Default Inevitability?

the bids on the ten year bond rose well over 8% John . coming back a tad now but were 8.07 at one stage. now 8.04.
Apart from that things are grand….. JtO has told us so elsewhere

There won’t be a default but we will be hitting the stability fund. As you say John, everyone in power needs to get real. The fact that we are still clinging to the croke park agreement shows we still have delusional people in positions of power. No matter what budget or four year plan we announce, the Market has already passed judgement and it’s not good. Time to stop trying to get them to change their minds, borrow from the fund and take our pain. Then watch as Portugal and Spain join us within the year.

Listening to the pension passion play today, International observers could be forgiven for concluding that we are unable to practise self governance….

@John,

I don’t doubt the sincerity of your plea to those who exercise politcal and economic power and influence to put the national interest first, but what chance is there of that when all the incentives in place encourage the opposite. We’re moving into the “rats fighting in the barrel” phase and the only question now is the timing of entry to EFSF. I agree with Enda f; the market has weighed us in the balance and we’ve been found wanting. The Government obviously wants to keep going until the market slams the door in the face of the NTMA so that it can blame those evil bond vigilantes. Politically it can’t apply to the EFSF before this outcome – it would be dead in the water as a political entity, but, in the national interest, it should negotiating the terms of entry now.

I have just a basic question about arithmetic and economic growth that someone might be able to help me with.

Suppose that an economy’s GDP grows by 2% each year. And suppose also that the country must use 2% of its GDP each year to pay interest on an old loan.

Does the economy’s GDP remain constant over time then? Or is the removal of 2% of GDP each year irrelevant here?

It may already be too late. Let’s see what the next couple of days brings with it.

I suppose this can be seen two ways:

Either everything is fine and nothing needs to change – In other words no reforms necessary…..

or

There is a problem and to get the message through that reforms are needed the message is stronger than necessary.

Ostriches & Austerians 🙂

I believe Ireland can avoid default. Do I think it will? Depends on the eventual compromise between the austerians & ostriches.

Thanks for the comments.

A few people have asked about using GNP rather than GDP in the analysis. Assume initially that that the two are growing at the same rate, but allow them to have different starting levels (say GNP is 80 percent of GDP). This does not change the basic result of the model as it will lead to proportional changes in both the initial debt to income ratio and the critical (or theshold) value. In other words, if there is fiscal space when the model is speciifed in terms of GDP there will be fiscal space when it is specified in terms of GNP.

Allowing for different growth rates does make a difference. Worryingly, the IMF forecasts that Irish GNP growth will lag GDP growth out to 2015. If, as commenters suggest, GNP is more relevant for fiscal capacity, then this lowers the critical debt to income value and thus lowers the fiscal space.

@DE I am not quite sure what you are getting at in relation to the base conversion. My hunch is that you are not making a correct adjustment here, but I may not have properly understood your point.

@Tunafish Interest on foreign borrowing has no affect on GDP. However, it is subtracted to calculate GNP. Roughly, GDP is a measure of the output produced in the country whatever the ownership of the factors of produciton. GNP is the value of income produced by a country’s factors of production, where ever that economic activity takes place. That is why we subtract the profits of multinationals from GDP when calculating Irish GNP. We must also subtract interest payments to foreign bondholders in the GNP calculation.

Nov 8 (Reuters) – European Union Economics Commissioner Olli Rehn has not discussed with Ireland any need for external EU help, he said on Monday, adding he believed market confidence would be restored once the country publishes its four-year plan to cut debts.

Rehn, on a two-day visit to Dublin designed to bolster Irish efforts to lance the worst budget deficit in the European Union and convince markets it does not need a Greece-style bailout, has already welcomed Ireland’s plan to narrow its deficit.

On Monday, in a joint press conference with Irish Finance Minister Brian Lenihan, Rehn said that taking the necessary structural measures should pay off for Ireland in the medium term for sustainable growth.

He also urged all parties to support planned cuts.

Lenihan — who must get parliament next month to back his government’s budget plans when they are next presented in detail — insisted a united, national effort was needed to confront the country’s problems. END
———————————————————————————-

Or, as they say in my neck of the woods, believe nothing until it has been officially denied. Do they seriously expect us to believe that they didn’t discuss the downside of the budget not getting through and the consequences of such? High caramba!

@Hugh
“seeing Croke Park stand and a govt party coming out and say that one group is untouchable is all the more depressing in a context where survival remains possible. ”
Indeed, it is not just these two. At every turn there is a government minister bleating about some group that cannot be touched:
– no water charges
– no property tax
– can’t disincentivise work
– can’t do this, that, the other
It’s no wonder the bond markets are upset, the government appears to be reverting to its age old plan of do nothing, pretend that we have already made 14.5 billion of cuts and make another pretent 15 billion and hope for the best.

Looking at a national debt of about 140 billion and a ten year fixed rate of 6% from the EFSF, we need to have no new borrowing and 8.4 billion available a year for interest (ultimately – we average 4.7% on the existing debt currently) – more if we want to actually pay some of it back. (Current interest payments are about 3.5 billion a year?). So the adjustment figure is rather large.

Who is prepared to put their hand up for an uncapped PRSI rate of 15%? A further uncapped health levy of 5%? No PAYE allowance and a halving of personal tax allowances? 25% lower rate and 49% higher rate? With no indexation for years to come?

Who is prepared to cut 15 billion from current and capital spending?

Those are the levels we need to be talking about. Not dribs and drabs here and there with ring-fenced areas. The deficit needs to be closed in a couple of years, not on the never-never.

@Seafoid
that’s a beautiful (if slightly improbable thought)
ta

@Gregory Connor,

That is right. A bank lending on residential property with a comparable maturity to a 10Y gilt has to think there is less risk of default on the mortgage than there is of the Irish State defaulting.

If the bank management do not believe that then they are in breach of fiduciary duties to shareholders. Now, who are they again?

@John – The maths always make default seem avoidable. Yet markets need to roll over large debt for a long long time if we have a lot of it. This is where the maths don’t work. Investors need confidence for decades into the future that the government can maintain a large primary surplus. We have a government that is too unpopular to survive, a central bank head who has gotten the scale of this probelm completely wrong and lacks credibility, a bank supervisor who lies to us that bank balance sheets are ok when we all know banks have not written down loans appropriately, etc. How can any investor reflect on this and choose to earn 6% on Irish bonds when they can earn more on safer corporate or emerging market bonds? Once investors decide we aren’t credible, the “fiscal space” becomes small regardless of the maths.

Something else for Europhobes to consider is that the market pricing of Irl default risk is being distorted – downwards – by two ECB things. First, they atre buying Irl bonds in the secondary market when the yield goes up too quickly.

Second, the excess reserves / excess liquidity that the ECB has manufactured is being used by banks around Europe as a source of almost free money with which to speculate. The easiest trade is to buy peripheral sovereign bonds, pocket the yield and take the default risk on the other side. This is another European subsidy in effect – of Irish bond yields. It is the LTCM trade.

Without that, what do you think the 10Y gilt would yield to redemption?

BTW, any econosavvy viewer of Frontline on RTE would have to lean towards yes, default is inevitable. There is a big gap from the economics to even the politicians they let loose on the telly, and from there to the politically engaged public the gap is not one that is going to be bridged in 4 weeks or 4 months. Pensions, pay, hours, rates, tax net, universal benefits….. – everything is “unacceptable”.

@ John McHale

The model shows that default results when a country’s debt to GDP ratio passes a critical point. 

Japan is not currently at risk of default despite its high debt, because over 90% of its debt is funded from domestic savings. Ireland relies on foreign lenders for 75% of its funding according to the latest data from the IMF.

So for Ireland, the big question is what would trigger a bond strike?

Once we would get EFSF support, a restructuring would then be in our interest as may happen with Greece at some point.

As regards the DoF growth rates of 3.25% in 2012 and 3% in 2013, we will know in 12 months time how realistic these targets are.

If the 2012 target looks like undershooting significantly, we will essentially be out of ammunition.

There is also a likelihood that the GDP data could look reasonably respectable but the domestic economy remains in the doldrums.

Batch chemical production may not be a saviour.

IMF forecasts released last week show that Ireland had/will have the biggest deficit in the world for 5 years in a row from 2009 through 2013. (In 2014 we drop to number 3 behind Japan and India). Also the projected rate at which the debt/GDP ratio increases from 2007 to 2015 is also by far the largest in the world: the 2015 value will be 3.7 times the 2007 value. The rate for Iceland is 2.9 and Greece 1.6. The overall net debt/GDP ratio in 2015 will be high at 85%, but still behind countries like Belgium and Italy and well behind Japan, so we’re not number one in that category.

However since we easily win the crash velocity prize, it can’t be surprising that we’re locked out of the markets, and I doubt the December budget will make any difference. Time to take the cheaper EFSF money and use the IMF as the bad guys to force through the needed structural reform.

@ Joseph Ryan

As regards Japan, in a high cost economy, 35% of the workforce are temps even in companies like Toyota and they work for less than the Irish minimum wage and have few rights.

Its gross public debt is over 200% of GDP up from the mid 30s in 1990; defaltion has become endemic becuase the population is declining but there is a general antipathy towards immigrants.

Japan has the world’s best public infrastructure because of construction stimulus spending since the bust.

The business culture was once seen as worthy of emulation but no longer.

Sony was once the world biggest consumer electronics company but now Apple is, having stolen a march in mobile music. In Asia, it’s very evident that Sony is being eclipsed by Samsung, the world’s biigest makerof flat screen TVs.

I would like to second Zhou’s and Eoin’s comments. But the real problem is in the politics.

Parliamentary democracy is supposed to be a deliberative process to reach the least worst trade-off between competing interests that is in the broader public interest. It is for the governing factions to set out policy principles, objectives and criteria with the detail being worked out as facts and evidence for policy options are considered, the policies worked out in detail guided by the top-level principles, objectives and criteria and then subject to counter-evidence, rebuttal and counter-rebuttal in open hearings before Oireachtas Cttees who make their decision before final decision by government and subsequent approval by the full Oireachtas.

And this has to involve a willingness to research, analyse and present the case for policy changes, invite and deal with scrutiny and counter-arguments and convince the people’s representatives to enact these changes.

What has happened in the years since the Celtic Tiger took off in the early ’90s has been the complete opposite of this. The 15 members of government with their special advisers and senior department officials have assembled all packages of policy in almost final form, squared – insofar as was possible- all different interest groups, fired up the spin machine to brow-beat any dissenters and driven these policies through without sufficient scrutiny.

This was fine when it was goodies that were being dished out. How on earth does anyone expect this process of governance to deliver measures of pain in an equitable and effective manner? It simply can’t and that’s what we’re witnessing now.

@Paul 

Thanks also.   I very much agree with you about the weaknesses of the policy making process.  

Frank Barry has a nice paper on this:  http://www.tcd.ie/business/staff/fbarry/papers/Politics%20and%20Economic%20Policymaking%20in%20Ireland%20REVISED%20_3_.pdf

As a non economist and a struggling architect I would like to thank John McHale for giving us a balanced analysis on Morning Ireland this morning that spoke to me of recognising the seriousness of our situation while demonstrating that we can deal with it as opposed to the respected but doom laded apocryphal analysis of Prof Kelly which offers no hope.

We can deal with difficulty, even grimness, but hopelessness is no substitute for taking action to correct our fiscal and monetary imbalance.

Needless to say , I dont believe, that Mr Hales analysis will fly as far into the consciousness of the domestic and word media as Prof. Kelly’s will.

Mares notes “out of 19 cases surveyed, on 18 occasions default was followed by the incumbent government losing elections.”
http://www.zerohedge.com/article/morgan-stanley-how-only-deux-ex-machina-can-save-european-periphery-and-why-fed-may-have-do-

@Kevin, Hogan
While I believe that – like the X-files – a solution is out there, both of you mention one area that I think we need to be very careful to avoid. That’s driving people overseas with high taxes, punishing work in the future to pay for a problem that his now ended and “only” needs to be cleaned up.

On the work side, I remember the 1980s all too well. I remember people graduating from university and immediately paying punitively high tax rates, and that was if they could get a job in the first place. But the logical reaction to being taxed to death if you did find a job? Even more emigration of people that we badly needed. By the time I left university the tone was essentially this “there are no jobs, and even if there was a job you’d be better off leaving”. Belfield was jokingly referred to as the airport and picking up your degree was akin to getting your boarding card.

It’s bad enough that we’ll almost certainly have lots of construction workers with no employment prospects in Ireland, but if we drive even more people to leave because we punish skills and work then we’ve really lost the plot and we’ll be an even longer time bringing the economy and the country around. And don’t forget, the rest of the world isn’t booming like it was in the 1980s, but plenty of places are going better than here. The losses would be significant.

We should first look at undoing the spending and recovering things that should have been taxed in the period 2002-2008. On a quick list; on spending, undo most of the increases back to 2002 or 2003, pensions, social welfare and state salaries. That’d get us most of the way on spending. Many people feel entitled to their entitlements, but the sad truth is that the government has blown all the money and more. It’s not just workers that have been lumped with the costs. That single mother owes someone thousand of Euro. The pensioner is in significant debt. The government has put them there so appeals to legitimate expectations are misplaced. They’ve been scr**ed too. It’s already happened. The money is gone.

On the revenue side, widen the tax net. IMHO everyone should dislike taxation about equally. The current system where one set of people like increasing taxes on other people but not paying themselves is a rotten system, no matter how much you wrap “progressive” around it. It breaks any social contract. [note, the rates for very high earners are potentially an exception, where they can still pay lower rates than moderately high earners]

Then, as an emergency measure we could look at more radical options, partially for revenue purposes and partially for the optics. Perhaps for instance a once off levy on some wide categories of assets acquired in or income from the period between 2002 and the date of the guarantee. (Bank bonuses at 95%, land sales above 2/3 of the Gilmore limit at 25%, are some initial examples) . One could view it as the “Vincent Browne solution”. This is potentially constitutional under the Nursing Home judgement. If this isn’t a financial crisis then I don’t know what is.

[Pay in the private sector should be left to companies to figure out with their employees themselves, but we need to make sure that there are no more protected and sheltered sectors to abuse their positions and to keep high costs in the economy.]

Of course, VB and many on the left would like to punish work in the future too, but if we punish the future for the mistakes of the past then we’ll be a long time building a future.

If we’re going to engage in structural reform, which we badly need, then we need to bring Ireland to a system that’s just and sensible. We need a zero base approach and not a leftover system that has so obviously failed.

The first step cannot be to punish the future for the mistakes of the past.

@Eoin,

I agree it isn’t over yet, but, in addition to your suggested approach, the government will need to throw the kitchen sink – NPRF, semi-states and all – at this. Do you see the most likely combo – FG + Lab – agreeing to do the needful?

@Hugh
I’d missed that article. That ‘budget’ should set the benchmark. I assert that if that budget was delivered, it would form a key step in getting us back to the bond markets. If we are truly a society we should collectively lobby for it to be delivered, in full and without amendment.

@ Paul Hunt

i think with some political cover (ie EU) FG are willing to do it, they seem more serious now than in previous years. Although for the same reasons, they may decide that entering into a short term EFSF stint is the better option politically for them. As NCB (and you too in fairness!) has suggested this week, it would not be the complete end of the world if we did say 6-9 months in the EFSF, though i still think it should be the last resort after everything else has been tried.

@hogan
Don’t get me wrong….arithmetic has to be respected. The numbers need to add up.

As for the 1980s, the numbers could have been made to add up without doing what was done. Remember the PAYE marches? A lot of good they did. Not. Remember people whose parents were well off farmers and businessmen getting university grants because their taxable income was so low? Remember Charlie’s Charvet and the damage that was done to our civil service in that era?

@Eoin
FG’s document – from the exec summary at least – seems on the right track, but can we trust FG to be serious for long? They’ve spent so long wishing they were FF.

@Mr. Bond,

What may work in our favour is that the institutional and political EU (I&P EU) wants us in the EFSF even less than we want to be forced in. There’s a line of big dominoes behind us. But the markets will want to see a popular mandate for the fiscal adjustments and Ireland throwing the kitchen sink at the problem.

The politics are not encouraging.

Default is evitable unless something is done with the Euro not just for Ireland for also for some of the others PIGs including Greece. The European stability fund is just putting off the evil day. You cannot sustain interest rates of 5% + on national debt when inflation is nothing and deflating as in Irelands. Directly all the existing Irish bonds are redrawn at these penal rates the draw on the national finances will be become too much for the exchequer. Reductions of greater than about 3 €bn in national expenditure will only bring forward the day as the reducing GDP caused will kill off any chance of Ireland growing out of the problem. The only other solution that could happen is that quantative easing is used by the ECB to right off some of the PIGs and other countries debts (Germany could use to save some of its city councils some of which are in a desperate state). We need to get some sinorage on the euro and now is the time to do it after the 600 bn dollars printed by the USA. The resulting fall in the Euro would also make Irelands exports more attractive and could lead to growth. The other point is that very high debt/GDP ratios are sustainable when the country has control over its financial policies and can set interest rates AND that most of the debt is domestic so interest transfers are not leaving the country as in the case of Japan. The threshold of default is much lower for Ireland were most of the transfers will go to Saxony and the Rhur region and we have no control over our interest rates. Nothing that has happened in Ireland suggests any changes in how to deal with huge percentages of sovereign debt. 1 Default 2. Devalue by printing money or directly manipulating the exchange so the resulting growth reduces the ratio. In ten years time all that we will text book examples of how not to do things.

@ Hugh sheehy

Some good points in your post but I think it is unrealistic to unwind spending back to 03 desirable as it may be. The boom was unfortunately spent on salaries and benefits and those sals and benefits were then tied to mortgages which made the boom boomier with disastrous consequences.

I also wonder where 200,000 Irish tax refugees would go. Most will presumably be tied to undervalued homes but still- what economy would take them? Taxes are going to go up everywhere to pay for the cost of containing the fallout from the near depression experience. Asia may be doing well but how many senior AIB audit managers and CBRE property consultants would Mumbai need ?

@seafoid
I understand that the current govt awarded very generous pay and benefits and that many people believed that these would last forever. It may even have seemed a reasonable assumption. Unfortunately, it was wrong.

So, as the next step, do you try to keep paying these high pay and benefit levels across the board in order to keep some of these people in houses that they’ve tragically overpaid for – thereby overcharging everyone else in the country for the benefit of a few – or do you recognize that this has to end? If it has to end then when? Now, or later?

@Veronica,

I can only applaud your search for patriots among the current political class. The spoils of power are too great and suppress the better nature of those who aspire to grasp it. The people have conceded too much of their ultimate authority and, once conceded, it may prove impossible to regain.

@Sean
“To state that the country is dead as MK does is, in mind ,excessive, to say that it is sick and needs urgent treatment that will be painful but essentially beneficial is more beleivable to a layman like me”
Yeah, it does depend on your view of the ability of government (both permanent and elected) to change, well, basically themselves and to drag everyone else along with them. Some have an optimistic view of the likelihood of that change happening, others not. I bounce between the two, but tend towards the likelihood being low.

@ Aiman

tweet sounds like twit for a reason…

Congratulations to John McHale and to all the commentators for this excellent thread.
In the distant day of the mid 1960s, I read Political Economy & Politics at UCD at Earlsfort Tce. It was a given at that time that Economics and Politics were manacled at the hip. Thus, I welcome the political comments that are emerging in this discussion. I am deeply shocked at the gradual erosion of our system of governance since the last election. The Coalition Government has debauched any semblance of democracy with their attitude to holding overdue bye-elections.
Mr Rehn, to his credit, has consulted with all the Opposition parties and even with the non elected Social Partners to communicate EU views.
An interesting letter by Professor Ged Martin in to-days Irish Times suggests that President McAleese should use her constitutional powers to intervene in the debate that now confronts us all.

Aiman,

You cannot hope to bribe or twist
Thank God! a plump economist
But seeing what the man will do unbribed
There seems no reason to”

Who are you referring to?

Today’s Question in the Dail was slightly unerving. We now appear to have aa consensus of sorts emerging between FF and FG that a budget should pass with around 4bn of cuts and 2bn of tax measures. the devil is in the detail though. FG will be reluctant to support it for fear of giving a free pass to the GP and FF backbenchers to desert.

Labour on the other hand are still defending their constituency and holding out for a longer adjustment period & one wiighted towards taxation. The now slightly Haugheyesque Gilmore is beginning to run the old 1987 line from FF “health cuts etc….”

@tull – economist should’ve been in inverted commas. It scans better than the full job title, though.

@ Hogan and Hugh Sheehy

Salaries have to come down but it is a case of plucking the goose carefully rather than killing the creature. Public sector salaries are too high , sure but a scorched earth policy won’t get you anywhere. I don’t know where the dividing line is. Suggestions welcome .

Do you know the song gugalai gug ca ndeanfaidh me nead? Where will I build my nest? If it build it on the bay the ducks will eat it. If I build it on the ditch the geese will eat it. I think that is where the Government is now.

The wreckage of the property boom is a corset around everything.

BTW Many Irish directors and senior management considering value added are way out of line on pay. So are many professionals. How much do the head box wallas of E&Y and the rest of the accountancy top 4 take home every year? It’s known as “tearing the arse out of it” in Galway.

How much are the top photocopiers at AIB on? The ones who drove the share price down to 27 cent yesterday.

@seafoid
Your point on scorched earth is valid, but as long as the state is paying people more than it can afford then someone else is getting scorched instead.

Which person is more deserving of protection from the flames?

@Bryan G
Agree 100% that a major aim should be to get ourselves away from the edge. Living there is expensive and discourages investment, both domestic and foreign.

@eoin – just the one, they’re not all like that, DG.

@Eoin
We are funding Southwest Capital?

Hogan,

Its a ref to the Prof that relayed the story from Southwest Capital. I think the lads are being too hard on the Professor from Trinity. He cares deeply about the issues and he has the right to say what he says. I hope he continues to annoy and provoke us.

@Tull
I think so too. Unless assuming the ostrich position and thinking that everyone loves the Oirish and thinks Lenny is a saint has become national policy. Oh, sorry, it has. North Korea here we come. Block the internet, zap the satellite feeds, get Gaybo and Dana back on RTE… good work on getting at least one of them done double-quick, what?

Retreating= re tweeting

Brian Lucey

I was amused by your reference to hundreds of trades at over 8%. Back in my day when the long bond was the 8T 12 or the 8H 10 of blessed memory, the things might trade once a day or maybe 5 times on a busy morning. I just do not believe in hundreds of trades. There are no buyers out there. Good to see proper coupons coming back, none of your runty little 3 & 4%.

It appears that the most bone headed decision ever taken by entity Ireland was the unconditional bank guarantee.

To my mind it was/is tantamount to a government declaring war without the approval of the populace.

I think its time now for an investigation focused now at the government at the time. With the possibility of criminal charges if wrong doing is found and with request for resignations if idiocy is found as I am sure it will.

The people of Ireland are suffering and it seems on the part of government there is no accountability.

For shame the sitting government should allow an election.

@ Lucey

c.180? Eh, c.262 actually. So 437% of the previous claims. Better hit rate than your suggested likely price of a deposit book though, so suppose its progress, just…

@ Tull

progress? Or the first sign of the apocalypse?

@joseph

Surely “the markets” know how much cash there is, how much is spent per day and can do a simple division.

I get the feeling with regard to bond yields it’s all a bit of sport like a souped up game of dare. As Tull says volumes are very thin. What has changed fundamentally since June? “The markets” have lost faith in FF and AIB came out with a shocker plus there was the Anglo mess. So “the markets” are worried about more banking shockers. And the deficit. It’s a bit like worrying about the girlfriend being pregnant. Potentially a game changer but then again maybe she isn’t and you are just imagining it. And you will know for sure by Friday week.

It seems to me that “the market” wants :

– A new government
– The political will to go at the deficit
– No more banking icebergs .At least not until things have calmed down.

Now does mark to market accounting have any relevance here? Even if the banks have higher levels of bad debts why can’t they just amortise them? Surely the mark to market fad has gone too far especially now that the cupboard is bare.

So if there could be some sense with regard to expectation management concerning the banks and the political problem is overcome and the budget is passed and there is a new Government and the deficit is cut by 6bn it does seem that there will have been some effort expended on changing the dynamics. I think that is what Governor General Rehn was talking about yesterday.

@ Seafoid

the game isn’t up yet. Though only just. Basically buyers have called for an extended timeout until they know whats really happening here. We have 6 months or so of cash (end July is what is being suggested at a push), but we also have the NPRF if we really needed to. So basically we have that window to change the markets mind.

Getting the budget and fiscal adjustment plan out of the way is phase 1, then sorting out the political uncertainty which has become more obvious this month is next, so an early 2011 (jan/feb max) election is the next phase. Assuming that goes to plan, with a clear FG leadership role (however the govt is formed), March could be spent roadshowing (alongside EU/ECB cheerleading) to investors with a very clear portrait of Ireland in place – 4yrs of clear fiscal policy, 5 yrs of clear political leadership and a strong mandate, NAMA fully in place, and (hopefully) the banks fully recapitalised at that point. Thats a good story to sell into a big syndicated deal at end March 2011. That, i imagine, is what the NTMA is currently setting itself up for hopefully.

We’re on the edge, but we’re not over the brink just yet as Kelly suggests.

@seafroid
@Bond
Yes. It is all about politics now. Contributors to this site have played an enormous role in nudging Irish public opinion to an understanding of the stark realities of our economic plight over the last year or so. Remember Aherne’s comment that economists should all take a jump or Lenihan’s plea to wear the green jersey! This morning, Cowen lectured Labour in the Dail that the State would run out of cash if the Budget was not passed. In other words, he will brook no debate whatsoever with the Opposition parties on its terms; i.e., it is my or no way. This is not the way to seek consensus. The irony of talking down the economy seems to escape the Taoiseach as it did with King Canute.
FG and Labour should make any support they give to the Budget conditional on a General Election in January. They should inform the Irish public that they support the rescue of the Irish economy but not the present Government. I think the electorate will understand the difference.

@ Bond. Eoin Bond

We have six months of cash left? Right-o then. I believe you, so we are solvent as long as we still have a few borrowed cents, rattling around the bottom of some jam jar down the NTMA? If I am not mistaken this 40bn “cash” includes “liquidating” what is left of the NPRF. A fund that was not supposed to be touched until 2025.

Any ideas what we will get for that portfolio as we scramble to sell it off? Where is the pension money going to come from as ‘we go forward’?

This thread could possibly be renamed to ‘Reform inevitability’.

If the Irish government would default, it is fairly certain that the Irish government would be shut out of the bond-market for a period of time. That time may or may not be longer than the savings of NTMA would cover. It is likely that the savings would run out sooner.

Supposing that the Irish government runs out of cash. Then suppliers to and employees of the Irish government would not get paid all they were due. Suppliers could take the Irish government to court and the EU directive regarding prompt payment would force the government to pay its suppliers before its employees. Employees would then have to be paid in IOUs or PNs…. Sooner or later this would not be accepted & reforms would have to be implemented. (Government IOUs – the new Irish punt & it would be a bit ironic to see it introduced this way. Would it be accepted at face value or at a discount?)

Alternatively reforms are implemented now.

The difference?

Reforms would hurt some & the longer the reforms can be postponed the better it is for the beneficiaries of an un-reformed system.

@ Eamonn

“the state can do what it likes”.

Legally you’re correct, but not entirely sure how we fund the deficit of €19bn or so next year. So unless you’re suggesting a 19bn cut rather than a 6bn cut, thats not really an option. And don’t suggest the EFSF – the EU aint gonna let us touch that if we go for a short term default.

@ Robert

the 6-7 months of cash = around 20bn. Does not include the NPRF. That would keep us going for another 5-6 months.

@ JtO

I have no idea if Prof Lucey is happy at the current bond market dynamics, but he sure has hell doesn’t seem sad. At the very least, using your Ryanair metaphor, he seems to get a kick out of watching car crashes. At least i see genuine angst in the posts from 99.9% of other people on here.

@ Garo

touché! Though if JtO really is, as alleged by some more exciteable elements, actually a big grouping of nefarious statisticians, then i could yet be right! :p

@ JtO

you never know, you could multiply via an “I’m Spartacus” moment on here if your optimism proves correct! Keep it up sir. Anyway, im off to the pub to watch Ze Berba bash some goals in against Citeh, i know you’ll be watching too!