For How Long Does EU-IMF Financing Fund the State?

Over the past week, there have been repeated references during the Fianna Fail heave\confidence vote to the government’s achievement in securing funding for the state for a number of years.

The plan was originally presented as funding the state for three years. However, yesterday on Morning Ireland, Brian Cowen claimed that “funding for the state for the next four years had been organised” while on the Vincent Browne show on Monday night, junior minister Tony Killeen swung for the stars and claimed that we had secured “financing for the state for the next ten years or so”. (15.40 in).

Given the hyperbole\confusion on this matter, I thought it might be worth pointing out a few figures that suggest that the maximum length of time that the deal allows the state to stay out of the bond market is three years and that a more realistic assessment would suggest about two and a half years.

Here’s a link to a spreadsheet with projections for the budget deficit over the next three years. The spreadsheet also contains other estimates of cash funding requirements for the government over that period.

The calculations based on the government’s estimates of the budget deficits over this period suggest that the state will require €61.5 billion to cover the deficit and other funding demands. This calculation was arrived at as follows.

1. The government’s budget estimates point to cumulated deficits of €37.6 billion over 2011-2013.

2. Via the NTMA website, long-term bond redemptions will total €16.4 billion over this period.

3. There will be €9.3 billion in principal payments on promissory notes, which will not be included in the general government deficit projections (i.e in the €37.6 billion).

4. However, in 2013, the general government deficit will include a charge of €1.8 billion related to interest on the promissory note which will, in fact, be rolled up rather than paid, so I have deducted this to arrive at the final cash requirement for that year. (In 2011 and 2012, we have negotiated with ourselves to have a two year break from interest payments that we would not be paying anyway—such is the magical world of promissory note accounting.)

I have also included the IMF’s deficit projections for 2011-2013. These cumulate to €43.5 billion, €6 billion higher than the Irish government’s projections. This would point to a total funding requirement over the three years of €67.5 billion.

The EU-IMF program provides €50 billion over the period 2011-2013 to fund budget deficits and other cash payments. As I understand it, the additional €17.5 billion pledged by the EU and IMF towards the bank rescue plan is not interchangeable, i.e. this funding cannot be transferred to financing deficits or bond redemptions if the bank plan proves to cost less than the full €35 billion provided for.

This means that, by the government’s calculations, the state needs to come up with an additional €11.5 billion over and above the EU-IMF money to fund deficits and avoid default over the next three years, with this amount rising to €17.5 billion if one uses the IMF’s deficit estimates.

Remembering now that we’re asking the question “how long can the state survive without raising new external financing?” this additional €11.5 billion (or €17.5 billion if you prefer the IMF’s figures) would have to come from current cash balances, in the exchequer accounts and the National Pension Reserve Fund, if it does not come from external financing.

From the NTMA’s recent business review, we know that the Pension Reserve Fund is contributing €10 billion to the bank recapitalisation and that “After an NPRF contribution of €10 billion, the value of the assets remaining in its Discretionary Portfolio would be approximately €4.9 billion.” Thus, an additional €7.5 billion must be pledged from other cash resources for the government to meet their commitment of €17.5 billion towards the EU-IMF banking package.

The NTMA’s statement on the funding of the Exchequer balance tells us that €15.7 billion remained in the Exchequer account at the end of 2011. Deduct the €7.5 billion for the banking package from this amount and we are left with cash balances of €8.2 billion.

These calculations suggest that the state will have €13.1 billion remaining in cash or liquid assets after the banking rescue. This would be just enough to get the government through three years without further borrowing according to the government’s calculations but it would not be enough if the IMF’s deficit projections turn out to be correct.

One additional complication, however, is the role of short-term debt. The government started up a Treasury bill program in recent years. Bills issued on 10th June, 8th July, and 22nd July last year with combined principals of €1.85 billion matured last Friday, January 14th. As far as I can tell, no new issuance was undertaken to roll over these amounts. According the information provided by the NTMA an additional €4.2 billion in Treasury bills will mature during February and March. If NTMA does not raise replacement funding, then the state’s combined cash balances will be €7.1 billion in a few months time.

This is not to say that the state will be completely unable to launch a new Treasury bill program at some point in the coming months. With the EU-IMF funding behind us, one would imagine that participants in the market for short-term debt would feel confident that they can get their money back. However, as the EU-IMF money is spent and state cash resources dwindle, it would not be possible to continue rolling over such Treasury bill funding, so on net this source of financing doesn’t really change the figures.

My conclusions on this are that even an optimistic scenario sees the state requiring additional funding of €11.7 billion over and above the EU-IMF money to finance the state for the next few years. With cash balances apparently dwindling to about €7 billion in a couple of months time, it seems that we may soon be faced with the prospect of either an intensification of fiscal adjustment in an attempt to reduce deficits to fit the size of our funding or else a return to the markets some time during 2013 with no margin for error. An alternative prospect would be to attempt to negotiate a new EU-IMF deal next year that would allow the state to defer a return to the markets.

One other factor worth noting is that if one goes just beyond the narrow three-year window discussed here, one finds that the state has a bond worth €11.86 billion maturing on January 15th 2014, so even if budget deficits have been reduced dramatically by that time, there will still be a significant cash funding requirement.

Finally, before people go jumping all over me saying I’m projecting a default in 2013, I’d note that I’m focusing here on the specific question of just how far can we go with the EU-IMF funding and current liquid assets. It is, of course, the case that if the NTMA returns to the market later this year or next and manages to obtain new funding for the state, then the cash crunch envisaged here would not come about. I’m not making any projections here about the likelihood of such long-term funding being raised.

80 thoughts on “For How Long Does EU-IMF Financing Fund the State?”

  1. Tip of the hat to Karl, continually setting the country straight.

    Wag of the finger to the media for allowing the hyperbole.

  2. @Karl Whelan

    Good stuff!

    Patricia the Sovereign_in_exile is not making any projections either.

  3. Karl you have gone carried away here, that is over the top and unnecessary.

    The politician who said Ireland had obtained funding for 4 yrs did so because he had heard about the 3% target date being extended to four years, and didn’t understand.

    The politician who said Ireland had obtained funding for 10 yrs did so because he had a lot about 10 yr bond yields getting too high and that this had been sorted, and didn’t understand.

  4. @KW

    Great post. Clears up a lot.

    Q. How is GDP going to grow 8% by 2013?

    Q. Is there not a strong possibility that the banks will require more than 35b?

    Q. If we have to shrink to fit these fiscal constraints, do we not curtail GDP growth

  5. This is a very timely and much needed post. The gall required to try and spin this as an achievement on the part of the government is something to behold…and the lack of any media savvy to the contrary, to nip this bullshit in the bud is very disheartening…if this nonsense continues, the fianna fail spin machine will be churning out “vote FF, we brought u the IMF!” posters for every telegraph pole in the country.,

  6. Jarlath they are not that clever. My post above was not meant as a joke. The interviewers are more or less in the same boat.

    Karl had done what is known in the sciences as applied adding up and subtracting. Hot air machines do not have the capacity to process this kind of information. Karl has been very unfair with his new fangled maths from another planet.

  7. This is a totally irrelevant and nitpicking point scoring post.

    So Bn might run out in 2014? The fact is the international community have agreed to support us and in three years time if we have been behaving they will continue to support us.

  8. @ Brian Woods II

    So do you think it is ok for members of the govt, Taoiseach included, to try and portray the IMF/EU bailout as some sort of achievement on their part?? is there no end to the madness

    @ Grumpy

    I think it is the curse of politicians that they can never admit they are wrong, no matter what…and FF have been in power so long and have been not admitting they were wrong for so long that they now finally believe everything they do is right. regardless. So when they talk about something as ignominious as handing over state sovereignty to outside powers because they failed to look after them..it still comes out as them doing the right thing… taking the right choices…looking after the people…

  9. @ BW2

    Ok Brian. You may have already known all the facts about the government’s funding position over the next few years.

    I didn’t. So I did the calculations and thought they might be worth sharing. Took me a few hours too, even though I have lots of other things that I need to do — a bit disappointing to then be lambasted as nitpicking and point-scoring.

  10. There is something very curious in these figures. That’d be rather surprising for a subject of such key importance for Ireland and for Europe. So perhaps I am missing something.
    The spreadsheet gives “IMF Funding Requirement” of EUR24bn+ (englobing the EU etc I suppose). Yet we kow that support for Ireland is very heavily front loaded ie a large chunk of it is coming in 2011, indeed right now.
    Yet the IMF suggested detailed financing numbers – different to Karl’s – in its December report.
    The support seems even more front loaded than this still, as Ive been indicating in my posts over the past weeks. So if the EFSF raises EUR16bn+ this year for Ireland, Ireland maybe gets close on EUR13bn. If EUR10bn+ is raised next year, that doesn’t leave much for 2013.
    But maybe by then, we will have seen a strong recovery in the economy etc.
    I find it surprising that I haven’t seen much written on the numbers involved, with a discussion of the implications for Ireland’s future over the coming 3 years.

  11. @Jarlath
    +1

    @All
    It is now becoming clear that the banks were in funding trouble since 2007 and that the government was well informed of this and of the huge potential risks of a blanket guarantee. We have been relentlessly deceived since the bank guarantee about the events leading up to it. The whole NAMA debate was one long deception. The estimates of bank loan losses and the subsequent actions and inactions of NAMA were more again. Finally, the official denials of the arrival of the IMF, repeated by our media while the rest of the world looked on astounded
    http://www.independent.ie/national-news/cowen-fury-at-bbc-when-not-whether-bailout-claim-2419458.html
    seemed like rock bottom. Cowen boasting about surrendering our sovereignty, a few months after his government made us a global laughing stock, while Lenihan tries to renegotiate the interest rate on this “success” – which most observers say will lead to our bankruptcy; Lenihan denying encouraging dissent in his party on public radio, only to be flatly contradicted (yet again). It could be worse though. Imagine if the on going official investigations are simply part of the cover up, that almost everything was officially approved. Imagine that the attempt to investigate non-civil servants having run its course, a pretence is being made of investigating civil servants, just to bolster the official account. They’d never go that far would they?

    Re. Bank Guarantee see also:
    PAC documents:
    http://thestory.ie/2011/01/19/public-accounts-committee-bank-guarantee-documents/
    Other analysis:
    http://thestory.ie/2011/01/17/cowens-meetings-and-anglo-problems/

  12. Karl,

    Can’t go through this in detail now but am curious how all this interacts with the Central Bank’s printing – which is a large liability on the state. My guess is that it is largely in response to the deposit situation at the banks and their having more or less run out of assets of sufficient quality (BB- I think, last time I looked) at the ECB.

    We know the haircut regime the ECB is using. I have no idea what Dame Street is looking for, if anything viz quality or haircut. It is not too much of a stretch to imagine these are effectively unsecured credits to the banks.

    Suppose a bank effectively repos a few loans secured on a few square miles of fields in the middle of nowhere or the like. It is not clear that a “funding requirement” need arise at any particular time given the continued cooperation of those involved, so no impact on your calculations.

    If you print money to put it on deposit in a nationalised bank are you not effectively debt funding a part of the state but doing so off balance sheet?
    If NAMA is ever forced to sell anything, and a clearing price is established which forces the Central Bank to mark to market the assets it took on, then does the state at that point have to recognise a liability to the ECB?

    If so, and that occurred whilst tapping the EU / IMF credit line, would that leave the country open to accusations of Greek style misleading accounting?

    I seem to have missed something, what is it?

  13. Can’t go through this in detail now but am curious how all this interacts with the Central Bank’s printing – which is a large liability on the state.

    It’s not clear that the central bank actual “printed” anything (Do they even have a Euro note printer anymore?) It appears that they simply created “electronic credit” which was then electronically deposited in the Irish banks. The credit was literally summoned into existence from the Platonic Ether of numbers.

    Whether this distinction is actually the case or even important anymore, I really don’t know.

  14. This is an interesting and useful contribution. Thank you. I’m sure many here recognise the opportunity cost of putting in this effort.

    Just two observations. First, the willingness of the Irish mandarin class to prepare factual material in a manner that allows their political masters to spin it in a manner that conceals the reality or seeks to encourage the suspension of disbelief never ceases to amaze me. Are there no Irish Sir Humphreys? I’m not saying that public officials should come out publicly and declare that the minister/TD is talking though his/her hat. It’s just a simple requirement that factual information is laid before the Dail – and where members are not satisfied they’re getting the full story, the powers to demand – and receive – clarifciation.

    Secondly, on the numbers, I think we’ll see the usual muddling through, but I can’t see decisions on semi-state privatisation being avoided much longer. We await the report from Mr. McCarthy and his colleagues on the State Assets and Liabilities Review.

  15. @ Karl Whelan
    Excellent post

    Forgive me, as a neophyte on your site and perhaps because I’ve worked (internationally) but based in France for the last 30 years, I’ve been “over” on the “Citoyen Sarkozy et ses amis irlandais” thread trying to get folks to focus on the fact that AFTER the essentially banking crisis in Europe has been solved/resolved, Ireland’s low corporate tax dependent/ MNC export dependent, non employment creating, “industrial” model/policy/ faux strategy will need fixing, urgently.

    As a newcomer, I also got a bit confused about who you guys mean when you talk about monkeys and organ grinders.

    Karl’s post concentrates on what we need to be negotiating immediately for our survival ( after we presumably get “permission, in spite of over 20 years of fiscal dumping on our EU partners, the ones who are the customers of the US MNCs in Ireland and who are “bailing us out”, to continue, in some measure, with our low corporate tax “policy” at least for the moment) and it’s on this topic that I’d like to make two recommendations:

    1.) In the hard negotiations ahead of us, and given the poor light in which Irland is currently seen internationally, it will get us nowhere to commence ANY of our proposals with monkeys ( Merkel, Sarkozy etc.) or organ grinders ( Josef Ackerman and the German bankers) with the prequel “from an Irish perspective”….

    2.) Apart from ceasing all discussion about France ( monkey) and in order to give ourselves a fighting chance, it would be good if we could constitute a negotiating team made up of REAL professionals with REAL experience of dealing in tough BUSINESS negotiations with Germans/Germany.

  16. @ Jarlath

    The spin over the last two and a half years has been simply breathtaking.
    Cowen could put a positive gloss on the worst ignominy. Most of the voters don’t have the information to see through it. Lenihan is still regarded as a heavyweight. After all he has destroyed.

  17. @ObsessiveMathsFreak

    “printing ” is shorthand for causing base currency to exist. Don’t get sidetracked by a debate about whether actual paper notes are printed since it is not relevant. They are printing it and the state is required to backstop it. It is different when the ECB print.

  18. @ seafoid
    I was watching myth busters recently on the discovery channel.

    It actually is possible to make a ball of poo shine!
    An apt metaphor for our current government I thought.

    Karl well done on the analysis.

    I know it doesnt come up in the next three years but we also have to roll over 1/7th (nearly 10billion per year if we use all 67.5 billion. and from your analysis is looks like we will have to) of the ECB/IMF money each year between 4 and 10 years time. They want the principle repaid in ten years.

    @Brian Woods
    Yeah brian and the fact that it will become more and more obvious that we will not be able to repay the loans will not matter at all to our creditors.

  19. @ All

    This deal is going to last 3 years, 4 years, 2.5 years (def not 10 years)? So what? So gov spokespersons are a bit confused. So what? Who knows what 2013 will look like? We have an awful lot to do to get out of this mess. We need a bit of luck or even bad luck like Portugal, Spain, Belgium also needing a bail out. The IMF/EU deal kicked the can down the road. It did not solve our problems for ever, we all know that.

  20. @All

    & Open to the President of Ireland

    In my capacity as citizen, I humbly request President Mary to bluntly REFUSE to accept the resignations of the so-called ‘republican’ (sic) ministers and the sole Pee-dee (sic) minister as acceptance is not in the interests of the Irish citizenry.

    A key European meeting takes place in mid March – where negotiation on reducing interest rates may be possible with a little assistance from other EZ members – and this woody_allen directed administration has zero cred in Europe – let alone here.

    May I also humbly suggest to President Mary that she inform this Executive that she will gladly accept ALL their resignations NOW, and that she call on the Council of State to nominate a team of pragmatic and knowledgeable realists (totally excluding any GP, FF or PD elements) to get working on preparing for said meeting immediately. And a new Executive by Feb 20th.

    Thank you.

  21. Government “confusion” regarding the length of “the deal”
    Formatting…formatting…
    Government spin regarding the length of the bailout.

    And it is the attempts to sell the bailout as some sort of achievement on their part, some wonderful deal they brought in to save the country that is enraging people. Not the fact that they dont even know how long it will be for. I’d nearly forgive them for that.

  22. @Karl

    Thanks for sharing your calculations. It all pretty much makes sense to me. When the bailout occurred I was surprised that the non-bank funding amount was only €50bn since it appeared to me that the funding needed was in the €60bn to €65bn range. However if you assume that the EU/IMF are applying the same principle to the government funding part as to the bank recap part i.e. – Ireland must run down its cash reserves in parallel with drawing down the loans, then it makes sense. There is about €30bn in cash right now (€15bn NPRF and €15bn Exchequer). Of this €17.5bn is allocated to bank recap, which leaves €12.5bn to be allocated towards government funding. This brings you right into the middle of the €60bn to €65bn range when added to the €50bn in loans. You raise a good point with the short-term debt – perhaps the plan is to start raising new short-term debt before 2013.

    After 2013 there’s a big increase in the amount of annual principal repayments for the years 2014, 2016, 2018, 2019, 2020. I imagine the average 7.5 year maturity of the bailout is to target the years when there were very low repayments – 2015, 2017 and 2021. Averaging over the 8 year period from 2014-2021 there are principal repayments of €16bn per annum. Add in interest payments of €12bn to €13bn per annum and you are up to nearly €30bn funding requirements per year, even when running a small primary balance. That’s what happens when there’s a gross debt of €220+bn to be serviced/rolled over.

  23. @BW2

    “Who knows what 2013 will look like ?”

    Here is one interesting view

    http://mpettis.com/2010/11/chinese-inflation-and-european-defaults/

    “1. Greece will be forced to default and restructure its debt, and the restructuring will come with a significant amount of debt forgiveness. The idea that it can grow its way out of the current debt burden is a fantasy. Remember that when countries are in conditions of financial distress, they face systematic disinvestment and capital flight, and as a consequence are never able to grow at anywhere close to the necessary rates – especially since any growth they do manage to achieve generally comes from additional fiscal spending, which simply runs up debt further.

    2. Greece will not be the only defaulter. Spain, Portugal, Ireland, Italy, Belgium and much of Eastern Europe will also face severe financial distress and possible default. History suggests that when a country is experiencing a solvency crisis, growth comes only after debt forgiveness, and many or most of those countries will also be forced into debt forgiveness.

    3. Political radicalism in these countries will rise inexorably as a consequence of rising class conflict. As Keynes pointed out as far back as 1922, the process of adjusting the currency and debt will primarily be one of assigning the costs to different economic groups, and this is never an easy or conflict-free exercise. Of course the less stable a government becomes as a consequence of this adjustment, the more likely it is to prefer very short-term solutions

    With banks crippled in their lending activities, Europe’s financial markets will probably go through a process much like that which the US experienced in the 1980s. American banks at that time were unable to fulfill their traditional lending function as they struggled to clean up their LDC and energy loan portfolios, leaving the way open for the likes of Drexel Burnham to create a massive junk bond market. This process will be helped to the extent that European policymakers try to avoid paying for the adjustment by liberalizing bank-lending practices.”

  24. One also wonders how we are going to pay back the EFSF, EFSM, and IMF starting in 2014 assuming not all the money is ten year duration. Even if it is, it’s an awfully big can to be hurtling towards at 2% inflation…

  25. @ De Roiste

    Prof Lucey will be very upset as his exclusion from that elite club

    @ Jarlath

    I agree that there are no plaudits in order for the negotiation of this deal. It was foisted on us and by all accounts its terms and in particular the interest rate pretty well follows a universal formula. Hard to see what we “negotiated” accept the deal itself, which needed a credible Budget and a 4 year plan. I don’t think Sinn Fein would have been able to negotiate a deal. FG/Labour would have been able to but it would not have been substantially different.

  26. Does anyone have a view on how the projections in the latest ESRI QEC might impact on the funding requirements in the EU/IMF support window?

  27. Do we have a State? There doesn’t seem to be anybody running it this morning. Mind you, we’ve been going around in a rudderless ship for some time now.

    Anyway chaps, as I predicted a week or so ago – lots of FF (and one PD) big name resignations coming down the line. What a chaotic mess. The EU/IMF must be wondering what on earth they have lent their money to. It’s starting to look a worse mess than Greece. Or even Iceland!

  28. Didn’t the ‘EU’ grant Ireland an extension of one year to get the deficit down (some hope)? Will that stretch the term of the bailout?

    @Joseph

    Listening to proceedings in the Dail yesterday one might be left with the impression that the asylum had burst its gates. By all accounts election call on a knife edge now.

  29. @Richard Fedigan
    I’ve read over both of the recent discussions on the CTR with great interest, but I have to pull you up on something – there is no way the low corporate tax rate policy could be described as “non employment creating”. On the contrary, it is responsible for the majority of gainful employment in the country at the moment, including all those businesses which are dependent on the expenditure of people employed by those MNCs.

    To industries like pharma and medical, taxation is a more sensitive issue than labour costs. If the tax rate is adjusted, they have threatened to and will indeed leave, which puts us staring down the barrel of sub-Saharan levels of unemployment.

    I agree and have long stated that FDI is only a stepping stone, not the final destination, and this is something whatever government takes over urgently needs to recognise, we need indigenous industries exporting, we need to leverage our cultural assets to enhance tourism, we need to move on from FDI, but right now changing the rate is out of the question.

    And this, might I add, is a question raisd by Sarkozy, the dimunitive thug who saw fit to outright threaten Ireland over the Lisbon referendum. He’s a politician with delusions of grandeur, and his own house is very much out of order, as JTO pointed out repeatedly in those threads.

  30. @ Ronan Burke

    ‘To industries like pharma and medical, taxation is a more sensitive issue than labour costs’

    Indeed it is. That’s because their ‘activity’ is much more about internal company finance than production as such. Their contribution to employment, is, as Michael H tirelessly points out, much more modest than you suggest.

  31. Why didn’t the useless shower of non entity ministers resign when it would have made a difference ? Did it take being betrayed by Lenihan over the IMF to wake them up ?

  32. @ Paul Quigley
    From Michael’s own site:
    http://www.finfacts.ie/irishfinancenews/article_1020849.shtml

    State agency Forfás reported last March that total permanent full-time employment in the manufacturing and internationally traded services sectors amounted to 272,053 in 2009. It was 276,287 in 1998. Employment in foreign-owned firms was 132,596 in 2009 and 140,281 in 1998.

    Factor in the multiplier effect, attendant services and suppliers, and this country would be completely wiped out without them. To seriously suggest they all have brass plate operations is to ignore the enormous factories in Dublin, Cork, and Galway which provide valuable semi skilled and unskilled labour positions.

  33. THe fact that this government has been allowed limp on until now, speaks volumes for the complicity of much of the population with what went on during the bubble times.

    I believe in democracy and public demonstrations should have been instrumental in forcing a general election before now, given the appalling mismangement of the country.

    My mother used to say to expect nothing and you will not be dissappointed – – a reflection of a time when life was an often a bitter experience.

    I did not expect much from Ahern but Harney must be the biggest political failure of her generation given her professed aspirations.

    The fact that they can skyve off with a jackpot while the lives of tens of thousands of people have been ruined, again shows that as we search for scapegoats overseas, we ourselves need to have a good look in the mirror.

  34. @Joseph

    The exit of Harney is long overdue. At present the benighted HSE is recruiting NCHDs from Romania to fill gaps such is the shortage of doctors, training posts and the reluctance of Irish medical graduates to remain in the country. I spoke to a friend of mine, a hospital consultant yesterday evening, who told me that his monthly net pay (public contract) would drop by €2000 net under the new taxes that’s on top of the 10% pension levy. His monthly gross is €15K but his take home will now just over €6K. Fine unless you have budgeted to live on more. Obviously, it must be pro rata disastrous for nurses and other front line staff all the way down. At this rate, he reckoned younger doctors and all genres of clinical staff would look to relocate to other Anglophone regions. An effective tax rate of 55% only applies to the public sector (the pension levy bumps up the %). However, given the numbers affected the knock on effect on employment in the retail and service industries will be severe.

    It must be obvious to anyone who can count that the deductions imposed on both private and public sectors will force more people into mortgage default (retiring Ministers excepted). Serving the public purse up to bondholders has made indentured servants of the entire populace – the legacy of Cowen and Lenihan’s bank guarantee and ‘cheap’ bailout. And despite the looming problems the government still has no long term plan to address mortgage default, negative equity and debt traps. Property still further to fall and unemployment further to rise.

  35. @Paul Hunt

    Does anyone have a view on how the projections in the latest ESRI QEC might impact on the funding requirements in the EU/IMF support window?

    JTO again:

    The latest ESRI forecasts are far closer to the Government’s than to the IMF’s, let alone the ridiculous Ernst & Young’s. The Government forecast a budget deficit of 9.4% of GDP in 2011. The IMF say it will be 10.5%. ESRI today forecast 9.5%.

  36. @ BW II

    I do not think you are getting the reason why some people on here are indignant. It is not the terms of the bailout deal that people think FF should be ashamed about…it is the fact that their stewardship of the economy and banking sector led us to that point….and now they are making attempts to portray it as a mini triumph on their behalf. Can you not see the slap in the face wrongness of our Taoiseach trying to portray agreeing an IMF/EU bailout as an excellent achievement..

  37. @JtO,

    Thank you. So the deficit will be below double digits and the BoP well in surplus (though it may be the private sector winding down its stock of debt faster than the government is building up its). We should be in clover soon.

    Btw, any thoughts on the ESRI’s emigration forecast?

  38. @Michael Hennigan

    Harney must be the biggest political failure of her generation.

    JTO again:

    Actually, if you could be bothered with anything so base as checking the facts, you would discover that Mary Harney presided over the biggest fall in mortality rates that Ireland has ever experienced, and one of the biggest that any country has ever experienced. Ironically, ESRI have a report out on the subject today, entitled ‘A Good News Story about Irish Health Care’.

    http://www.esri.ie/UserFiles/publications/RB20100401.pdf

    Infant mortality, old-people-mortality, heart disease mortality, cancer mortality, virtually all types of mortality – the mortality rates have come tumbling down since Mary Harney became Minister of Health. When there was a Labour Minister of Health in the mid-90s, mortality rates for all these stagnated and Ireland had among the highest mortality rates in western Europe. Infant mortality in Ireland in 1997 was the second highest in the EU. Today, it is one of the lowest. I predict that, if some Labour apparatchik takes over as Minister of Health, and, just like from 1994 to 1997, is far more interested in ideology and social engineering than in saving people’s lives, he/she will not achieve anything like the fall in mortality rates that have occurred while Mary Harney was Minister.

  39. @ JTO
    This is what Harney is walking away from :

    http://www.irishtimes.com/newspaper/opinion/2011/0107/1224286963047.html

    THE ANNOUNCEMENT by VHI Healthcare that it is to increase premiums for the majority of its customers by between 15 per cent and 45 per cent is a direct consequence of Government failure to reform both the health system and the private health insurance market.
    Despite libraries full of reports and rulings on health policy and health insurance reform, systemic contradictions remain

    http://www.irishtimes.com/newspaper/opinion/2011/0107/1224286963340.html

    A GERMAN study on social injustice in industrially developed countries has ranked Ireland among the very worst. There is no point in being surprised. That situation has come about through deliberate political choices and consistent personal selfishness. As the Celtic Tiger roared, the public was asked repeatedly to choose between the economic models of Boston or Berlin. It chose the former, with low taxes and limited public services. The result was entirely predictable, involving a concentration of wealth at the highest levels and greater social inequality. As the survey commentary makes clear, poverty in rich countries is not caused by fate. It can be dealt with successfully provided the political will exists. In the same way, social participation does not depend on economic strength but can be implemented among disadvantaged groups through priority-setting and targeted government supports. This is not rocket science. Many official reports that made these points have been gathering dust for years.

  40. @ Jarlath

    The whole debate has got surreal. Labour, for example, argue that if we had followed their suggestions we would have been spared this IMF intervention. Since their suggestion was to take the whole banking system into public ownership I would have thought we would have had the IMF in even earlier.

    FF are unfortunately retaliating against easliy made but totally unsupportable claims from the opp about they would have managed this oh so much better, by exaggerating their own achievements.

  41. @ JohnTheOptimist

    As Leo Tolstoy wrote about the battle of Borodino: “It was not Napoleon who directed the course of the battle, for none of his orders was carried out and during the battle he did not know what was going on.”

    Another fat report recenty dropped on Harney’s desk on solutions for the dysfunctional private-public health system and the State health insurer.

    I suggested in 2004 before Ahern appointed her to Health, that she should be fired.

    Of course, it would have taken rare genius to top the 46 reports commissioned by her predecessor, continuing schoolteacher, Micheal Martin. But what a comparison!

    Harney preferred fact-fing visits overseas with her husband in tow; $200 for a breakfast for 2 on the plonker taxpayer sureley takes some brass neck.

    As Leslie Nielson might have said, don’t call me Shirley!

  42. @Paul Hunt

    any thoughts on the ESRI’s emigration forecast?

    JTO again:

    Yes, a couple of things: (a) the numbers (b) the definition.

    First, may I suggest that you stand in the election on March 11. The Dail needs people who can analyse statistics intelligently, regardless of their political views. There haven’t been any since Garret Fitzgerald left.

    Back to your question.

    I don’t know if you followed the proceedings between myself and ESRI on this site since it was set up, which reached a climax a few months ago. Basically:

    Back in mid-2009:

    ESRI forecast net emigration of 50,000 in the year to April 2009. JTO forecast 5,000 net emigration in that period. Actual outcome, as published by CSO: 7,800, all foreign nationals.

    Roll forward to mid-2010:

    ESRI forecast net emigration of 70,000 in the year to April 2010. JTO forecast 35,000 to 37,000 (can’t remember exactly) net emigration in that period. Actual outcome, as published by CSO: 34,500, of which 60% foreign nationals.

    A bitter dispute then broke out on this site between myself and ESRI, as I challenged them to admit their error.

    Then, in their Quarterly Bulletin of October 2010, ESRI claimed that the CSO had got it wrong and that their own forecast was correct, even though the CSO’s record over the years is excellent. I dismissed this as rubbish.

    Now, in today’s Quarterly Bulletin, ESRI are implicitly conceding that the CSO figure was correct after all, because they now predict 100,000 net emigration between April 2010 and April 2012, and say that this will bring the total to 135,000 between April 2009 and April 2012 (their figures).

    Regarding their latest forecast, naturally the media report this as if it was a fact. But, it is only a forecast from an organisation which has greatly over-estimated the level of net emigration in the past couple of years. Looking at the figures from the QNHS for Q2 2010 and Q3 2010, and the PPSN numbers in the second half of 2010, it doesn’t look as if the level of net emigration increased from its level a year earlier (which turned out to be 34,500), although that is still early days in a year measured from April to April, so could yet change.

    The other point is that most of it is not emigration at all. Over 60% of it is foreign nationals returning to their own countries. People returning to their own homelands and their own families is not emigration. It does not require an accompaniment of sobbing and grief and violins. People leaving their own homelands and their own families may do do, but, in net terms, that amounted to zero in the year to April 2009 and 14,000 in the year to April 2010, far below the figures ESRI are banding about. If you followed the ESRI line, I’m an American emigrant, as I lived there for four months in the first half of 2010.

  43. @All

    March 11. The Ides are early this year … must be climate change I suppose …

    Euro meeting March 24 – doable. Prepare now … just take a look at K. Whelan’s figs above …

    Time for genuine republicans and pragmatic social democrats to front up ….. and a few savvy socialists and independents …. Irish Citizenry first an all that …. and a little matter of somehow legally, and justly, defaulting on a reasonable amount of vichy-bank debt (in a European context of course; we pay some, definitely NOT ALL) …. thus allowing for the return of Patricia the Sovereign_in_exile in the not too distant future.

    Blind Biddy informs me that President Mary probably did her best …. Biddy is now heading for ‘Kingstown’ to pay her deposit with an obsessive desire to oust A. N. Other Mary for cutting her Blind Disability Allowance … I haven’t seen her as chirpy in years …. she is singing, singing mind you …

  44. @JTO

    Harney wasn’t in Health for most the of the relevant period covered by the report 1997-2005, is that not so?

    She was in Enterprise and Employment (bit of an oxymoron now that unemployment and emigration are both on runaway trolleys) prior to that, stoking the ‘knowledge economy’ with big taxpayer cheques.

    Wonder did she trumpet that ‘closer to Boston than Berlin’ moment of wisdom to the IMF/EU audience?

  45. @JtO,

    Thank you. I’m not sure what qualities I have exhibited over and above those of others on this board to provoke your recommendation that I stand in the upcoming election. Even if it were feasible or possible, I doubt any of the existing factions would consider me as suitable lobby fodder. And outside of faction is political irrelevance. My only hope is that those who are elected will seek to assert the primacy of the Dail and will treat the new government as the executive that comes from it and is fully accountable to it. But there is an abyss between my hope and my expectations.

    Re the emigration numbers and definition, I take your points, but do you not think it possible that the split between returning non-nationals and departing nationals is changing – and changing to a majority share for the latter?

  46. @JohnTheOptimist

    The ESRI report you cite pinpoints the marked decline beginning in 1999/2000, which is a good four years before Mary Harney was put in charge of health. It also only goes up to 2005. On those figures, Michael Martin should be receiving the kudos. Two choice quotes from the report: “[T]he change in prescribing was most marked after the change in eligibility for the medical card. This shows the benefits that accrue from primary care free at the point of delivery…This research also suggests that taking medical cards from some over 70s and the recent introduction of the 50c prescribing fee may impact on health and mortality in Ireland.”

    So, in fact, mortality rates could increase under a Labour minister, but it would be, at least in part, due to practices introduced by Mary Harney and the current government.

  47. @Grumpy

    What do you think the total final cash requirement of the banks is likely to be ? Could it get to a stage where the ECB or whoever cuts off ALL support and orders them to be resolved ? The trend is very worrying. As Sporthog said a while ago , just when you think it cannot get worse it does.

  48. @seafóid

    I don’t know, but anecdotally there are a lot non-nama assets on the banks’ books that would be impossible to value – there is no bid for them and no sensible way of marking them either.

    Patrick Honohan did make one remark I found surprising on Vinny’s programme last October(ish) wrt the valuations used for NAMA, to the effect that commercial real estate prices were increasing in the US “or so I am told”.

    There weren’t and aren’t especially for non-investment grade stuff. It actually sounded as though he had just taken someones word for it at the central bank.

    Just makes me wonder about how many questions might have been asked about the non-ECB elligible stuff the central bank took on.

    If they have looked the other way then at some point the central bank could be adding quite a bit to the national debt – or at least that’s the way it appears.

    Very surprised there hasn’t been more analysis of this, or maybe I missed it.

  49. @ Ronan Burke

    ‘To seriously suggest they all (MNCs) have brass plate operations is to ignore the enormous factories in Dublin, Cork, and Galway which provide valuable semi skilled and unskilled labour positions’

    I fullty recognise the historic problem of unemployment in Ireland, and I am glad to see anyone get opportunities through the MNCs or otherwise. Of course most of them do real economic activity, and there are real skills transfers, but it is not on anything the necessary scale.

    What I am saying is that the dynamic of MNC presence in this state is looking more and more like a tranfer pricing/copro tax take deal than a genuine development in the real economy.

    MNC financial flows have had a thoroughly distorting effect on our domestic economy, served to to conceal unsustainable rises in inflation and unit labour costs, contributed to a fatal hubris, and served to delay necessary corrective government and regulatory action.

    We were never really near to Boston and now we are moving away from Berlin too.

  50. @ BW II

    Talking about what other people may or may not have done is not a legitimate defence for your own failures and mistakes.

  51. @ Jarlath

    “Talking about what other people may or may not have done is not a legitimate defence for your own failures and mistakes.”

    I don’t follow your point. I have made no failures or mistakes. FF do not actually talk much about what other people may have done, as you point out they focus more on exaggerating their own achievements.

    It is I think legitimate for me as a non party political person to stand back and compare what the government have done with what the opp say they should have done.

  52. @ grumpy

    Would it be fair to say that the banks are still losing large chunks of deposits and that they have run out of repo-able assets ? So now they are relying on the CB to print money ? Is that it? Where is this going ?

  53. @ BW2

    FF had a fine house in 2007. They burnt it down a few weeks ago. Now they are saying that the arson was in the best interests of the people .

    Batt O’ Keeffe, Noel Dempsey, Tony Killeen and Dermot Ahern know that FF has betrayed the people and that the spin now is just bilge. You are wasting your time bringing in the opposition. In time they will make their own mistakes but this failure belongs to the Republican party.

  54. @Ronan Burke
    @Paul Quigley

    Ronan, you are right to pull me up on on having omitted “no net increase” from my comment on MNC employment which I did not intend to denigrate. I believe this correction puts me in line with your, Paul Quigley’s, Michael Hennigan’s and other comments.

    Let me try a very simplistic (logic) equation:

    Low CTR ( pissing off our EU partners) = US MNCs only reason for investing in Ireland ( but not forever)= 90% of our exports = our only driver of growth over the next few years = our only chance of paying off the debts we’ve negotiated = something over 400,000 remaining unemployed= emigration= need for a NEW “industrial” strategy that will incorporate de facto emigration as an integral, skills, experience and revenue acquisition element of this new strategy because the new strategy, if it concentrates only on the domestic economy will not “work” fast enough to mop up all the unemployed!

    = Unsustainable existing “industrial” strategy and the urgent need for the designation of ONE body to be accountable for the process of formulating the new one, NOW. (The day after the election of the next government).

  55. @ BW II

    That wasnt intended at you, it was a comment on FF’s method of defence.

    “FF do not actually talk much about what other people may have done”

    Could not disagree with you more on that one, near as i can tell, a FF politician cant open his/her mouth without first establishing what they believe fine gael/labour would have done 5 or 6 years ago during the bubble or 2 years ago at the onset of the crash..and how it would have most assuredly resulted in the meltdown of our economy…..to be fair, i do always get a laugh out of that one…

    My belief is that politicians should be judged by what they do, not by what they say they will do, the 2 are often miles apart…. Hence, fianna fail deserve to be judged. The rest of them have to be tolerated till we see what they can do. IMO.

  56. @seafóid

    No evidence of significant deposit movement post bail-out deal. It is known they were close to running out of anything the ECB was authorised to take. In November there was over 15bn in emergency funding but just 2bn net in December.

    The total that you could assume would not be elligible at the ECB is about 45bn. It will have to be unwound eventually.

  57. @ Jarlath

    Last point is a fair one. I guess I tend to support the underdog and as dogs go they don’t any further under than FF.

  58. Karl,

    Thanks for letting your many readers know what those, who might fund Ireland, already know. We are on our knees …. A posture suitable for Irish politicians, but not for “a sovereign state”.

    Emigration up, unemployment “stable” for the moment. After the election, the banks will let their surplus employees go, causing an immediate increase in despondency. Luckily, the government controls those who control the banks. Luckily for the government that is.

    Deposits declining, as the euro drops. Hence the need for new “money”. Most readers do not understand that money is created out of thin air as rapidly as required.

    http://www.weforum.org/news/over-us-100-trillion-additional-credit-needed-support-global-growth?fo=1

    Clearly, even your dumbest readers, obvious by their comments, may consider that such credit creation might be capable of disturbing the system and the small “mare’s nest” that is Ireland?

    Your detail may obscure realities more fundamental than timing and begging bowl attitudes in Ireland? I understand why you choose to understate the realities, of which you and Morgan Kelly are fully aware? It must be odious to have to live alongside the blissfully and wilfully ignorant, who aspire to honour by lying about the dire straits Ireland is in? There is no need for you to expose yourself to their carping when the reality will become plain to all soon enough?

    The IFSC, like Carthage, is still around, threatening everything! I see no murmuring from the EU that the 12.5% rate be withdrawn from there!

    I wonder how many more conscience stricken Swiss bankers it will take before the rotten house of cards will become evident to the media?

    The international bubble has moved on from housing and land, to sovereign credit! What sort of devastation will the loss of value, that always accompanies a fiat collapse, cause to Ireland?

    How will Ireland prepare for that and will the example of plucky, honest Iceland stand to Ireland? What sort of courage did it take for them to defy the EU? Obviously, the Irish will have to be desperate to follow them. I predict that this will come about, but only after far more capital is actually burned by Ireland, sadly. The lack of leadership is the most apparent attribute of EZ countries. The UK, by helping the GFC come about and staying out of the EZ, has many options open to it. Ireland has one: kneepads!

    George Lee realized what he was up against and funked it. He was merely following the herd? Ireland has decided that to be a parasite, even on a rotting corpse, is the only way to avoid reform and the slaughter of all the sacred cows it has nourished for so long. No wonder the stench is so bad that those who cannot abide it are leaving.

    Such a shame to waste a crisis!

  59. i.e. IMF may, due to some procedural changes, ….. wait for it …. REDUCE the 3.1% interest rate on the €20 billion plus ……….

  60. Again, thanks Karl.

    The main issue for me seems to be the fact that the state’s finances will still be on a precipice from 2013 on, with an annual funding requirement of tens of billions, a very high debt/GDP ratio (and an astronomical debt/GNP ratio), debt and interest payments being sucked out of the economy at a fierce rate and no immediate prospect of an increase in employment at the scale we need to reduce emigration or unemployment.

    The overall drive of current policy from the govt in the 4-year plans, and from the potential incoming govt is to keep us bumbling along the edge and to hope that something will turn up.

    Is it just me or does a govt need to be taking fairly dramatic action to provide any home of a medium or long term future? I realise (before JtO points it out) that the internationally traded export sector is doing fine, but I’m more inclined to Michael H’s sceptical view on its ability to rescue the domestic economy.

  61. @Karl

    Thanks for working out the numbers.

    The general public seems to be saying, yes, the IMF have come in, but at least we are now in the clear and will be looked after, albeit at a high cost to the taxpayer. There are still risks – and there needs to be serious public consideration of how the national interest might be protected.

  62. @ Aine

    ‘There are still risks – and there needs to be serious public consideration of how the national interest might be protected’

    After every bust comes the allocation to different sections of society. A lot of effort, and money will go on making sure the burden falls on others. It’s not quite war, but it is a brutal process.

    The deferral of change on property-related tax reliefs shows how little our state has really changed, and how much more pain wage earners will be taking in coming years.

  63. @Paul

    No argument that everyone would like everyone else to take more – or even all – of the pain. My point is that there doesn’t seem to be any general awareness that Ireland isn’t out of the woods yet, and that there are different challenges ahead. If the can has only been kicked down the road to 2013, then this has implications for the government we’ll be voting in in March.

  64. @Karl,

    Interesting post. I have done the arithmetic on the Greek bail-out and my conclusion is the same: Greece’s debt servicing needs actually exceed the size of the EU/IMF bail-out by the end of 2012, before the lending facility expires.

    On your point regarding Ireland raising short-term debt in the markets, I would would not be so sure this can happen at reasonably borrowing costs . I have posted on this on the EIU euro crisis blog (eiueuroareadebtcrisis.wordpress.com, “Greek and Irish T-bills: high reward without the high risk?, January 16th). Greece has been issuing T bills monthly and investors are demanding very high yields. I expect the same would be the case for Ireland. One might expect investors to feel reasonably confident that, with an EU/IMF bail-out behind them, Greece and Ireland will not default in the next three-six months, but the yields do not seem to reflect this. My best explanation is that markets are not always efficient and often passing fads supercede logic. In any case, factoring this in might take your estimate for the amount of funding Ireland will need over the next three years a bit higher.

  65. @Megan Greene

    I detect some signs of realist sanity emerging in Germany (excluding the FPD) but see little signs yet in France. How do you read this in the build up to March 24 meeting?

    Trillion and a half or so in a new ‘bail-out’ fund, and a nod to buy-back Irish vichy-bank bonds at 90% ain’t going to prevent an eventual Irish sovereign default in medium term due to the lunacy of the Irish blanket bank guarantee in Sept 2008 and conflation of bank debt [owed to France, Germany, UK) with sovereign debt, imho.

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