Year: 2010

Spiegel Online Calculations of Irish Debt

A few weeks ago I posted a link to a presentation put together by Spiegel Online showing the maturity profile of the debt of Ireland and other European sovereigns with high deficits. The exact nature of the calculations for Ireland were questioned at the time in the comments. Last week, I received an email from someone who clarified two points for me in relation to the Irish information in this presentation.

First, the €8.6 billion shown as Irish bonds due this year are almost all Treasury bills even though the chart is labelled “When Irish bonds are due”.  Second, the Spiegel people  selected “Republic of Ireland” as opposed to “Ireland Government Bond” when performing their Bloomberg search. This means that their numbers for future years include, for example, the Dublin Airport Authority and the Housing Finance Agency.

Department of Finance’s Strong Responses?

Shane Coleman of the Sunday Tribune reckons that

It was extraordinary to hear commentators’ reaction to the spat between UCD’s Morgan Kelly and the Department of Finance. The latter was roundly criticised in some quarters for having the audacity to put up a strong opposing case to Kelly’s thesis that it was a matter of when, and not if, Ireland went bust.

I recall offering a pretty negative opinion on the media stories about the government’s reaction to Morgan Kelly’s piece last Sunday while on RTE radio last week. I’m not sure what others said but my negative reaction was not about people having the “audacity” to oppose Morgan Kelly. Rather my criticism was that the response did not at all put up “a strong opposing case”. Let’s look at one example from the many of these stories that were reported, the one reported by Coleman himself.

Let me point out three problems with this response.

First, it relies on anonymous sources. Frankly, my stomach churns every time I see people who have been brave enough to step up in public to say their piece being attacked by anonymous government sources. Let’s be honest here. This is a political game. If Minister Lenihan or other people in the government wish to respond to an opinion piece, they should do so in their own name rather than using the civil service.

Second, the “strong opposing case” includes stuff like this:

“Professor Kelly cites Uruguay as an example of how his policy works. Would Irish citizens, public servants and social welfare recipients be satisfied with Uruguayan levels of public services, pay and social welfare? I think not.”

Frankly, that’s not strong, it’s pathetic.

Third, the anonymous DoF source said the following:

The vast majority of bonds were so-called senior bonds – equivalent to deposits and on which no risk premium was paid.

Despite all the confusion about pari passu on windup, it is patently false to say that senior bonds are equivalent to deposits. Prior to September 2008, Irish bank deposits were insured up to a €20,000. Senior bonds had no such insurance offered by the government.

A carefully considered public response, authored by a named individual associated with the government, would have been a good idea. That is not what we got.

Morgan Kelly’s Bank Loss Calculations

There has been some debate on this website and elsewhere about the calculations underlying Morgan Kelly’s recent Irish Times article. Morgan has kindly agreed to provide a spreadsheet illustrating his calculations. You can find the spreadsheet here.

From Morgan’s email to me: “As you can see, my optimistic scenario is for a loss of 75 bn, offset by 25 bn equity, leaving the Irish Times figure of a 50 bn bill for John Taxpayer. My realistic scenario is for a loss of 105 Bn.

I also include a brief calculation of the post-nationalization value of AIB and BofI. Given their extraordinary operating costs of 4.5 Bn, the taxpayer is looking at an annual loss of 1.5 Bn, and that is before including the cost of tracker mortgages.”

Update: Note this is a slightly updated version of the spreadsheet put up Sunday night, fixing a typo. The “realistic loss” scenario should have been 105bn not 115bn.

John McHale on the Irish Banks

Today’s Irish Times carries an extensive essay by John McHale on the Irish banks: you can read it here.

Euro Debate

The Economist website is currently featuring a debate among a number of well-known economists on the future of the euro – you can find it here.