not moved forward much (at all) in 12 months.

    http://www.examiner.ie/archives/2009/1007/opinion/debt-the-only-solution-for-siptu-members-102764.html

  39. Al Says:

    Pat should read Jefferson rather than quote him.
    He seriously outlined the dangers of banks…

    “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

  40. Al Says:

    “Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument to burden all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs.” –Thomas Jefferson to Thomas Cooper, 1814. ME 14:61

    “Certainly no nation ever before abandoned to the avarice and jugglings of private individuals to regulate according to their own interests, the quantum of circulating medium for the nation — to inflate, by deluges of paper, the nominal prices of property, and then to buy up that property at 1s. in the pound, having first withdrawn the floating medium which might endanger a competition in purchase. Yet this is what has been done, and will be done, unless stayed by the protecting hand of the legislature. The evil has been produced by the error of their sanction of this ruinous machinery of banks; and justice, wisdom, duty, all require that they should interpose and arrest it before the schemes of plunder and spoilation desolate the country.” –Thomas Jefferson to William C. Rives, 1819. ME 15:232

  41. Al Says:

    Even Better
    Apologies, but when the shoe fits

    Regulating Banking Institutions

    “The principle of rotation… in the body of [bank] directors… breaks in upon the espirit de corps so apt to prevail in permanent bodies; it gives a chance for the public eye penetrating into the sanctuary of those proceedings and practices, which the avarice of the directors may introduce for their personal emolument, and which the resentments of excluded directors, or the honesty of those duly admitted, might betray to the public; and it gives an opportunity at the end of the year, or at other periods, of correcting a choice, which on trial, proves to have been unfortunate.” –Thomas Jefferson to Albert Gallatin, 1803. ME 10:437

    http://etext.virginia.edu/jefferson/quotations/jeff1325.htm

  42. Paul Hunt Says:

    @Al,

    The Founding Fathers were statesmen seeking to establish a system of democratic governance that minimised, in so far as it is ever possible, the tyranny of faction. The puzzling reporting that Karl has outlined is merely reflecting aspects of the smokescreen being spread by the governing faction to cover the manoeuvres that might allow it to stay in power.

  43. Al Says:

    @ PH

    Sorry for the confusion
    What I quoted was in reference to Robert Brownes reference to Pat Cox quoting Thomas Jefferson.
    However I would question the above quotes being part of the Founding cannon. But that would be wasting both our time.

  44. Eoin Says:

    *IRISH OPPOSITION SAYS LENIHAN TO GIVE 4-YR BUDGET FIGURE TODAY
    *IRISH FINE GAEL FINANCE SPOKESMAN NOONAN SPOKE IN DUBLIN

  45. Michael Hennigan - Finfacts Says:

    JohnTheOptimist certainly has a point regarding forecasts.

    Davy today cut its Sept 2009 forecast of GNP growth on 2011 from 4% to 1.2%.

    When the ESRI produced its rosy scenario in May 2009 of annual GNP growth of 5.9% in the period 2012-2015, it had occurred to me that 1) the recovery in advanced countries was not going to be as expected 2) the fake outlook would take pressure off of Irish policymakers with their instinctive mode to operate at glacial speed.

    At the time, Sir Samuel Brittan concluded his FT column, Green shoots and dud forecasts:“The weather in summer in north-west Europe is known to be highly variable. Somebody going away for a fortnight in that part of the world would find it helpful to have a day-by-day prognosis of temperature, rainfall, sunshine, wind conditions and so on. But apart from the first day or two it cannot really be done. Rather then rely on long-term weather bureau predictions, it is safer to take an umbrella or raincoat and a warm pullover as well as sunglasses and a sunshade, even at the cost of slightly heavier luggage. Now apply this homely little story to economic policy.”

    Last January, when Alan Ahearne made one of his last public statements from the Dept Of Finance (why leave too many hostages to fortune on a sinking ship?), highlighting the recovery on the same day that John FitzGerald had also spoken of the good times ahead, I had said : “Allowing for the fact that the media does not always give prominence to caveats, my problem with the coverage of Alan’s and John FitzGerald’s addresses on Monday was that while the expectation of a strong recovery is dependent on exports, there was little focus on the common expectation that the recovery in the US, the Eurozone and the UK will be subpar given public debt problems and the exit from massive support programs.

    McKinsey said last week that Japan was the only exception since 1930 where there wasn’t a deleveraging period of 6-7 years after a severe crisis.”

    There is still a lot of misleading commentary and spin on exports and a report that will be published on Wednesday has more of it.

    At least Davy’s report today does not just trot out the usual mantras: “Improving competitiveness may already have boosted export growth,” or maybe not I would say!

  46. dreaded_estate Says:

    €15bn confirmed

  47. Paul Hunt Says:

    http://www.finance.gov.ie/viewdoc.asp?DocID=6552

    What price democracy?

  48. a punter Says:

    15 Bn = The politico-economic equivalent of trying to non-fatally shoot yourself in the head
    http://dublinopinion.com/2010/10/25/the-useful-idiots-useful-idiot/

  49. Frank Galton Says:

    It is nice of the EC to completely ignore the 60 percent debt to GDP target.

  50. David O'Donnell Says:

    ‘The Irish Times understands that a briefing document circulated to Ministers suggested that every €1 billion cut could result in a drag on growth of between one quarter and one half a per cent. There is general agreement that up to €5 billion in adjustments will be made in the December budget.’

    Now who wrote that briefing? How credible?

  51. David O'Donnell Says:

    The Minister - ‘average 2.75% growth over the four years’.

    Has he solved the Hiesenberg-Schroddinger equation? How?

  52. Hugh Sheehy Says:

    @Paul Hunt.
    Your question “what price democracy” is a good one. The whole connection between votes and money is one worth thinking about.

    Can a democracy vote to make itself rich? Or do people actually have to create the wealth?

    Can a democracy vote not to pay its bills? Or do the creditors actually have the right to get their money back?

    Can a democracy vote to take some people’s money to give it to other people for no better reason than that the other people would like to have it? This last question is rhetorical. Of course the practical answer is yes…whatever about the morality of it.

    Can a democracy arrange affairs to make sure that some people have access to all the key money making opportunities? Again, this happens all the time.

  53. Pat Donnelly Says:

    Learn to admire honesty? Inculcate openness and indivisibility? Promote virtue as a reward in itself?

    Or game the EU and EZ? Why should the Greeks have all the fun? Bet the house (sorry!) on derivatives and crash a few likely targets, like BOA, CitiB etc.

    You are where you are and austerity is the only game in town.

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