Government Plans €6 Billion Adjustment in 2011

The government have released a ten-page document outlining its plans for the level of adjustment in the upcoming budget and also some details on growth projections and adjustments planned for future years. Here‘s the press statement.

The summary:

The Government has agreed on an adjustment of €6 billion for 2011 and this will reduce the General Government deficit to around 9¼ to 9½% of GDP next year. Taking account of the €15 billion consolidation package, my Department now expects annual average real GDP growth to be 2¾% over the 2011 to 2014 period.

The government have also released a note on the accounting treatment of the promissory notes. The key point:

the terms of the promissory notes will provide that no interest will be chargeable in 2011 and 2012.

I’m guessing these are newly-negotiated terms, though I’m happy to be shown that this is not the case.

In any case, the bottom line is that this €6 billion of adjustment will have slightly more effect on the GGD than the approach I had been recommending. I had been recommending €7 billion but that figure included €1.5 bilion for the promissory note interest, which does not apply now.

There is lots to absorb in this plan but, for now, let me say that I think the govenment have taken the right decision in relation to the size of the planned adjustment. Now we just have to see if they can get it passed.

200 replies on “Government Plans €6 Billion Adjustment in 2011”

Ireland to Take 2-Year ‘Interest Holiday’ On Bank Bailout Method

By Dara Doyle
Nov. 4 (Bloomberg) — Ireland’s government will not pay
interest in 2011 or 2012 on promissory notes it is issuing to
partly recapitalize three lenders.
The measure will help keep the general government deficit
below the 10 percent level next year, according to a Finance
Ministry spokesman.
“The Irish authorities have confirmed with Eurostat that,
as a result, no interest will be recorded on the promissory
notes in those years, on either a cash or accrual basis,” the
Finance Ministry said in a technical note published today.
The interest would have been payable to the banks being

Note that they have assumed 4.7% interest rate in future years to estimate the interest payments on the notes. Over 200bp below current headline levels.

@Frank Galton
4.7% is already baked in for the existing notes that we know of. I suspect they will also make a ‘technical’ adjustment to the remaining ones to be prices to price them at the average of the previously priced notes.

If these were externally issued, this would be a default?

@Bond Eoin Bond
Sounds like a sop so that the Irish people can accept this criminality from our Goverment.
People need to accept that their Goverment is acting as a agent for a absentee landlord and nothing more.
Patriotic capitalists should start putting their capital on strike,workers should refuse to work for these cretins and debt serfs need to default even if solvent.
Boycott the bastards.

Re: Promissory note.
Funniest piece of footwork in a long time. Pay no interest on the approx €30 billion note. But set up a long term sinking fund to repay the note and only account for interest on the amount borrowed to put into the sinking fund.

I knew it-It must come straight from the Galway Tent school of interest roll up and whatever you are having yourself.

I can see the way these comments are going … we could have fun with promissory notes all night. But it might be more constructive to focus on the substantive issue. What do people think of the €6 billion adjustment and the rest of the ten page plan?

On the basis of the prom note chaos, this is really worth 7.5bn. Has to be seen as impressive, hopefully the markets think so too.

I see that the Dept of Finance economists are sticking to their Sep 30 forecast that the budget deficit in 2010 will be 11.9% of GDP in 2010. They revised it up to this figure on Sep 30, having said all year that it would be 11.6% of GDP in 2010. When they did so, it was the lead story in the Financial Times and interest rates on Irish governments shot up. I posted here at the time that there was no basis for this upward revision, and that the trend was actually moving in the opposite direction. Subsequent events, the latest of which was the exchequer figures earlier this week, are pointing in the direction of my being correct.

It can only happen in Ireland! The forecast budget deficit is revised up by the Dept of Finance economists just at the very time that it starts to show the first signs in 3 years of coming down. Tax revenue was behind target (or profile as they call it) all year. During this time they forecast a budget deficit of 11.6%. Then, from August onwards, tax revenue suddenly starts coming in well above target, almost 13% above target in October alone. Concurrently with this, due to falling numbers on the live register and lower-than predicted inflation, government spending starts falling behind target. The latest situation, as of the figures for end-October published earlier this week, are that tax revenue is now €243m above target (profile) and government spending is now €1,044m below target (profile). So, as of end-October the budget deficit is €1,286 below target (profile). The target having been originally set at 11.6%, this means that, as of end October it is heading for around 10.9% in 2010, not their revised target of 11.9%. But, then these are the lemons who predicted in the Stability Pact last December that the volume of exports would increase by just 0.4% in 2010. It now looks more like being 10.4%. Still, not to worry, we all make our little mistakes. and just because Dept of Finance economists are paid huge salaries to make accurate forecasts is no reason to reproach them when they get them totally wrong, time and time again.


“In any case, the bottom line is that this €6 billion of adjustment will have more effect on the GGD than the €7 billion that I have been recommending because that €7 billion figure included €1.5 bilion for the promissory note interest.”

I am not sure I understand this statement. 6bn is less than 7bn. Okay you may have come up with 7bn because you thought there was 1.5bn pni. BTW do you mean GDP and not GGD? Again 6bn adjustment will reduce GGD by 6bn and 7bn will reduce it by 7bn. What seems to be happening is that GGD will now be optically less than we might have expected a week ago as the pni interest won’t be included.

This is not a trolling query – I am genuinely trying to understand your point.

Ooops, I should of course have typed: ‘interest rates on Irish government bonds shot up’.

I think it will all come down to where the adjustments are aimed. There seems to be little chance of Irish politicians – frankly, of current or alternative governments – targetting the real cost centres in the economy.

It looks like the Croke Park Agreement is off-limits for net vote reasons, as well as self-interest reasons (linking etc), so it is the most vulnerable both economically and socially who are going to get stamped on.

Political and social division looks like it is Irelands future.

Listening to Joan Burton is really hard to stomach at the best of times – she was just on RTE accepting the need for austerity.
Nobody is asking the simple question – where does the surplus created go too and to what ends.
This strangely conservative Irish attitude to debt will be the death of us.

Its so sad to see a whole society accept lies as Gospel – but I guess we have form in that regard.

Brian Cowen waffling on about a fiscal deficit when he presided over a much larger monetory deficit while Finance minister.
The Goverment need not worry about a large fiscal deficit if they create a bank and give credit towards Industry and general Utilities.
This is a criminal coup by international banks – the same banks who extracted wealth from Russia during the 90s.
These are locusts that will strip this sorry nation to the very bone – please I ask responsible patriots to tell the Irish people the truth about the nature of power in this Island.

Simple arithmetic dictates that the $6BN figure is neccessary, The net effect that this will have on growth levels is obviously dependent upon how the $6BN is achieved but in any event, austerity alone will not convince investors in Irish Debt. Some labour intensive stimulus is needed as well. In any event the fine detail of current projections is largely undermined by the fact that the same people who presided over the economic collapse are the same people responsible for trying and failing to solve it for the last two years.

The treatment of the promissory notes seems to be a pure fiddle.

Essentially, in order to pay no interest for the next two years, the interest now is set to zero but the interest later is increased enough that the net result is the same.

Then, instead of accruing the cost in the next two years (even though it’s there) Eurostat will let us pretend it’s not there at all.

It’s a fiddle. It’s like doing one of the Greek “technical adjustments”, but hoping that doing it in public will cause less distrust.

As a non economist how do you manage to get 1% GNP growth with the following inputs.
Domestic Consumption 0, Govt -4, Investment -6. Yes, I can see the growth in exports but…..
We are not any wiser on the on the government plans, if that is not an oxymoron.
Two stars opposite a 6 billion adjustment!.
I am reminded of the old Kerry saying “Paper never refused ink”.

Keith, patriots – are you for real?

Patriotism is a big part of the reason the Irish were willing to swallow all that guff about their economy in the first place and continue to tollerate the current guff about the sanctity of certain sectors now.

What is needed is a sort of anti-patriotism. Anything of economic interest that has the word Irish in it should be regarded with the same sort of respect as an equivalant that includes a descriptor like Italian, Greek, Bolivian or Nigerian.

Flags, jerseys, scoundrels. Nothing changes.

Is it now the case, can’t tell for sure from my reading, that the interest payments are NOT deferred in “cash terms” until the end of the life of the notes?

@Joseph Ryan
I’d love to know the answer to that one too!

In general why is this so hard, it’s mainly a statement of the obvious, why has it taken so long to get here?

On a more critical note the assumptions that make this plan work say a lot about what needs fixing in the economy. Unemployment will not be so bad because the unemployed will emigrate. The DoF accept that domestic consumption is screwed for the foreseeable future, but the MNC’s will export our way to the magic 3%. And I guess that’s the main problem with the plan. If the situation were reversed, that the global economy was subdued and this was a a plan to grow domestically at least you have a measure of control over that, this looks like we’re hoping for the rest of the world to sort us out.

Also, just because GDP grows, our tax take may not grow by the same amount as this is export led growh. In that case the growth in GDP does nothing for our ability to pay and so may not be a sustainable plan.


I listened to Mary Wilson Interview Cowen this evening. He sounded tetchy (not hoarse) and after a few exchanges I wondered if he was living in Ireland or another planet. The substance of his defense of the cuts was that they would reassure parties considering investing in Ireland (cue FDI). Any connection between deflation and rising unemployment seemed to go completely over his head. The reasons behind the 2-year interest holiday weren’t expanded upon – possibly Olli Rehn or Strauass-Kahn haven’t faxed them over yet. Overall it was a very poor performance given the day that is in it. If it reassures anyone outside of the front bench I would be doubtful.

On a positive regional investment note, I read that Jackie Healy-Rae’s son Michael is meeting soon with the Minister for Finance to make sure the pledges to Jackie on roads and hospitals in his area had followed through on. What will theses cost? A billion of so? Chickenfeed to this government.

Yes indeed , but I was referring to people who do their duty without fanfare or false bravado.
Maybe they are extinct or have never been.
The Funny thing is I get a strange feeling every time I hear a dialogue between the media and a political figure.
They dance and waltz around the most basic of questions – who benefits ?
The whole apparatus makes me queasy inside as if the whole political architecture was somehow alien and contrived.

The low estimate of growth (indeed with an aim of a deficit of 9.25 or 9.5, they are allowing for adverse scenarios) is to be welcomed. We can all hope, even believe that it will be higher than that, but that will put us in a position to make lower adjustments or a speedier resolution in later years (depending on the promissory notes!).

The ‘no change to disposable income’ makes me think that pension and other tax relief changes will account for the revenue raises.

As for the 4.5bn in cuts, I presume the capital budget will do a lot of lifting. I don’t see that this helps much, though, as capital spending is all debt funded (even in the good times it largely was). The current spending gap is the figure that the GGD refers to, no?

@Brian Flanagan
Indeed, the NAMA scheme is full of trickery. Just take a look at the Term Sheets for the “bonds” they issue. There is no firm, dated commitment to redeem the bonds for cash, ever. I suppose redemption will be at the discretion of the issuer, as in UK War Loan. Meantime the bonds pay an interest rate far below the market price of an Irish sovereign guarantee. So, the bonds have no market and are useful only as collateral for ECB Borrowings by the banks–and therefore only for very short term money and only for as long as the ECB keeps lending liquidity to eurozone banks. (They nearly stopped that last year). What will our banks do after the ECB twigs that It has been landed with the heavy responsibility to provide ongoing liquidity to Irish banks, without ever agreeing to do so, until such time as NAMA redeems its bonds, if ever! Meanwhile our State has received real property from the banks, to cash in and keep for years, and years.. (No wonder the credibility of both the State and the banks is on the floor !..I develop this in

The promissory note is clever the more i think about it. Massively helps the frontloading in terms of getting the deficit figure down as a per centage of GDP next year. Doesn’t change the overall eventual real figures, and purely optical, but more bang for your buck in 2011 and 2012.

@ Brian

the ECB is fully part of this and never ‘nearly stopped’ lending liquidity to the banks last year.

Apart from the budgetary decisions I think that the government should think beyond the standard fiscal instruments.

With EC signing off on bailout of Anglo (and the other banks) because they do not want to see systemic risk developing, they should underwrite approx €50billion of Irish debt by offering to buy €50b of Irish debt at an average EU bond rate (this could be ring-fenced). This form of non-standard monetary policy, would have the effect of stabilising the Irish sovereign bond market and bring about lower spreads and giving some hope for Irish public finances.

The idea that exports are responding to our new-found competitiveness is hardly credible. Exports do not respond that fast. And most of the large exporters have no real problem with wage levels, at least not immediately..perhaps wage levels can effect longer term investment decisions. Ten companies supply 50%+ of all Irish manufactured or service exports. The best way to boost our exports by 5% is to ask them to ship early and bill early…They ship to their own distribution and marketing centers overseas, so if they load up these stores two weeks early it will have our desired effect. (However, its only a once-off tactic). For sustained medium term effect, we must work hand in hand with individual Irish owned exporters over a period of years, as the old Export Board used to do. Its not easy, not glamorous, publicity-generating flag-waving stuff led by politicians (and therefore not easy to get your State subvention renewed each year), but its the only way to create sustainable job-generating export growth and the results will show in a few years time and thereafter (as in the 70s and 80s). The Export Board (-while needing a revamp-) should never have been wound up.

It is only clever if you think people are fooled by accounting gimmicks.

On the promissory note interest, why has no one in the general media flagged that the actual cost of the bank bailout is €10bn higher than previously flagged?

@ Eoin
The ECB has never announced that it will continue to backstop the Irish Governments NAMA programme. Nor has it committed itself to continually rolling over Irish banks borrowings until NAMA eventually pays for their property. (As far as I am aware, at least…If I’m wrong..please point me..)
As you know, ECB does not lend to governments and their liquidity scheme is for Eurozone banks and nothing necessarily to do with the NAMA programme. And last year there was much discussion about the ECB’s wish to terminate its eurozone liquidity programme, but it eventually kept it going…for now.


No one is denying (except Karl I think) that the NAMA wheeze is totally at the indulgence of the ECB and what a wheeze it is, genius in my book. We are absolutely and totally dependent on ECB/EU for continued support of the wheeze. We have for sure lost our economic sovereignity and I for one say “three cheers” to that.

“We are absolutely and totally dependent on ECB/EU for continued support of the wheeze. We have for sure lost our economic sovereignity and I for one say “three cheers” to that.”

I would take another view. The ECB are dependent on us to repay the 100B+ they have invested in our little country. The banks have about 85b and they are now the proud owners of about 18b of our paper.

So inflicting pain could be a two way street.

NAMA bonds are only acceptable to the ECB for repo, it appears. Will promissory notes follow? And Irish sovereign debt after that?

The ECB had planned to withdraw all exception liquidity measures by this stage, so while BOD is wrong on the timing, he is correct in the intent. The ECB would like to withdraw exceptional liquidity support. That it can’t without collapsing both banking systems and sovereigns in a number of EU states is all that is stopping it. When does it reach the point of “we have to do this regardless of the consequences”?

Hugh Sheehy

“Then, instead of accruing the cost in the next two years (even though it’s there) Eurostat will let us pretend it’s not there at all.”

I am shocked, shocked I tell you.

That Eurostat (that paragon of proper accounting) would allow such Enronesque accounting.

I demand you withdraw that remark.

Unless of course there be Greeks in Eurostat.

Everyone understands creative accounting.

Icelandic bond yields are below Irish yields for a lot of the curve now:

Now, why is that?

Is it because the Icelandic approach is the exact opposite of here? They announced their losses and said we can’t pay them.
In Ireland, we don’t know our losses and won’t account for them properly, but we will pay them.


In relation to “except for Karl I think” my objection has been to the consistent us of the phrase “Nama is funded by the ECB”. All I’ll say again is that it’s not. But we’ve done this before and let’s not do it again.

Anyone got anything to say about the 6bn rather than the promissory notes or the ECB?

Eoin Says:

“The promissory note is clever the more i think about it. Massively helps the frontloading in terms of getting the deficit figure down as a per centage of GDP next year. Doesn’t change the overall eventual real figures, and purely optical, but more bang for your buck in 2011 and 2012.”

“The promissory note is clever the more i think about it.”


The more I think about it the more I think Enron (and of course now Eurostat)

Vive la différence

Ok guys, lets see if I can live up to my moniker and answer Karl’s ‘waddaya think’ question in a starightforward way. I’ll rearrange the words to see if anyone can put them in order (hint: see all my previous posts that argue it won’t work, can’t work and will fail)

Game is the up.

Does anyone have any idea where the €4.5 billion in spending cuts is coming from especially when you take into account the croke park agreement. Presume at least €1.5-2 billion is coming from the capital side but I am curious where they are going to find the rest in hard savings (not just the usual statements made about potential savings like the croke park agreement).

@Karl Whelan

I wonder is anyone going to be brave enough to tell JTO that the budget deficit in 2010 isn’t going to be 11.9%. Not me. I’m too scared of the reprisals.

JTO again:

No need to tell me. I explained above why it was likely to be below 11.9%. They’d only be telling me what I allready know. However, your comment is entirely forgiven. Obviously, many Irish economists are in a state of shock following this weeks spate of bad (by which, of course, I mean good) economic news. Just to recap on the week:


SIMI reposts new car sales in October up 94% on October 2009.


Dept of Finance report tax revenue in October 5% up on October 2009 and 13% above the budget taget (profile) for October.


CSO report 6,600 fall in live register in October.

Dept of Employment report redundancies in October down 40.4% on October 2009.


Wait for it. It doesn’t get much worse than this.

Dept of Environment report new house completions in Q3 up 5.3% on Q2, the first quarterly increase since 2007. Looks like the long decline in new house completions is at at end.

No wonder some people were calling for an election a few weeks ago.

@simpleton, with regard to getting back into the Market, I agree. The game is up no matter what budget we deliver. We still have to make the adjustments though. We will be hitting the stability fund next year and the EU will insist on the 4 year plan been implemented in full.

It is looking more and more likely that the third quarter GDP figures will either push us over the edge or give us a reprieve.

JTO & everyone else

can we have a forecast for the third quarter figure?

I say, annoying as he is, that JTO is at least partially right, and we get a decent number this time

Karl Whelan

“I wonder is anyone going to be brave enough to tell JTO”

Not me.

I don’t read any of it.

I just stand upright and sing out loud the Optimists’ Anthem.

How about you?

On such a dreamy peaches and creamy day?

good spot. It looks like its game over. With the clearing house demanding more cash to trade in Irish Sovereigns and even the Russians removing us from their wealth fund list it would seem that the 6b is too little to late.

@Enda F
I’m curious about the lack of interest in the spreads blowing out on a daily basis. Is it a vista that people here (and pretty much everywhere else) find too awful to contemplate? I’m curious about why the spreads are blowing out in the face of good news, both domestically and overseas (there’s a global boom on lads, and the Fed has just gone very pro-cyclical).
Of course, markets can be daft and a few hedgies might just be ganging up on us. But could they be sniffing another Anglo-esque black hole, lurking somewhere in D4?

in my humble opinion domestic demand will remain flat for some time as consumers fear for their futures and continue to save at high levels.

as for the term in the document “repairing their balance sheets” I have to laugh!! Many people are saving out of fear I do not think the term balance sheets even enters their minds

Can anyone explain how Anglo manage to pay their creditors interest with circa 25bn of non-performing promissory notes on their balance sheet?

@TOD – the level of fear people feel is higher because their balance sheet is banjaxed –

As @Greg says, why not 20?

Why not fill the hole this year?

It would save 35 bn in borrowing plus interest at, what, 6.5% minimum over the next four years?

We already know there are 11 bn in tax reliefs. There are 4 bn of Bord Snip that haven’t been implemented. Squeezing the higher paid PS must be worth something? Squeezing retired higher paid PS must be worth some more? Closing down the quangos might be worth 2-3 bn.

Universal pensions and health reform (universal health) must be worth a good few billion.

If the export sector is not harmed by what is done; if it is even encouraged in some ways, in the medium term will this not benefit the economy as a whole?

@ christy

no the level of fear people fear is related to their lack of confidence in the future and where they might be in 12 months time!

“Clearing house warning to Irish bond traders”

The gist of the article is that the repo market is closing to Irish sovereigns.

I too am amazed by the lack of comment on interest rates on Irish sovereigns rising to 7.68% today. A bit of a deer-in-the-headlights thing going on this blog?
I think the reason for that is simple. Frau Merkel said Nein to any more taxpayer funded bailouts. Bondholders that lend to insolvent entities will be forced to take a haircut. Ireland is an insolvent entity. Therefore holders of Irish sovereigns are realising they won’t get all their money back. Ergo yield increases.

“Can anyone explain how Anglo manage to pay their creditors interest with circa 25bn of non-performing promissory notes on their balance sheet?”
Well, much of it will be to repay maturing senior debt and deposits that are leaving – hence it is repo’d for cash at the ECB.

@ Garo

at what rate does real panic set in?

as I recall there was a fuss when the rate hit 6% then 7% and now we are looking at 8%

how much higher can it go?

‘how much higher can it go?’

If the ECB was not intervening then my guess is we would be approaching Greek levels. That story in the FT is scary.

“no the level of fear people fear is related to their lack of confidence in the future and where they might be in 12 months time!”

Damn right. I fear that I might still be in Dublin in 12 months time instead of Canada, Australia, New Guinea, Afghanistan….

Staying here after September 2008 will prove to be my biggest financial error. Second-biggest was extending my house in 2004.

BTW, perhaps I missed it in the press release, but how is Lenny planning to treat the ‘one-off’ bank recapitalisation costs of 5-10bn to come in each of the years 2011, 2012, 2013?
Perhaps he is planning to kick the whole bill out to 2014 and beyond too?

Christy, sorry I was offline for a while but ceteris parabus has given the headline.

6bn or 20 bn or whatever, I don’t think there is enough faith in this govt. To implement anything. It seems the ducks are lining up for a collapse at the end of the month. A PS march, Donegal by election and budget all within one week.

@Winston Smith.
“With EC signing off on bailout of Anglo (and the other banks) because they do not want to see systemic risk developing, they should underwrite approx €50billion of Irish debt by offering to buy €50b of Irish debt at an average EU bond rate (this could be ring-fenced). This form of non-standard monetary policy, would have the effect of stabilising the Irish sovereign bond market and bring about lower spreads and giving some hope for Irish public finances.”

Sounds like a good workable idea to me. Could they trust us pay it back?

As to why the spreads rise, instead of fall, as we announce a major deficit reduction target…It seems unfair, illogical. So, I suppose it must be about credibility…Not that investors don’t admire the tolerance of the irish people and the genuine intention of the Minister and government to tidy up our affairs…But they may see us as naive or somewhat deceitful (even worse)…For example, the NAMA thing is so stupid it is either based on ignorance or is deliberatly a trick on the ECB…Investors look at the bonds we offer to banks…they are more illiquid than the property we have taken from them!…But our whole approach to rescuing the banks has been naive compared to what other governments have done..UK insurance scheme, French-German program to prop major borrowers, US mortgage purchases by the Fed, etc…We are the only idiots who have to wreck our banks in order to “save” them…the height of incompetence….We are a laughing stock…no wonder the financial markets lack faith in our ability to manage the job properly, however willing we are to make sacrifices. Forcing the banks into State ownership (by not being smart about managing NAMA), is not what the international money markets would regard as the way to save banks Therefore they lack faith in our ability to do things properly….(Perhaps….but who knows…)


JTO & everyone else

can we have a forecast for the third quarter figure?

I say, annoying as he is, that JTO is at least partially right, and we get a decent number this time

JTO again:

Because of monthly volatility in export/import ratios, I wouldn’t hazard a definite forecast just yet. I will in a few weeks when the September merchandise trade figures are published. But, a few comments:

Q1 GDP growth (+2.2%) was good because exports rose by about 4% more than imports.

Q2 GDP growth (-1.2%) was poor because imports rose by about 3% more than exports.

Underlying economic activity was pretty similar in both quarters. The difference in the GDP figures for Q1 and Q2 was due to differences in the export growth/import growth ratio. This has a large element of volatility and randomness about it. Combining the two quarters saw GDP growth of 1% in the first half of 2010, which is probably a more accurate reflection of what occurred in the first half of 2010 than either Q1 or Q2 on their own.

Turning to Q3, we have the merchandise export figures for July and August allready published. These showed merchandise exports rising by 11% more than imports in those two months compared with Q2, which is actually a record and well ahead of what occurred even in Q1 (when GDP rose 2.2%). So, Q3 is shaping up to be far more like Q1 than Q2, maybe even better than Q1. IF the September merchandise figures are as good as July and August, I’d predict GDP growth in Q3 to be be considerably better than the 2.2% recorded in Q1. However, I said ‘IF’. Ireland’s trade volumes are extremely volatile from month to month. So, it is quite possible that, having seen a very large rise in the export growth/import growth ratio in July and August, the reverse might happen in September. I simply don’t know, nor does anyone. But, September’s figures would have to be catastrophically bad to cancel out the improvement recorded in July and August.

If the right decisions are taken there is a way out of this economic mess. Whether the right decisions or taken is another days work, but the bottom line is that we are a very small economy in an increasinly more consolidated global economy. Unlike the dominant Global Economies, New Irish Companies on aggregate need only a relatively minscule share of the Global market to get Ireland out of this slump.
What a difference 100,000 sustainable jobs would make to our position, we need a government who can create the environment for this to happen because it absolutely can happen. We should not live in fear of debt markets and allow our desire to please them become the priority, the priority is getting this economy to grow through international trade, if we need the stabilisation fund then so be it. We cannot submit to irrational debt markets.

I have rearranged the equation. Game is =up. This little pro-note wheeze will enable FF to go into the election without cutting the OAP. The first act of the new Taoiseach Gilmorre will be to cut the OAP by 20% and raise the top rate of tax to 60% to appease his bosses in ICTU.

Of course has we a competent government in place when the current incumbents absolute incompetence and complicity was clear for all to see ( Sept 08) would we be in this economically sorry state now? I suggest not , the erratic decisions since the confirmation of the current governments ruination of the Irish Economy have clearly compounded the problem.
Radical change to how we elect goverments in order to have uncompromised and capable people to make the important decisions is the first step to finally building a sustainable Economy for Ireland and its people.


“If the export sector is not harmed by what is done; if it is even encouraged in some ways, in the medium term will this not benefit the economy as a whole?”

How about the “export sector” would explode if we reduced Corporation Tax to 5%?

That on current figures would “cost” €1.5bn.

I think it might raise €10bn.

But of course that’s not a macroeconomic argument. It’s just a global political guess.

“In 2009, corporation tax was the third-largest source of revenue, bringing in almost €4 billion. In the first 10 months of 2010, €2.6 billion was raised in corporation tax. This is almost €0.5 billion ahead of target, but €0.2 billion lower than at the same point in 2009.”

Drop Corporation Tax to zero?

The wall of money that flows to Ireland would be the equivalent of finding North Sea Oil.

The EU of course would have to be “bitched slapped”. I believe that is the current vernacular.

@Karl Whelan

I refer you to the following from today’s Dept of Finance document:

As has been previously outlined, while this €31 billion will be added to the stock of debt, it will only add incrementally to the flow of debt from 2011 onwards as its financing will be spread equally over a period of 10-15 years. This is a onceoff
spike in the deficit. On a cash basis, there is therefore no additional borrowing required in 2010 as a result of the magnitude of the headline deficit. On an underlying basis, that is excluding the impact of the banking support measures, the General Government deficit in 2010 is now expected to be 11.9% of GDP, in line with the Budget 2010 forecast of a deficit of 11.6% of GDP.

You know perfectly well that my comment referred to the underlying deficit. As does almost everyone’s when they talk about the deficit. Including yourself when you calculated that 7bn in cuts would be needed to bring the deficit down to 10% in 2011, which would be somewhat optimistic if it was really in the region of 31% in 2010. I’m predicting that the underlying deficit will be lower than the 11.9% the Dept now forecasts, lower than the 11.6% they forecast at the last budget, and lower than the 11.5% it was in 2010. If you disagree, feel free to give your own forecast for the underlying deficit in 2010.


To hell with J.

“hoganmahew Says:

November 4th, 2010 at 9:19 pm
As @Greg says, why not 20?”

What is the macroeconomic argument against a €20bn adjustment now?

If there is one. What is it?


“I meant: “lower than the 11.5% it was in 2009″”

Opps. Misunderstood you there.

I fell more optomistic already.

See why people are scared? No apologies for being wrong or misleading or imprecise. (The deficit is going to be 32% not 11.9% and certainly not lower than 11.9%.) Just more arrogance and misleading rubbish (“somewhat optimistic if … blah blah”).


On a search of the document on ‘stimulus’ I came up with ‘zero’. Hence, the 6 (no matter how imaginative, I’m remain open to surprise), without the complement of significant stimulus (from extant resources, and imaginative), is simply digging deeper into the black hole.

Patricia the Sovereign_in_exile says Hi!

6bn is about the right figure but I don’t think it makes any difference at this stage.

I think the markets have made up their mind on Ireland and that a bailout is all but inevitable.

Any stories and why the CDS on Irish sub debt is exploding today?

Our reputation and sovereignty are gone, we’ll most likely be running to the bail out fund in the spring. Though in the end it doesn’t mattet, IMO, what ever way you cut it, we’re going to have to make the cuts, raise the taxes and pay the senior bond holders.

In a side note:
I know Fintan O’Toole is a bit too left of centre for a lot of the folks on here. Though I must say that I was at the event in Liberty hall tonight, and it gave me some hope for the future of this rock we call home.

For what it is worth, I do not pretend to be an economist with a model of the Irish economy, the 6Bn is not enough. Given that the economy will in GNP terms fall after a bubble, the need to correct fiscal imbalance means further fall, but if targetted properly, the falls are necessary. Governments do not have much effect on an economy. They merely claim credit and try to avoid responsibility. KO’R should pop up and admit that a market does not have desires but every government does. It is a start, ten years too late and three years into the local impact of a depression that began in 1999.


A very good analysis of the K principles, apparently arrived at independently. There is no cheap land in Ireland, yet! Cash has to be the the best asset. In other countries, land that produces income and more importantly, food or useful material is a better bet as it is more secure. Theft and violence will increase.

The depression is not local. This means that spreads on the weakest investments will overshoot, as buyers perceptions correct for the depression. They will want the safest investments only. I am amzed that there is still a market, apparently. The ECB may have been intervening, but that is not a market! When no one wants to borrow, as now, those with funds to invest, the OPM brigade, will put their suckers’ savings into everything …… hence a market exists for a while.

As Eoin well knows…..

I am still awaiting the next crash as the supports for the “markets” fails to impress. I explain the delay as merely a reflection of the size of the shadow banking monster. It has more funds to burn, all based upon credit bubble, which will collapse. The longer it takes, the worse it will be…..

Given that I expect the creditors to disappear in the awaited massive crash, the more borrowing that Irlenad gets away with, the less it will have to fund by raising taxation. When the money is lost irrevocably, the suckers who funded the OPM/shadow banking monster will not throw whjat little they have left after what they have already “invested”. Things could be that bad? That would have implications for Irish borrowing. After such an incident, the EZ limits would have to be revisited! Ratios of borrowing to GNP might fall drastically, if there were a formal resolution process. GFF escape with a single bound!

But back in the real world ….

Celtic P
I am a libertarian, more or less. The state is a necessary evil. Read my blog! I do not draw the line at helping those who are genuinely weak, but government tends to expand as does the statute book. “Squeeze and release” (copyright “Arbeit macht frei”) is a Jubilee type mechanism whereby those who run our money machines, reset the datum level. Having knowledge, they take advantage of the greed of those such as the Irish, and allow them to beggar themselves. At the moment, it enables 3Bn of the world’s poorest to prosper for a little while. They too will enjoy squeeze and release in due turn. Adam Smith used a euphemism but this is the basest period of the Kali-Yuga and I call a spade a N#$%^&r! For sake of more accurate communications?

What happens in Ireland is merely a check to “progress”. Hope is justified, but watching the waste attendant upon corrupt regimes is sad. A rebirth is possible, so a part of me rejoices at the depression. Those who survive will make our world stronger. While this means thosde locally who are weak may suffer excessively, it is about time that we stopped stealing revenue from poorer countries, into the Ponzi OPM system we all seemed so happy with 5 years ago?

Learn self reliance and stop feeding the animals who embezzle using laws bought from legislators?

We are all free to “spin not nor neither do they toil” if we are satisfied with those things that are free (until regulated by government and privatized!).


Since the government announced that it intended to pursue a rigid deflationary policy several weeks ago, yields have taken off – throw a trough of bad figures into the mix as well. Much of the large amount of personal debt in Ireland is secured on our fair-weather friends bricks and mortar. I am at a loss to understand how the debt position of the banks won’t significantly dis-improve over the next few years. Property prices must decline further in this scenario. A downward spiral seems inevitable so why would a fund want to risk money with Ireland? Wouldn’t that be tantamount to throwing good money after bad? The party is over. May be a Fellini will emerge to make a film about one day.

As an aside, I was astonished (a surprise to myself at this stage) that a government that has banged on so earnestly about national interest and sovereignty would brazenly factor forced emigration into its calculations. That’s valuing graduates highly. Is there room among all those information/knowledge/smart economy reports for one on The Cynical Economy?

Irish bonds are now trading at a discount (%?). If the ECB buys these bonds now and holds them to maturity and gets repaid in full who will keep the profit. The ECB or will it be passed back to the sovereign?

Or indeed if the ECB offloads the bonds at a profit in the interim to maturity, who keeps that profit?

Michael Smith, minister for free cheese, was on RTE1 where he either
a) lied, and sure he wouldnt do that
b) admitted that the government hadnt, yet, a detailed plan for the implementation of the putative 6b savings.
Hardly an interview to inspire confidence…


The new MoF will be free to raise the top rate of tax. There will be screams of protest and threats of mass emigration from the relevant lobby but in reality which country is going to want to take a couple of ten thousand monolingual incompetents who drove their own country into the ground ?

@ Brian O’D

“And last year there was much discussion about the ECB’s wish to terminate its eurozone liquidity programme”

Eh, no, they talked about changing the terms back to what they used to be (competitive tender), but that still provides a huge amount of liquidity for the banking sector. It has NEVER talked about ending its liquidity program. You’re getting very mixed up there, the ECB has always, and will always, provide a lot of liquidity for the banks.

@ Hogan

you refer to exceptional (ie full allotment), which is correct. BOD refers to liquidity provisions in general, which is very wrong. NAMA bonds will still be accepted for the next decade and more, the only question is how “cheap” the liquidity will ultimately be.

@ DE

sub debt on AIB is in the firing line for an Anglo-type (which so many of you on here somehow tried to complain about) liability management exercise now. And thats how it should be.

Define legalised creative accounting?

Under ESA95 (Eurostat) Government accounting rules, the interest payable on the Promissory Notes must be accrued into the year in which the liability arises, even if no cash payment takes place. However, the rules also provide that no interest is to be recorded during an ‘interest holiday’, i.e. a period during which a zero rate of interest is charged.

Lets just create an interest holiday on all of our borrowings till 2015 and then we will deffo be below the 3% by 2014. Then europe will be delighted with us. The fact it will shoot back up again as soon as we realise costs is neither here nor there. I bet someone in the Dept of finance got a bonus for finding the interest holiday small print. What a load of rubbish.

This is Lenihan trying to assure the markets again by giving overoptimistic numbers.
Yeah Brian hat has worked out really well before so try it again!

Things fall apart

And while this is going on FF won’t reveal details of the €6bn until the end of the month because it will ruin their chances of a win in the Donegal by-election. And Michael Healy Rae is demanding a bypass for Tralee and money for a hospital in Neidín in return for his support for the budget vote which to government will lose without his vote. It’s insane.

About these widening spreads….I suspect they are related to NAMA, which is the source of the great majority of new Irish debt.
Last February I worked out approximately that, based on the preliminary NAMA Business plan, the interest rate that NAMA, a government agency offering sovereign-guaranteed debt- was offering–c. 1.5%- at a time when the real price of Irish sovereeign debt was 4.5% (God be with the days !..), amounted to c. a €10 bn. euro extra hidden hit on Irish banks over the period of the proposed NAMA redemptions.
That figure has now changed a little, but can only be worse as the spread between our NAMA discount rate and our secondary market sovereign rate rises towards 7%. The market-rated yield on sovereign debt is based on an amalgam of the individual yields on all pieces of our sovereign debt. NAMA bonds can/must be seen as official debt and they are worth something in the region of face value less 33% I would guess (- I might try to run calculations later-) and so are pulling the average down substantially
Its only my theorem, but , if true, it suggests that the best thing we can now do to protect our sovereign rating is to re-wind NAMA and find another solution to the bank liquidity problem.

adoy says,

Did anyone hear Dempsey on Newstalk this morning, deplorable and this is one of the people leading??????? this country. Really terrible.

Is Minister Smiths distribution of “free” cheese Ireland’s “Let them eat cake” moment. Boy we have come a long way!!!!!!!!!!!!

“And Michael Healy Rae is demanding a bypass for Tralee and money for a hospital in Neidín in return for his support for the budget vote which to government will lose without his vote. It’s insane.”
One wonders if the opposition wouldn’t be well advised to remove the dependency of the government on these chancers (Healy-Rae and Lowry), at least for the budget. How much would it save the country to have two sick notes on budget day? I’m sure Dr. O’Reilly could accommodate, even if Dr. McDaid no longer can…

“sub debt on AIB is in the firing line for an Anglo-type (which so many of you on here somehow tried to complain about) liability management exercise now. ”
I suspect you are misremembering… any complaints were not about the action itself, but the time it has taken to come to this pass and the buybacks of undated debt that the first lot of capital repayments were wee’d away on.


1) €3.1bn a year will be borrowed for around 15 years (€1.3bn will be paid of the principal and €1.8bn will be paid in promissory note interest – bizarre situation that we are payinf more in interest than in actual principal but whatever)

2) Despite the fact we don’t have to pay interest of €1.8bn in each of 2011 and 2012 we are still going to borrow the full €3.1bn in each year.

You may be right, that the ECB will always offer liquidity…but surely this is only when it considers that liquidity is required in order to support the Euro. At times this means it draws in liquidity. I don’t think it sees its role, yet, as a provider of Quantum Easing, to support economies. (Maybe that’s changed recently…I was “away” from these matters for a few months, moving house, etc..)
@Michael Hennigan
I suppose NAMA could be unwound quite easily, technically, but uncooking the goose might be a lot more difficult, as you say. And from the point of view of the States liability, it probably makes no difference in relation to Anglo or INBS whether or not NAMA is wound up. But for our main banks, those who have been tarred with the same brush, it might make a big difference. It gets AIB’s/ BOI’s NAMA future repayment obligation off the State’s books and could therefore tend to lower perception of National Debt and ability to pay, etc. For the banks, whose goose has been cooked–i.e. some notional figure of their true losses has been forced on them- which is difficult to recover from- it could be that they would be better off: they could still set aside the bad loans, yet keeping open the opportunity of a future rising market; and they could sell coco bonds to a foreign bank, for funding purposes. They would still have to find capital to satiisfy the Regulator, unless, of course, they sold out to a foreign bank and then came under the care and attention and regulation of a foreign government. (State ownership is going to result in foreign ownership anyway, as Governor Honohan has long advocated..) (BTW, Im shooting off the top, this is not a carefully considered proposal…but also may not be the only option for these banks, if NAMA is abolished..)
I hope the site is doing well these days…its a good service

Lenihan specifically said in Dail debates that the interest on Promissory notes wouldn’t actually be paid until 2025.

That seems to have changed. Now it looks like it will be on the deficit AND be paid in cash terms.

@Rob S
The Eurostat accounting treatment has been that the year interest is accrued it counts towards the deficit, even if the interest is not paid in that year. What has changed is that interest will not be paid in 2011 and 2012, but more interest will be paid thereafter.

I believe it will still be rolled up in the hope that it never comes due… give me hope, Joanna…

While the intent of the cuts seems sensible the lack of clarity is still disturbing, particularly when combined with the promissory notes trickery.

Apart from the fact that the changes will be sprung as a last minute surprise, now we have to read the budget with double care to make sure that the cuts are actual cuts and not just tricksy cuts where money is not paid in 2011 and 2012 but comes due later.

On this basis we could nominally cut pay for public servants in 2011 and 2012, but promise to refund the pay cut in 2015 and beyond. After all, the public sector pension deficit is similarly “funded”.

If I had enough money to be a bond investor I’d be doubting between the Irish government’s headline intention and the behind-the-back accounting subterfuge. I hope the markets go with headline intention and I hope they’re right.


That FT article on the clearing house imposing haircuts on Irish sovereign bonds contains a chilling comment on the possible effect on the Irish banking system. I see that the bank shares are through the floor right now. Anyone who bought BOI are down a substantial amount. As for the new AIB 50c shares- are we really going to buy these when the market is at 28c.

Genuine question for those who think frontloading a €6bn + adjustment is a good economic idea rather than a straight forward accounting practice:

Why did the yield on Irish bonds increase today?

@Aidan R
10 year down 0.5% at the mo…

Granpere is ‘appy with progress…

Economics has nothing to do with it. Reality is what is setting in.

Ivan Yates says the game is up in the Examiner:

Everything is poiinting towards bailout. The shape and mechanics of the bailout is a potentially critical issue.

We do not want to end up like Greece, defaulting and heading towards a larger unsstainable debt down the line.

The dangers to the sovereignty of the state and to the economy are hidden if there are already deals in place which we do not know about as to how the existing monies form the ECB are to be repaid.

If there are no such deals, and much of our debt is governed by domestic law, including the guarantee and the eligible liabilities guarantee scheme, then we may have some choice or influence as to the nature and extent of any default.

As things are currenlty shaping up, the EFSF is a mechanism which won’t allow us to default (which is the natural course for an insolvent borrower in receipt of reckless loans) and will instead force us to pay off these debts for generations.

In the meantime, the citizens of Ireland cannot head east like the citizens of California because of language difficulties and differences in laws and modes of commerce. This is not satisfactory.

A convincing case has not beem made to the people of Ireland that this course of action, this onerous mortgaging of the future of Irish Citizens, is necessary to safeguard the Euro.

We have all been aware for some time now that most of our TDs are illiterates when it comes to the EU and that they just trade the margins between the bureaucrats. We, the Irish People, need the Politicians of Europe to tell us exactly why this is necessary and how it is going to work.

Otherwise, we cannot go along with it and our politicians will be obliged to exercise all legal means not to go along with it, including, if necessary, unilateral default on debts governed by domestic law.

The government is correct to reduce the deficit next year by €6n – Either we do it or the EU/IMF does it but less reputational damage if we do it (also helps to convince the EU that we are serious about the situation if/when we need more help at a later date)

Investment in Ireland will be impossible to sell to the investment committee of any multinational if the EU/IMF are called in. What executive will push a potentially career limiting investment (if it all goes wrong) vs. investing into the safer/lower risk UK or Germany?

It seems clear to me that nobody is interested in buying Irish gov bonds, a buyer’s strike, regardless of the yield being offered. Ireland is a tiny portion of the financial markets so there is limited reason for analysts/fund managers to take the time to understand the Irish situation fully and make an informed view about whether you think Ireland will or will not make it through the deficit reduction programme.

Why try to understand what is currently one of the most complex financial situations of all the sovereign governments globally for a market size that is less than 1% of the total debt market? Its easier to focus on other less complex sovereign debt markets. From a career perspective, why be the guy (or woman) that went long on Ireland when everyone else was shorting it? From a career longevity perspective its lower risk to be wrong with everyone else than to swim against the current

Its difficult to see what options will force the bond market to re-open to the Irish gov. Even if the budget is passed (a big if at that!!), I’m not convinced that there is the appetite out there for Irish gov paper and not at a sensible yield so the government needs to plan now for funding outside the bond market (and communicate this plan to the public).

Compounding the situation is the negative impact on national mood/morale of the daily news bulletins about Irish gov bond yields and bancruptcy. The gov needs to convince the Irish public that it has sufficient funding for the coming 1-2 years so that the Irish gov bond yields are no longer pressing issues that could cause bancruptcy within months. A sense of calm within Ireland may even begin to impact on the gov bond yields. The sense of uncertainty is killing the national mood and uncertainty is always bad for financial markets. Why will foreigners back Ireland if we don’t have confidence ourselves?

If the EU sees that Ireland is serious about tackling the deficit it will presumably be willing to help (within or outside of the emergency fund) but they will expect us to have exhausted our own cash first. The NPF currently has €18m of assets (excluding the rubbish already invested in AIB and BOI). If we assume that another €4bn is poured into AIB and €4bn is needed for the gov bonds due for redemption in Nov 2011, the NPF could fund the gov deficit next year to the tune of €10bn. Combined with the cash already funded that would have the gov fully funded until the end of 2011 (there or there abouts). This would surely go some way to stabilising the national mood/fears

By August 2011 it will be clear if the tax revenue, gov spending and gov deficit is on target/track. If we are on track the bond markets will gradually re-open and we move forward. If we are not on track we have bigger problems with our deficit than bond yields. It comes down to whether you believe the gov’s figures yesterday are realistic

The government could look at other more creative options to secure funding either from the EU, IMF or private investors. What about issuing a debt instrument that pledges as security/collateral the tax income from the Corrib gas field (I bet you the government would get planning sorted quickly then!!)? Using the gov’s shares in the ESB, Aer Lingus or Bord Gais as security/collateral for a loan? Slightly more left field but if existing debt was issued at 4%-5% and is currently trading at 7.5%, what about using the NPF to buy back some of the debt as it must be trading below par? This would reduce the total quantum of debt outstanding and would give the gov more “bang for its buck” than spending the NPF on the deficit


Did you just take a pill?

“You take the red pill. You stay in wonderland and I show you how deep the rabbit hole goes.”

Do you have any rerets about the unstinting support you have given the authorities over the past two years or so on these pages? I ask, only because it didn’t need to have ended this way – I admit it might have under any circumstances. But those who supported the taking of all the liabilities of the banking system onto the State’s balance sheet, those who declared that Anglo and Nationwide were systemic, those who supported the creation of NAMA as the solution: all stand indicted (in part). I know that you were not uncritical but you and Eoin, particularly in the early days, led the charge against Karl W and others who argued for a very different path from day1 of the Guarantee.


‘Everything is poiinting towards bailout. The shape and mechanics of the bailout is a potentially critical issue.’
As you pointed out Ivan is saying the game is up and as a bookie he knows how to calculate the odds. Its highly likely that the terms of a bailout are being put in place right now. The reports that the specifics are being delayed until after the bye-election would tend to indicate that the urgency of convincing markets is no longer a priority. An ominous sign today is the state of the banking sector shares-
all at critical levels.
I think I recall that the NPRF are precluded from buying Government debt.

@Kevin O’R
I saws… ‘ence ze poor frunch accent…

As FTA says, who next? The ECB is not going to buy forever (leaving aside the fact that it could if it wanted to).


I didn’t argue in favour of the guarantee from the start. I did say that it was credible to say that Anglo was systemic. I think it is now clear that Anglo was systemic at the time of the guarantee and I find it incredible that even now you think it wasn’t systemic given the amount of credit it was party to.

I argued in favour of NAMA and against immediate nationalisation of the banks. I expected NAMA to be more dynamic in dealing with borrowers and getting the market moving again. However, I don’t think we would have found out the truth about the banks without NAMA. Whether knowing the truth is a good or bad thing in this instance is open to debate.

I still think Minister Lenihan has done a great job although it is certainly not flawless. Professor Honohan has explained why the guarantee was too wide and it is very regrettable that there are still no draft legislation for a personal insolvency before the Dail. With that said, nationalisation of a number of institutions at the beginning could have had the same result as the guarantee. Also, while we still need a resolution scheme it is uncertain whether enacting same would have been of any benefit while the guarantee is still in place.

I think Minister Lenihan is correct to front-load cuts now and that it will stand to us no matter what the outcome.

Apart from the mistakes that caused the crash, much (but not all) of the recent pressure on Ireland has arisen from external factors over which we have no control (Currency wars, lack of aggressive ECB QE, Greece, Portugal, Tea Party). Our problems also arise in a wider context and have a wider resonance than people think (EU, EMU, ECU, Hungary, USA/EU -v- BRIC, Renminbi).

I wonder if perhaps we shouldn’t have gone for the Japanification solution with banks not recognising losses and deleveraging being stretched out over more than a decade. Krugman has said many times that bad as Japan’s lost decade looks it may have been the best solution possible.

I have no regrets as to positions I have taken, and if I were Eoin I would have no regrets either.

Just to go back to the original question.

Let’s think what 6bn really means (in 1 year, by the way).

From today’s

‘If €6bn seems like a huge number, it’s because it is. The equivalent of more than €1,300 for every man, woman and child in the country, it works out at an average of €4,000 for each one of our 1.5 million households.’

Exclude all the households on medical cards etc. and you get an idea of how much this budget will change household incomes and it is more like 6 grand a household. They will also need more next year and the year after.

Can anyone advise where the government say that emigration will be 100,000 over the next four years or 45,000 next year? Do they mean net outward migration of 100,000 or gross emigration (which might be offset by immigration)?

“Outlining details of the four-year budgetary plan the Department of Finance revealed it expects 100,000 people to emigrate up to 2014, with 45,000 to go next year.”

If €6 billion is a lot, remember that the deficit last year was ~€20 billion and it’s still a lot more than €6billion this year, and next year.

On the comparison with Japan, at least if we take the hit quickly we may be able to rebuild on a solid base. It’s possible that Japan is still sinking under the debts.

@Al – “Maybe I can put off the mortgage interest payments for a few years also…”

I believe a popular economist caled David in Ireland has been putting that one about this week.

@Hugh Sheehy

All of which, I guess explains why Ireland is more than 500 over Bunds. The overall adjustment probably isn’t achievable without serious growth. Unless they tackle the inhibitors to growth, ie zombie banks, and properly, it’s hello to the EFSF and then the same austerity anyway, and the same likely failure.

Looks like the Eurocrats are painting themselves into a corner

Government spending cuts of €4bn last year and €15bn over the next 3 years. Does anyone want to estimate what this obviously necessary course of action will mean for

– unemployment
– emigration
– house prices

by 2014 ?

The stoking of the boom and the continual expansion of the government’s
spending during the crazy years was criminal. Imagine if spending had been kept at 2002 levels plus a bit extra for annual inflation thereafter. Things weren’t that bad in 2002. Imagine if the tax system had been left alone. It is very hard to stomach Minister Lenihan telling the people of Ireland that “we must spend within the parameters of our tax intake” or words to that effect when his boss and predecessor took a hatchet to the tax system to buy votes over 2 election cycles.

Apart from the flash architecture and the ghost estates will anything be left of the Tiger ?


In the Irish Times today it was speculated that they are not going to release details of the 4 year plan which will be bleedin’ bruwtal in order to keep FF backbenchers on side. The idea is to scare them into voting for the budget or otherwise face a Christmas election. Which will decimate FF. How they are going to recover from this I don’t know. It looks like the end of the Nazis with Lenihan as the ranting Mr H.

The other theory is that it doesn’t matter when the details are made available and that the game is up and that Ireland will be going into the arms of a bailout in the very near future.

Or else maybe the Euro masters have let bond spreads widen far enough and is now going to get the finger out and save the day for mise Eire.

Considering the close attention Olli Rehn is paying to Ireland couldn’t he be renamed the Governor General?


“We, the Irish People, need the Politicians of Europe to tell us exactly why this is necessary and how it is going to work.”

Steady. You’ll frighten the children. It’s hard to know what combination of factors and in what order is roiling the market, but I suspect Chancellor Merkel’s determination to put the EFSF on a permanent footing with a debt restructuring capability that will impose haircuts on bond holders is having an impact. I agree with you that I think the NTMA will not be able to re-enter the market and that the EFSF is the next step. I can’t see the EC impsing a more stringent fiscal adjustment programme and the ECB will continue shoring up the banking system. But I’m not convinced that the EFSF will impose debt repayment for generations. The carrot at the end of this stick is the prospect of haircuts for the bank bondholders when the TFEU is revised in 2013 – and the really big prize is letting the IMF loose to strip out the deadweight costs, inefficiencies and profit-gouging that are gumming up the domestic economy. And there will be space to sort out the system of politcial governance.

I don’t welcome the EFSF – because it’ll be 3 years of hell, but I can see the upsides.

Lads, let’s not panic…
Instead, let’s reduce the (real) National Debt and save our two main banks at the same time:
Unwind NAMA, hand back–what is it.?.€20 bn of losses to the not yet nationalised banks and reduce the ND by the residual value of their property which, in principle, has to be repaid to them some day. So, that saves the ND by c. 20 bn.
Then save these banks and rebuild confidence in the process- by exploring other options–there are too many to deal with here–including one little rule change..Move to amortized accounting for impaired assets of banks–which will spread losses over the remaining years to maturity of the loans in question- and which the International Accounting Standards Board has been recommending for the last year, in response to a requuest to come up with something by the G20 in 2008, and which the EU leaders themselves can’t agree upon although most of them see the advantage (and greater fairness) in this better, more real accounting method.
Between NAMA mismanagement and the application of unfair accounting methods of recognising losses, our main banks have been improperly crucified (while banks in those countries where we borrow have been sheilded from recognition of their equal or greater losses !) So, lets stop this economic suicidal programme of NAMA- which foreigners don’t believe we can perform anyway – and start earning back some credibility

Your posts baffle me – why should we save these banks either from themselves or others.
All that has to be done is seize the deposits and create a mixture of 100% reserve community banks and fractional reserve industrial banks with risk and reward for depositors.
Let property collapse – why is inflation in asset prices a good thing and CPI inventions bad – when property assets collapse to 10 % of the peak prices the risk deposits can get a few cents back for their “risk”.
We will have a super competitive workforce when they don’t need a high wage to service the unserviceable.
Everything else is fluff – I don’t owe those cretins anything.


You could have argued for a different path until you were blue in the face. The fact were/are that you were not allowed impose losses further up the lliability structure of the banks by the ECB/EU. Three years into the crisis, senior debt in the Eurozone has not been touched. Neither has it been touched in the UK. The losses would inevitably flow back to the sovereign. But that is the price we paid by electing people who to spancil any ovversight regime.

Now that the Germans have copped on that there might be a bit of a problem in the Sovereign Debt markets, the rules may be changing. However, it is noticable that M Trichet does not agree with H Schauble…perhaps because he is wearing quite a lot of peripheral sovereign debt.

Your version of both history and the role you played in it is as elegantly written as it is Stalinist in its revisionism. You argue that the government basically got it right and that you were noble in your support. I suspect you are either a junior barrister at the Mahon Tribunal or an Assistant Principal at the DoF.

I have two degrees in economics and 24 years of working in banks, systemic and Mickey-Mouse. I know the difference. Anglo had a very, very large balance sheet. That does not qualify as systemic. Not even close.

Those like Zhou who argue that the policies we followed were optimal, correct and just about perfect deserve to be called out in their support for them.
The parameters set by Brussels were wide to satrt with and have narrowed only with each wrong policy choice over the past two years. It is only now that we have zero degrees of freedom. We didn’t have many such degrees two years ago, but we did have some: it started with the Guarantee itself. That it pissed off the Brussels folk – mostly because it was so obviously stupid – started their deep dive into our domestic policy-making.
It has become politically correct to avoid criticsisng the Minister for Finance because of his tragic illness. But he has been abject through this crisis, with one wrong deciison taken at each hurdle he has tried to jump. On prime Time last night, he was asked why he had changed the number from 7.5bn to 15bn in the space of three very short weeks. The assembled might of the best minds in the civil service must have been preparing him for that very obvious question. The best answer the best minds of the public sector could come up with? “The data changed”.

Echoing that famous question put to the minister by Vincent Brown, the interviewer last night asked ” you don’t know what you are doing do you?”

Answer: “I don’t accept that”. Indeed.

The other figure venerated by Zhou et al is he-who-is-beyond-criticism, Patrick Honohoan. Don’t get me started.

And whats more the public accounts committee docs show that Cowen and Lenny knew it was insolvent on the night it was guaranteed. Whether they thought it was to the tune of 2, 4 ,6 or 8bn…matters not. It was insolvent

There was no attempt, no matter how futile at damage limitation. How much did the interegnum between guarantee and nationalisation cost us. I am not sure a different course would have saved much..stillsingle figure billions would have helped.

Could a different strategy have produced a worse outcome than where we find ourselves now?

If we had arrived at the same place and saved ourselves 50 cents along the way it would still have been worth doing.


links to the offending statements of mine?

there isn’t a shortage of posts…

I think the flaw is in the permanent government. Our ministers and TDs are woefully inadequate to be addressing these issues. Teachers, solicitors, barristers, medical doctors. Not even an accountant amongst them, never mind someone who might understand finance and economics.

With that ‘lacuna’ in mind, the permanent government should step up to the plate. It is they who write the policy that is implemented. There is some evidence (mostly anecdotal) that the DoF wanted to nationalise Anglo. There is less that they wanted to exclude it from the guarantee. Of INBS, it seems there was contingency planning for it to fail? On the options for the guarantee, despite Merrill Lynch arguing against it, we’ve seen no evidence that an all-embracing guarantee was argued against by DoF officials.

So what are we left with? The Taoiseach and the MoF refusing to nationalise Anglo on the night, the guarantee, NAMA, the promissory notes. All DoF constructions to one degree or another. As for the Central Bank and the Regulator – mostly pork for the Taoiseach to stuff. Rewards for promotion-jobbing yes-men. Advisory committes stuffed with political appointees or lickspittles. As Simon Carswell said on the RTE documentary a while back – you get the regulatory system you want.

Which brings us back to the Bert. A man who knew what he wanted, because his pals told him so. Who had no shame in stuffing his friends in every greasy orifice the state offerred (and under him it offerred many more than it had previously). And he thinks he has a chance at the Presidency?

As you say, simpleton, not much that could have been done would have a worse long-term outcome than what has been. Yet still, they walk free…


If the Govt, especially An T. had accepted that Anglo was insolvent, it would have nationalised it on the night, dismissed the management, burned the equity and extracted a better deal with the subbies. Clearly this would have resulted in a lower bill.

Whether they would have recognised that the other banks were also in trouble and needed more capital and liquidity remains a matter for conjecture. It is interesting that another small European country, Belgium realised that its biggest bank was in trouble. It called in the French, provided a ring fence around toxic assets and sold the bank at a knock down value to BNP in exchange for BNP stock. there is no evidence that something along these lines was ever contemplated.

I would respectfully refer you to your post above, the one in response to me. I would summarise your post, in terms of both content and tone, in the following way: ‘while the government made a few small mistakes along the way, it basically followed the right path. While I did not support everything they did, I was a supporter, not a critic. Other paths argued by critics would not have improved the outcome’.

I would add that in terms of both content and tone, this summary is an accurate reflection of most of your contributions to this blog – which have always been eloquent and moderate in tone, even in the face of provocation from the likes of yours truly.

But we are providing over a catastrophic outcome, aided and abetted by bad and fundamentally wrong key policy choices made during the past two years. I find it incredible that you seem to think that any other outcome was not possible to achieve. And that both the designers and cheerleaders of these dreadful policies are not to be admonished.

Perhaps not Stalinist but certainly Panglossian.

There is much merit in what you say. Joyneymen politicians and public servants are actually all that we need most of the time. Managing the affirs of State through most of the normal ups and downs of economic and political life does not require a cohort of brilliant men or women.

But, in the langauage of modern finance, the world is not bell-curve shaped. Tail risk is huge: supposedly once in a lifetime events come along once a decade. That’s why you need quality at the heart of any organisation, not just government. The banks got into trouble partly because all banks in the world got into trouble. But our banks got into even deeper trouble than the Icelandics because they were (and still are) run by journeymen. Take the top 50 execs in both AIB and BoI and ask how many left school at 18.

There is no culture of excellence; we bully bright kids at school and slag off anyone with signs of intellectual pretension. We begrudge success. All well known features of our society. We venerate the cute hoor.

And nothing will change. That’s the real puzzle.


“I suspect you are either a junior barrister at the Mahon Tribunal or an Assistant Principal at the DoF.”

Wrong, he is a clerical officer in FF with a virtual office in Mount Street.

@ Keith Cunneen
It is not just that we accept lies, that is bad enough, we accept incompetence and a complete lack of accountability. In fact. we routinely reward incompetence and far too often let it retire on huge pensions. The higher, most learned echelons, of Irish society are the real peasantry who still suffer from 800 years of conditioning. We have developed the art of dissimulation to a fine art. We love nothing more than being looked up to as being erudite, when in fact, those “running” society have their grubby little hands in the greasy till. Lenihan has not got his hands in the till, but he was on a glory trip and he surrounded himself with the wrong yes men. I am convinced that even when the loss of our sovereignty is confirmed, I am still going to have to listen to the hopelessly conditioned reciting their Lehihan prayers. Even as they wander around wearing sack cloth!

@ Joseph Ryan
“I knew it-It must come straight from the Galway Tent school of interest roll up and whatever you are having yourself.”

I disagree, these promissory notes have more to do with the Bernard Madoff school of economics!


Ivan Yates says the game is up in the Examiner:

I and many others have been saying this for a longish time and my calculator is so old it doesn’t even do floating point arithmetic. How does any company pay off a debt that is multiples out of kilter with its turnover? If it can’t trade its way back to a surplus, it doesn’t. The result is called bankruptcy in most jurisdictions. In Ireland it is called a ‘four year plan’.

Of course the Stabilization fund will be invoked. It would require an upswing of bipolar disorder magnitudes to believe that yields will drop below 5% after the New Year – about 10 weeks off. Cowen and Co. are stranded in some grotesque Candide touristed land.

There is nothing wrong with defaulting. Karl – you know the “9-10%” GDP deficit is really 11-13% of GNP/the true tax base comparable. Our debt tops Greece at 125% GNP. No sane bond investor will buy our bonds at reasonable rates with this deficit and debt profile. Since we can’t repay, let’s just admit that. We should default, cut public spending by 20bn at once, rewrite mortgages to 50% their current value, then restructure our debts so the government and banks are solvent again. We will have 1-2 years of hell instead of 5-20 years.

@Robert Browne

What always struck me about the Irish collage environment is that students would never care to ask the simplest of questions of supposedly complex problems.
Professors and academics of science and Particularly business seem to want to embroider their conjecture with complex patterns when the cloth they work on is full of holes.
Students seem afraid and unwilling to take on these high priests as their seems a culture of deference to the new “word of God” not unlike the period before the reformation.
Being a simple soul myself I have to reduce everything to basic parameters and work to create a model while I notice in Irish academia the opposite applies.
I remember a very impressive scientific presentation on dark energy and its effects on galaxy formation to the general public a few years ago with impressive graphics and what struck me was the basic flaw in the simulation was they based their model on observed galaxies motion as if that was suffiecent and created complex models based on just the brightest galaxies while the great mass of matter is unseen and unknown.
Now this is understandable in itself as you can only gather light from such astronomical endeavours and not collect darkness.
No what struck me is that while presenting to the public this great light show he presented it as Gospel – he could not or would not say their was a basic flaw in the observations and therefore the model may be incorrect.

This man knew the flaws in the system yet to get the funds to continue he presented a magic show rather then a science show.
Now consider the field of economics, a mine field if ever there was one – with the people providing the funds the same people who stand to benefit from certain “truths that we hold self evident”.
Now these students exposed to this crap start working for financial institutions on completion of their studies and some have the ear of goverment and since the days of Yes minister there has been no independent strong civil service as after the admittingly great humour of that show all serious advice has been contracted out to private agents which are inevitably a branch of another beaucracey – the banks.

What needs to happen is a open revolt amongest economic students about the nature of the syllabus and its function because never in the field of science has a “science” got it so wrong about everything.
Maybe economists should consider career changes and become astronomers – no on second thoughts that’s a bad idea – better they become astrologers as they are more qualified in that field.


I think I have missed something here. You seem to be feel you are in a position to say “I told you so”. If that is the case, please remind me of the better course of action you identified to follow on from the guarantee. What exactly do you think should have been done??

Should we have engaged in unilateral default by revoking the guarantee in part or in total back in 2009? What would have been the effect of that? Isn’t that option still there?

To the best of my recollection, I did not support the guarantee before it was given, or after it was given, save that I rejected that the Government should have treated Anglo as not being systemic.

I like reading many of your posts and I have agreed with many, but I don’t dig the ‘pin/ self-righteousness. It just isn’t rigourous enough for my taste.

Btw – sorry for the slow reply – was nipping out to watch “The Social Network” when I asked for offending quotes. In the film, Zuckerburg’s character mentions that he is dropping into a blog discussion every do often to stir up a good debate!

The Irish Times reports that Olli Rehn, European commissioner for economic affairs, will press for measures to improve competition when he travels to Dublin to meet Minister for Finance, Brian Lenihan, on Monday.

The commissioner wants to discuss all aspects of Ireland’s four-year economic plan in detail, said a spokesman. “It’s very important that this consolidation effort will be backed also by a structural reform.”

This is excellent news!

Striking isn’t it that outside pressure is needed to get a focus on reform? At last, the omertà of the vested interests on reform, is going to be challenged.

My Skibbereen Eagle moment has dawned at last!! The eurocrats must have been reading Finfacts.

I got the following in an e-mail overnight from a retired Irishwoman, living in France:

“I was told recently by someone who would know that there are 5 retired Trinity Provosts living and one if not all is on a pension of €280,000. !! Now, reading that I wonder have I added €100,000 but I’m pretty sure that’s what I was told.

Surely State pensions should be capped at a maximum of €100,000.”

€180,000 is maybe closer to the mark.

Any views from the academics on capping public staff pensions at €60,000?

The three teacher unions on Thursday launched a report claiming that if government plans to change pension arrangements for public servants go ahead then teachers will pay more in contributions to the scheme than they will get out in pension benefits.

Scaremongering no doubt here but that is the reality for the minority in the private sector who have a pension: real average Irish fund returns for 3, 5, and 10 years are negative while nominal 3 and 5 year returns are also negative. Many individual schemes are banjaxed, including for those with a defined contribution plan, with a ‘guaranteed’ percentage payout.

The net cost of pension funding for a new civil service recruit is 19% pa (allowing for the 2009 levy); an additional year’s cost for ministers and judges is 62% pa net.

This public sector pensions gravy train rose from €1.35bn in 2005 to €2.23bn in 2010 while pensioner numbers have increased by 31,000 or 43% to 103,400.

Sorry lads if all this data seems inconvenient!

@ MH.
As a private sector worker I look in awe at the pensions of the public sector. I now meet people that I went to school with who have been retired on full pension for over five years, doing far better than the vast majority of people in the organization I work for. Meanwhile I now have seven years to go to get a State pension, contingent of course on both myself and State making it to 2021.
It could be a photo finish.
No State or State body pension should be in excess of €50,000 PA.
Your figure of €60,000 as a pension cap is far too high.
Only one State pension should be paid.
All early retirement pensions should be discounted for years missed.

Keith Cunneen Says:
November 5th, 2010 at 11:11 pm

Yes, very often the emperor has no clothes. In a bubble world, there are no reality checks. Then the bubble is pricked and reality never stops.

Science in particular has been railroaded. Quite why there is such widespread desire in cosmology and astronomy to consider that invisble forces exist and that electricity is always rendered neutral is almost beyond me, but then a conspiracy theory can supply one or two answers.

I am content with competent masters and mistresses. They deserve high pensions. The corrupt and incompetent do not.

Fools who have suddenly woken up to reality, and decry the public service, get my goat. The options thirty years ago are different to those open now. Reality intruding again? The likelihood that their sour grapes will be heard is slim.

All pensions funded from voluntary contributions from salary/wages. Tax relief on contributions allowed as incentive, taxed on withdrawal. No difference between public sector/semi-state and private sector. 401(k) scheme from USA as one model, others also possible. State pension as safety net to ensure minimum level of income. Simple and fair for everybody. There is no good reason why the State should be involved in providing pensions other than as a safety net.

The investment options could include conservative; middle-of-the road; and casino-style reckless-gambler options (e.g. Irish sovereign bonds).

No it’s not about I told you so. It’s an attempt to hold to account people who have advocated policies that have contributed to the catastrophe that we now face. But I forgot, we don’t do accountability do we? I think It’s in Artlicle 3 of the Constitution the one that says: Always invoke the Bart Simpson defence: ‘I wasn’t there, I didn’t see it, I couldn’t have done it, It was somebody else’s fault’.

Seeing as you asked, on these pages I gave vigorous support to Karl W’s calls for bank nationalisation. Of course, I can’t prove it, but that would have produced a much better outcome. Still not great but better. I utterly opposed NAMA in terms of the way they set it up and still do. It was and is amateurish and under-resourced.


The only way nationalisation would have produced a significantly better outcome would if losses would have been imposed above the subordinated debt.
Our real rulers would not have countenanced such action in 2008 for fear that it would have caused a massive run on every European bank with exposure to the peripherals and a loan to deposit ratio above 100%-which means every Eurozone bank. So the taxpayer would have assumed the losses much quicker if you nationalised, marked down and filled the hole.

If we had actually gone solo and burned senior debt in a nationalised bank it would have been treated by markets as a default. So we would now be in our third year out of the markets if we had down the route you advocated. Sure we might have a balanced budget as you claim but there would be no nurses teachers or Gardai.

The mistake was allowing Anglo inflate like a Zepplin in the first place. There was going to be no good outocme after that. If you need evidence of the harm down by Mr Cowen on that score, go purchas a copy of the Daily Mail today.

@Michael Hennigan,
“Sorry lads if all this data seems inconvenient!”

It is not inconvenient at all as far as I am concerned. The more facts and figures the better. Keep them coming. It is not possible to get many of these figures from the permanent government or the temporary one for that matter.
Can you tell me what the income tax take is from the public sector? Does the income tax take cover their pensions bill in the same year. If that is not the case is it fair to say they are contributing very little, if anything at all, to the running of the economy in general?

Off topic I know.

Anglo Irish Bank …. Who knew what?

How can Independent Newspapers publish this if it is untrue?

“To demonstrate how up to its neck the Financial Regulator’s office was before the placing, at one meeting Pat Neary told a member of the bank’s board that Sean FitzPatrick was talking too much and too openly about the Quinn stake. This member was told to tell him to “shut his mouth”. It was alleged that if it got out “there could be a run on the system”. According to one source, “a member of the Central Bank board had overheard Seanie at some party spouting on about Quinn and brought it back into the Central Bank boardroom”.”

If it is true the abyss just got more abysser.

I didn’t claim that nationalisation could have produced a significantly better outcome. How about this: if we had gone to Brussels, instead of going solo, we might have done something better. You keep saying that they were in charge which is why we did things the way we did. But you forget that the Guarantee was a solo effort. If we had asked, they may have supplied off-the-shelf-emergeny-resolution legislation, we could have declared Anglo & Nationwide insolvent, chosen to burn the subbies but protected the depositors etc. It’s done in the US every single weekend.

140 bank failures in 2009, 143 in 2010. Why so scared of bank insovencies Tull? The bogeyman?

And, in the ultimate irony, look at the closing prices of the listed irish banks yesterday: I know you are a gambling man, what odds will you give me on full nationalisation of the entire system?

Don’t we have a bet involving copious amounts of Louis Roederer Crystal on the day we go into the EFSF?

Was the guarantee really a solo run? My understanding is that Brussels was in the loop all the way. You would never know that know. As to alternative outcomes- well if me aunt had etc. Seeing as you mentioned the FDIC, perhaps you could post the equivalent link for the EU as we are not the 51st state.

I would not give any odds against BoI ‘not’ being nationalised. Why? because it is going to happen, that’s why. Neither, will AIB or BoI be “restored to it’s former glory”. Nothing, Lenihan has said since becoming finance minister has come true or made sense. I don’t blame him but I detest his ideology of trying to maintain the status quo at all costs which has bankrupted this country. We should not have a man with an existential personal crisis running the country full stop. Then we have “cute hoors” who have tried to take full advantage of his state of mind and flawed logic by aligning themselves with him and filling his head with even more nonsense.

A minister who tells bond market that, there would not be a run on Irish banks, “because Ireland is an island” is not fit for purpose nor are his advisors. Most of the people here, are aware, that almost every action taken in the last two years has been to try and prevent the previous bad decisions taken from unravelling or being found out. The acid test is bond spreads, therefore they have been found out. All along, I said Ireland only needed ONE functioning bank, (A national development bank) the rest should have been let fall off the cliff. We have ended up with a raft of non functioning money draining institutions on life support. If we had bit the bullet, yes we would have had blood on the floor, we are going to have the blood on the floor now anyway. If we had not suspended the rules of capitalism the sector would have collapsed but it would have found its optimum equilibrium level independent of being propped up by the state and it would be in recovery mode now.

Liquidators, the auctioneers hammer and investors would have decided what the half finished estates were worth and if you bought one of them you would have had to have had a plan for them not involving more state borrowing. Yes, we would have had more bankrupt people but at least the risk of default on sovereign debt would have been contained and we would not be facing national insolvency. By postponing the pain for over two years and prioritising the interests of the few we have pushed the magnitude of the impending upheaval up the Richter scale but happily I now see serious reform is on the horizon and whatever it takes it takes!

NAMA is like a great big dinosaur left over from Irelands neanderthal period still working with the guys who thought they controlled the world, telling us we “we still need to finance them”. No, we don’t. Even our judiciary are too afraid to tell us NAMA is subversive. What we need is people to take their waste away and recycle it not put them on life support at the expense of national insolvency. The money NAMA borrowed should have been put into creating and sustaining jobs not attempting to speculate on property by finishing out the daft oversupply of buildings. We should have refused to buy green field sites with or without planning because we cannot afford them at any price.

Our deepening crisis, means the minimum wage will be targeted, welfare slashed, front line services slashed to the bone. Public “servants” will sustain minimum cuts of 30% not to mention job losses and redundancies. The sacred pension pots will no longer be sacred the unions can only bring more chaos by resisiting. Those on salaries or pensions of 150,000 plus are obviously facing the biggest cuts. The contingent liability of 116bn for public sector pensions must be slashed. IMF will not support schemes which were schemes in every sense of the world.

As a society, theoretically we can still make the radical decisions to avoid loss of sovereignty, but I am sure most of us here are realistic enough to know it cannot happen. We are simply too unionised, corrupt, smug and too educated to let the axe fall where it must. Therefore it must be done for us. Maybe that is best, as it may avoid the possible catastrophic fracturing of our society along the fault lines of class on which it has been carefully constructed on its foundation of sand. In any event, this is going to take place against a backdrop of almost daily protests around the country. Meanwhile, the Oireachtas, is set to become even more of an irrelevancy, with fortnightly shuttling back and forth to Brussels to be told what we are allowed to do or what we must do next. This is the future we are busily constructing for ourselves. Anyone thinks Eamon Gilmore or Enda economic policies are going to prevent it from happening are inhabiting the same “space” as Brian Lenihan.

Robert Browne

“IMF will not support schemes which were schemes in every sense of the world.”

There is one big problem with the IMF/EFSF is that it does not allow for a restructuring of debt (never mind any write off).

The EFSF is not an IMF bailout. It is designed to burden the state with all of its debt for the dubious pleasure of providing funding at a couple of points below the market.

We should not apply for support from this fund unless the EU/IMF accept that the debts of Anglo and INBS are un-payable and that both institutions should be liquidated.

Otherwise all we will have done is pay off the bondholders and allowed the ECB to copper fasten the debts of Anglo and INBS to the Irish people.

Any thoughts on the UK petition to wind up INBS as reported in todays Indo. I note they also report that ‘Lawyers say there is little chance of a foreign court ordering the winding up of an Irish bank.’
I wonder would these be Irish lawyers – obviously the lawyers(English) that brought the petition advised it would have some chance of success.
Is this a systemic threatto thewhole system?

@ Brian O D

ECB provided tons of liquidity for the banks even in the boom times. It was less ”necessary” but still very useful for cheap predictable liquidity to fund themselves, and its going to be a requirement for the next few years at least. Nama bonds will always be elligible collateral, unless the ECB looks to explictetly change its collateral framework to be far more restrictive than it has ever been. There are indications they are considering this. As I said, you are mixing up exceptional liquidity programs with standard ones.

@ Hogan

there were complaints about the govt destroying the property rights of subdebt holders on that thread. Check it out, somewhat surreal.

@Greg – “Otherwise all we will have done is pay off the bondholders and allowed the ECB to copper fasten the debts of Anglo and INBS to the Irish people.”

Ve haf vays of making sure zis happens!

“Anglo Irish Bank …. Who knew what?”

A lot of people obviously know a lot but are only talking now that their backs are to the wall and have nothing to lose. Today’s Irish Mail, Indo and (briefly) Saturday View all included items on who knew what/when at Anger.

@Michael H

The Irish Times reports that Olli Rehn, European commissioner for economic affairs, will press for measures to improve competition when he travels to Dublin to meet Minister for Finance, Brian Lenihan, on Monday.

Give Rehn a copy of the fee notes put in by tribunal lawyers, solicitors and barristers, and ask Anglo (a state owned bank) to hand over copies of their bills, and then sit back. Rehn could also run his eye over the NAMA payola for professionals.

Re Anglo. Wonder why the government is reluctant to appoint an assessor for the shares it nationalised?

Brian Flanagan

“A lot of people obviously know a lot but are only talking now that their backs are to the wall and have nothing to lose.”

I don’t want to go too far here. After all there is nothing of “economic” interest here.


The Daily Mail states;

“Brian Cowen was ‘acutely aware’ of a threat to Anglo Irish Bank months earlier than he has admitted, a former director has sensationally claimed.

Now either the Daily Mail has made the most costly blunder (one that would sink the newspaper) or they are satisfied that the “former director” is telling the truth and can substantiate the story.

From the Independent;

“This all represents the most blatant and most damaging example in recent Irish economic history of the State’s interests being placed second to an internal, private involvement of politicians and of servants of the State.”

If Cowen knew the Dail was misled.

It is of course a lot worse than that but I won’t say it here.

The Alchemist

“Give Rehn a copy of the fee notes”

Give Rehn a copy of the Daily Mail and ask him why Irish Citizens should pay for Anglo and INBS.

I would dearly love to hear his answer.

The Alchemist

“Re Anglo. Wonder why the government is reluctant to appoint an assessor for the shares it nationalised?”

Like by-elections they made sure there was no clock.

Time for someone to take a High Court action.

“there were complaints about the govt destroying the property rights of subdebt holders on that thread. Check it out, somewhat surreal.”
I’m lost, which thread? 😕

@ Greg
I have no illusions about “bailouts” at 5 to 6% and I know it is debt restructuring or write off that we need. We are not flavour of the year in Deutchland over Depfa but either they give us the money or the money is not going to be there to overpay our workers and our dole queues. Beggars who don’t even run their own country anymore cannot expect to be calling the shots. Ireland, will be turned into a debt servicing machine on the edge of Europe with a stagnated, moribund economy with massive emigration of the natives. That is why we should not have had a Lisbon II. That option should have been kept in reserve. That is why I voted against the Lisbon plutocracy because no matter what we still had our veto. Look what obedience delivers.

Personally, I would not go near the markets next year and loose our economic sovereignty? I would not have those patriots ghosts on my conscience. I would not worry about the pinstriped NAMA ones like Frank Daly. Who ever is “leader” and Cowen should be gone before Christmas, needs to tell it like it is. “We are a busted flush”. A large part of the interest on our debt servicing has to do with our banks but also the debt servicing of repetitive current expenditures such as salaries that should never have been paid, pensions that should never be paid, quango’s that should never have been set up. State workers who should not have been hired, fraudulent benchmarking, not to mention Harney’s personal grotesquerie. We have been betrayed by greed and incompetence.

Just finished reading John McGuinness’s book while I was watching the Irish match “The House Always Wins” nothing we don’t know already, but he confirms that it is the unions who are the fulcrum of power this inertia will destroying the economy and it will take the unions with it, that is the ironic thing. Croke Park is just an expression of the governments realization that it is not them that run the country but the unions. Why unions get tax breaks for pushing the vested interests is beyond me. This crisis needs a Thatcher moment!

Oh, an aside, the Fintan O’Toole tenner a head into Liberty Hall to discuss the woes of the Irish economy came to an abrupt end the other night when some union honcho crept up to the stage to tell him the event was running over the time allocated.

Robert Browne

“We are not flavour of the year in Deutchland over Depfa but either they give us the money or the money is not going to be there to overpay our workers and our dole queues.”

Time to start thinking beyond the mindset of a helpless gambler up to his neck in debt to a Murphyosa loan shark (Not you of course).

If we can no longer borrow from rational bond markets we surely do not have to prostate ourselves to an impotent central bank and a failed currency peg.

Public servants receiving more than €40k gross can have the amount over €40k (net of tax) paid in 10 year treasuries. Such treasuries to be negotiable at par for the purpose of paying mortgage and bank debt. A secondary market established to trade such treasuries.

In short, if public servants believe in the future of this state as an independent economic entity let them eat government debt.


“there were complaints about the govt destroying the property rights of subdebt holders on that thread. Check it out, somewhat surreal.”

Of course not at all surreal.

What is surreal is that the property rights of the Citizen are being destroyed to bail out Anglo & INBS.

What is surreal is that our Government are about to waste another €2bn of the public purse in what must be one of the greatest rights issue disasters in the history of finance.

Unless of course you know of a bigger one.

@ hogan

the one about Anglo sub debt! Sorry, out and about, cant provide the link now, but will do so in the morning.

Ah gotcha, don’t worry, I’m being a bit dense this evening. Too much dinner, not enough drink I suspect.

What really winds me up is the fact that if the IMF / EC came in here they could sort out our budgetary problems in the time frame required and in a way that would not wreck our society or economy; quite the contrary they’d probably help a lot.
Think of it, property tax in, which means we’d be like every one else in Europe, oh the harshness of it all (say 3bn).
Dole payments down to around UK levels (easily a couple of bn could be saved there),
reduced tax breaks – 11.4 billion of tax breaks would all be on the table for review (at least 5bn).
Public sector pay – where do I start (10% reduction would be another 2bn saved).

Bottom line is, these things could be done !! We’re losing our sovereignty not because of the (admittedly very large) mistakes of the past. We’re losing our sovereignty because of the weakness and lack of leadership of the present.

Transferring wealth from a rich country to (poor?) Ireland by high taxes in the rich country is apparently ok but transferring wealth from rich Irish people by high taxes in Ireland to poorer Irish people is not. Both seems to be about the taxing of hard-working high performers to pay for spending for others & both seems to be about generating economic activity by putting generated wealth back into circulation.

High earning people reputedly can’t be taxed more because they’d stop working hard and all would be worse off because of it but high earning countries can be taxed more and their wealth transferred away for other countries to spend & in this case it is better for all?

The cynic in me believes that the only ones who agree with that logic is highly paid people in low-tax countries with big deficits….

@ Eoin
” Nama bonds will always be elligible collateral,”…

Maybe our government should issue another €20 bn of bonds, at 1.5%, or even 4%, to the Irish banks and let them shove them into the ECB?
What do you think is the limit of ECB tolerance for Irish State guaranteed bonds
In fact, if the ECB has such an appetite for NAMA bonds, then NAMA should reduce the haircut to 25%, as originally envisaged, and issue the banks c. double the present amount of bonds and let the banks fund an infrastructure developmemnt programme to stimulate the economy (as well as saving themselves from nationalisation, leading to foreign ownership…)

Brian O’Doherty

“Maybe our government should issue another €20 bn of bonds, at 1.5%, or even 4%, to the Irish banks and let them shove them into the ECB?”

My thought exactly.

They want the ECB to exist. Fine.

Here’s €200bn of Irish promises.

Suck it up Trichet. You have no choice. You don’t have a “Central Bank”.

France used to have one.

Germany used to have one.

Ireland used to have one.

Oh, let’s see who has one now.

Would that be Great Brittan?

Would that be the USA?

Would that be China?

Would that be Vietnam?

Would that be Banglasdesh?

So let me make this clear to Trichet and Honohan.

You don’t have a Central Bank.

You have a crèche.

Time to grow up.

@ adoy

Can you tell me what the income tax take is from the public sector?

Pensions now account for 12.9% of the total Pay and Pension Pay Bill, up from 9% in 2005.

Ronan Lyons’ 2009 quiz on income tax suggests that a person earning €45,000 would have paid about 13% in income tax.

There is 1 pensioner for less than 3 public service workers and public service numbers and pensioners, based on whole time equivalent measurement increased to 380,953 in 2010 from 373,228 in 2009.

There was no reduction in pensions in the Dec 2009 Budget to correspond with the pay cut, even though increases in pay are passed on to pensioners, including the sham benchmarking increase of 9%. So retirees now can get 70% of their last salary — a rise during the worst recession in 80 years and the biggest price drop since 1922.

In the coming year after defeat, most of the outgoing ministers will receive a year’s salary as a thank you and for example, Harney’s pension of €140k will begin from the following year.

@ The Alchemist/gk

The penny is likely to drop when it’s too late.

Minister for Finance Brian Lenihan said his first Budget was “a call to patriotic action.”

It’s hard to discern any evidence of it despite the omens of impending doom and the continued misery facing the victims of the crash.

The vested interests from across the spectrum are lying low and no insider has broken ranks to propose credible reforms that would impose pain on those who for long dined on the ‘fatted calf,’ but such reforms could provide a bulwark against the broadsides of the bond vigilantes.

The litany is indeed long in this Age of Entitlement: Harney presides over 600 staff in the DOH while most functions are handled by 109,000 in the HSE; Cowen has a staff of 250 – – could he manage with 100?; McAleese has over 20 – – I bet a ceiling of 10 would hardly impose much hardship on her.

Ministers have 120 constituency helpers; The post of ‘parliamentary assistant’ was introduced in the past decade for TDs, in addition to a secretary. Most are likely just personal butlers or maids; wonder what keeps 60 secretaries to part-time senators busy? Of course, they are all employed on public work when the place is shuttered for 275 days each year!

There are about 6,000 board members of quangos drawing fees and expenses; Irish GPs are paid almost five times more to administer the seasonal flu vaccine to patients than their counterparts in the UK and so on.

The people who got a special exemption from a pay cut last December of course are focussing on the easier pickings at the bottom of the economic pyramid. Why expect anything different?

@Greg, Pat

I think the introduction of some form of local/internal/complementary currency could be very useful, given the Frankfurt-supplied straight-jacket currently in place. My question for the panel is whether schemes such as the C3 scheme to increase credit for SMEs, as used in Uruguay, would work here.

Separate from alternative currencies, the whole concept of pay-for-performance is totally missing from the current public sector/semi states. It is not that hard to link pay with quantifiable performance targets. For example Batt O’Keeffe seemed extremely proud of his jobs strategy document a few weeks ago that promised a gain of 300,000 jobs in 4 years. Fair enough, so my suggestion is that Minister O’Keefe be paid a low base (the minimum wage), then a sliding scale that pays a percentage of current salary according to net jobs created, with a target of 75k jobs per year e.g.

less than 60k jobs: minimum wage – no bonus;
60k – 70k jobs: 80% of salary;
70k – 80k jobs: 100% of salary;
80k – 90k jobs: 120% of salary;
90k – 100k jobs: 140% of salary;
greater than 100k jobs: 160% of salary

A public web page is updated monthly to let us know how things are going. I have no problem with large salaries provided there is a direct correlation with a large amount of created value. Perhaps when the Minister announced a plan such as this to the Dail he would have a less self-satisfied, arrogant and condescending approach than he did a few weeks ago.

Stock options as used in the private sector can be viewed as combining an alternative currency (company stock) with pay-for-performance characteristics. Clearly they can be subject to abuse, but when properly used can align incentives between shareholders, management and employees. I like the idea of paying higher earners significant amounts in 10yr treasuries, as it would achieve the same effect of better aligning the interests of those involved, as I understand it.

@ Brian O D

im not entirely sure what your point is. You seem to, finally, accept the fact that NAMA bonds will always be elligible with the ECB. I dont deny that the ECB has been extremely ‘accomodative’ in letting us issue the NAMA bonds in the way we have, but once they let us do it they can’t undo the situation, there is no ‘temporary’ ruling in place on them (Karl is even more vehement on this i believe). As i said, you are completely misunderstanding the extraordinary liquidity provisions being provide by the ECB. I assume that there is an eventual limit to how many of these bonds, or even ELG, that we can issue before they call a stop to it, but that limit does not appear to be even close to being in sight yet. It appears that the quid pro quo for not infliciting losses on senior debt is a very easy collateral framework for the next half-decade or so. QE-lite, if you will.

Btw, weren’t you the guy who said that AIB wouldn’t even have to sell their Polish operation and still be able to maintain only a minority govt stake, even when it was ridiculously obvious that they would?

@Michael H

I become nauseous when the Great Reformers begin rubbing their hands about the ‘enormous’ reforms coming done the line from Croke Park. Official track record on reform is nonexistent. Golden opportunities have been wasted.

For example, when the Farm Single Payments system was introduced a few years ago, farmers were promised an end to forms and complete simplicity in all dealings with the ‘department’ on aid.

Instead the same monotonous area aid forms are sent out year after year, sometimes with a little irrelevant tweaking of column headings. Details such as email and mobile phone numbers are requested, even though the chances of anyone in the armies of sheep-clerks using either mode to communicate or seek clarification in case of an error on a form is unheard of.

The Single Payments ‘reform’ has never been implemented as a reform. The same herds of drones still occupy the same positions in the dronocracy. No reduction in numbers. No reduction in bureaucracy. No reduction in inefficiency. And above all else, no improvement in service. Of course Croke Park won’t deliver anything. That’s why all the vested interests signed up to it.

Re Anglo and the ‘virtual’ assessor. It seems Revenue will allow a set off of Anglo share losses post nationalization against a capital gain (unlikely event) but subject to the usual magic and case by case, etc. Of course there is a window on two years on set offs. Moreover, if the assessor decides Anglo shares are immensely valuable, Revenue will look for a refund.

“once they let us do it they can’t undo the situation, there is no ‘temporary’ ruling in place on them (Karl is even more vehement on this i believe).”
Well, since ratings are ephemeral, there may be a temporary element.

Having to competitively bid would be bad. In the first place, there is more Irish paper than almost anyone else, it has funding cliffs too. Still, the emergency lending facility will always, I presume, be open and it just raises the rate charged to 1.75% (though this *could* go back to 2%).

@ Hogan

competitively bidding would be bad, but not catastrophic. The liquidity will still be there, just more expensively. And full allotment for the short term tenders looks likely to remain in place for some time to come.

Yeah. Some day this war’s gonna end…

That wouldn’t be damn right for the guys in the boat, though.

There is also the duration to consider. *If* competitive allotments are at a shorter duration, that would be not nice.

@ Hogan

yes, shorter duration is probably more of an issue than the price itself. But thats why i think the ECB will only gradually reduce the effective liquidity (ie still injecting chunky amounts out to 3mths) even if they cap the theoretical liquidity (ie end the full allotment, end the long term repos).

The payment holiday on the pro notes is intriguing. Was it negotiated to reduce the size of the adjustment in the budget so avoiding the need to cut OAP and public sector pay. If so it is phony book keeping and just kicks the can down the road to the next govt. Does it constitute a default and willit cause our spreads to explode next week? Will the CB be still happy to accept the pro notes if they are not coupon bearing.

It looks like a death rattle from a dying govt

Can I just say before Ireland officially goes quickly down the drain, why isn’t anyone focusing on what I think is the real issue. Forget about the lack of jobs etc for a second. What about all the unnecessary money being spent? Every Td, minister etc will have at least 3 or 4 state pensions to the cost of us the tax payer?? More than one former minister still has a state car? WHY?? Can they not use their own cars and save this money for things we need, e.g. hospital beds etc etc??? I find it very hard to believe that all these so called “expenses” are needed if at all! Until this country stops this outrageous wasting of money then it will never recover. Just a quick recap of what real legends of this country did, Michael Collins last journey home to Cork before he was shot, he wrote a letter stating that he was to pay his own way home and WOULD NOT charge any expenses to the state, this was a real Irish politician not the pathetic, greedy cowards we call our government today.

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