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Successful Bond Auction
- Post author By Philip Lane
- Post date October 28, 2010
- Categories In Uncategorized
- Tags bond auction
- 20 Comments on Successful Bond Auction
Year: 2010
The CSO has released institutional sectoral accounts for 2009 – the release is here. These detailed data provide a lot of useful information about the shifts in income and savings in recent years. Among the highlights:
- Household net saving ratio jumped from 3.9% in 2008 to 12.3% in 2009. Behind this ratio: net disposable income fell by €2.1 billion but consumption fell by €10 billion.
- The Net Operating Surplus (profitability) of Financial Corporations and Non-Financial Corporations fell by over 22% and 6% respectively, between 2008 and 2009. Investment by Non-Financial corporations fell from €13bn to €7bn over the same period. Investment by Financial Corporations also declined – from €0.9bn in 2008 to €0.6bn in 2009
Congratulations to Cormac O Grada who has been awarded 2010 Royal Irish Academy Gold Medal. This is the premier Irish academic award and in Cormac’s case it is richly deserved.
PS: I released this yesterday but then quickly withdrew it as I thought it was embargoed! But I think its OK to release the news now – just tell one person at a time!
I have posted links to this piece in the comments section before, but never on the front page. This seems like a good time to do so, given that the question of what markets want is beginning to exercise people (see for example here, or here). The essential point is that markets understand that governments face political constraints, and take this into account when assessing the credibility of their economic policies. (And, moreover, market participants tend not to believe in tooth fairies or negative fiscal multipliers.)
We’ve known all along that fiscal adjustment here would be contractionary, and that our economy thus needed substantial export growth if it was to avoid falling into the hands of the IMF. That in turn requires a buoyant European economy; hence my alarm regarding austerity measures in countries like the UK and Germany. One of the key insights of Barry Eichengreen’s work is that you have to analyse international monetary arrangements as systems: it makes little sense to analyse policies in one country at a time as if countries are isolated from each other. Ireland has no choice right now concerning what policies to pursue, but other countries do, and if those with fiscal space (as measured by the interest rates at which they can borrow) choose to embark on contractionary policies now, for what appear to be nothing more than ideological reasons, then that is profoundly irresponsible from the point of view of the fragile system that is the European economy.
With consensus on the likely size of a four-year adjustment unlikely to emerge (and perhaps not particularly relevant anyway) the key fiscal policy question for now is what the size of the adjustment is going to be in the upcoming budget.
Yesterday’s Fine Gael Dail questioning on this subject was interesting. Deputy Noonan:
Now that we have agreed that 3% in 2014 is the finish of the race, what is the Minister’s starting point on 7 December? Will he go soft? Will the budget deficit be 11%, 11.5% or 10.5% of GDP? Will he go below 10%? He needs to come up with this figure pretty quickly. I will not press him any harder on this; I am simply speculating. I have no information as to his thinking on this but this is an essential piece of information. Unless we know the starting point we do not know where the Minister is going.
I’m pretty sure that Noonan knows that an adjustment of €7 billion would be required to reach the 10% target but hasn’t yet said that he would support it. His lack of enthusiasm for the €15 billion four-year adjustment figure suggests he wouldn’t be too keen.
However, others in Fine Gael are calling for the 10% to be met. Here’s Simon Coveney
My understanding from the briefing from the Department of Finance is that the key requirement from bond markets to allow Ireland to issue bonds is that we will need to bring our deficit below 10% of GDP next year from our current position. No Government speaker, including the Taoiseach and the Minister for Finance, addressed that issue as to what figure will be necessary in the 2011 budget to bring down the deficit to 10% or less of GDP. That is the guideline figure we have been given to issue bonds and raise money in order that we can keep Ireland functioning and keep our economic and political independence in terms of budgetary decision-making.
And here’s a bit of cat-and-mouse play from Damien English
Deputy Coveney is correct in stating that we must bring the deficit down below 10% of GDP next year, and I ask the Government to give us the figure now. Tell us what it is, whether it be €5.5 billion, €6 billion, €5 billion or €4.5 billion, and let us work to that.
Well, Deputy English, it’s not going to be €4.5 billion!
Labour’s participants in this debate seem to have stayed away from this issue. However, on the Vincent Browne show last night, Pat Rabbitte indicated he wouldn’t support more than €4 billion in adjustments. If this is the party line, then it means that Labour are not supporting reaching the 10% target.