Rossa White on Irish Debt

Rossa White (Chief Economist of the NTMA) has written an article on debt and sustainability issues – it is here.

37 replies on “Rossa White on Irish Debt”

Phew. Seems Whelan wrong, we WON’T need a bigger bailout.
Rossa doesn’t quite use the “corner” phrase but v close. There’s also a “don’t scare the horses” (which in any case have long bolted) air

At long last. We have the voice of the ‘permanent government’. We’re going to stick to our last and, though it might be a ‘damn close run thing’, everything will be fine. It just shows how irrelevant all the posturing and shape-throwing in the election campaign is.

It doesn’t, of course, address the extent to which we have lost the trust of our EU partners and major market participants on whom we are relying to keep this show on the road. ‘Trust’ is a tricky concept for economists, best left well alone, but it is the glue that holds economic and financial systems together. Relying on the law and the courts to enforce every aspect of every contract would be pretty inefficient. And there must be trust in legislators and governments to enact and enforce the necessary legislation.

However, Chancellor Merkel seems determined not to take anything on trust from her EU partners any more. This ‘competitiveness agenda’ is merely a front for fiscal governance in the German mode. This is the quid pro quo for any innovative expansion of the EFSF that might provide some relief to the beleagured peripherals. It is also interesting that the senior politcians are grabbing control of the EU project back from the Commission. The ability of the Commission to advance initiatives like the woefully designed EMU and the EU Consitution will be constrained significantly.

This, I think, is where the game is really at – and there seems to be so little understanding of how it will impact on Ireland or of what Ireland needs to do to regain the trust of its EU partners and the markets who may fund us in the future.

I don’t think that the trust of our EU partners is uppermost on the minds of this electorate. This election is being watched with great consternation in many quarters. The threat posed by Ireland is one of rebellion. Will this country call time on the Euro? Personally, I hope so!

The complacency in White’s article is staggering. He anticipates no new shocks such as interest rate hikes, commodity price spikes or further pressure on our banks.

I liked Cormac Lucey’s article in B&F this week. A succinct summary of debt position even though he was not able to give a detailed position regarding the banks debts. Nor did he comment on the Emergency Liquidity Assistance issue. I don’t think 193 billion Euros in recent months in an effort to staunch the hemorrhage of foreign deposits is a “wild exaggeration”.

Why is there a continuing run on the banks? Because the markets do not believe the ECB will continue to backstop the losses. The twist is that the Irish Central Bank has become a proxy ELA dispenser for the ECB (51 billion in mid January).

Rossa Whites understates our debt crisis if anything and he is wrong to rely on us growing our way out of this mess.


“Why is there a continuing run on the banks?”

I raised a similar question on the ‘renegotiation’ thread recently. With so many ‘foreign’ deposits taking fright and then flight, one has to wonder how much longer can Irish High Street banks keep their doors open and their ATMs full. Does anyone possess data on interbank transfers between branches of domestic and overseas banks on the island? All flavours of waffle from plain vanilla upwards are being bandied about by the political parties at the moment, but none of them seems to have picked up on the significance of the recent accelerated capital flight. The consensus is that it is unlikely, but not impossible, that the euros in one’s account could at some point in the immediate future be recast overnight as new punts. Apparently the country still has a Minister for Finance but he seems remarkably silent on the risks. What do the economists think about the risks?

We know that there is strong domestic resolve across the political spectrum to produce a healthy primary budget surplus, eg the surplus ex-interest payments by 2014.

I would like to believe in the strength of this spectrum-wide resolve, but I really can’t say that I know it exists. Has anybody else seen it?

“assuming that no further public funds are required for bank recapitalisation above the €10 billion committed in advance of PCAR II”

I have an old Volvo I’ve been trying to sell for a while.
It must be time for another Donal O’Mahony op-ed in the Irish Times. Surely has has regained his composure by now after the crushing blow that was the visit of the IMF.

I’ll believe the Pollyanna stuff when I see the 10 year yield coming back down to what Belgium is paying.

It is a little confusing.

We rightly don’t wish to have IFSC foreign bank data in the confusing BIS figures; we will run a full-year current account surplus for the first time since 1999 but apart from low imports, the rest is bolstered by the earnings of foreign companies.

When the public debt was low, Irish private debt was high; conversely for Italy.

Italy now has high public debt and low private debt; we have both high public and private debt.

@Mokabaybob: “The complacency in White’s article is staggering.”

Its called Hopium Smoking in polite circles. I have no idea what he understands by ‘growth’ – this piece of string just seems to get longer and longer – like Pinocchio’s nose.

I really wish econs, or anyone else commenting on economic activity, would clearly describe and explain their concept of ‘growth’.

@ The Alchemist: Some time back we had a ten week bank strike. The levels of financial and monetary inventivness to cope with the closed doors was truely amazing. Someone should have written up that story. And, the Sky did not fall in. Have faith (or whatever). Better get out my pack of nicotine reduced Hopium!


To his credit Mr. White

I legged it out in 06/07 and went to France RWC!

But if I am reading his figures correctly there is a $67.5 bn dollar hole in his figures re. FT overestimation of $85bn – am I correct in this? What are the consequences of this type of gap – are there anymore and has this guy gone ‘native’?

I am just hoping he still is as he was in ’06 and prepared to advise against the prevailing flow – would like to hear more detail and objective information from this source.

It is hard for people to get their heads around the issues – particularly given the inherent bias evidenced in the commentary. Also the pitch has shifted considerably over the last 3 years making it easy to pick holes in current positions by using previous arguments – let’s not forget Brian Lucey once told us the Anglo problem could be solved by selling it’s deposit book !
Overall there is no denying the strength of our exports, there is no denying our current surplus, our improved competitiveness, our high employment, our high education. Also the inaccurate reporting of total indebtedness figures is unhelpfull and should be challenged by ALL irrespective of political hue.
Equally we have massive unemployment, massive waste of public money and a massive problem in our banking sector that needs external help – we cannot solve our problems on our own. Suggesting we could live without banking or we could always pop back to the punt is unhelpful – we can do neither. What would really help would be if all the public paid economic geniuses (who in the main became wise and/or vocal after the event) set aside the smug sneering tone and actually tried to help us out of our current mess rather than continue to hurl from the ditch pointing out the errors being made on the pitch.


“What would really help would be if all the public paid economic geniuses (who in the main became wise and/or vocal after the event) set aside the smug sneering tone and actually tried to help us out of our current mess rather than continue to hurl from the ditch pointing out the errors being made on the pitch.”

This is a tad unwarranted – and on a number of grounds. First, there are relatively few economists with the competence and experience in the, often quite narrow and specialist, fiscal, monetary, financial and banking policy and regulation areas. Secondly, those that have are either engaged to some extent or other assisting the government machine or, in particular those on this board, are commenting, writing op-eds and seeking to inform the public. Thirdly, and related to this, the opportunities to contribute, unless co-opted within the government machine are extremely limited. Assisting the work of Oireachtas Cttees or making submissions to them is valuable and useful, but because of the executive dominance of government, these Cttees have a negligible impact on policy formation or scrutiny. (This, of course, is somthing that should be addressed as a matter of urgency.)

And we shouldn’t underestimate the reluctance of the government machine to seek out and welcome external expertise and advice – and the sheer lack of interest of most senior politicians in detailed policy issues (unless they can spin them for factional advantage).

The failures are institutional and procedural: academic economists should not be pilloried because they have been officially marginalised. In any event, as I have mentioned previously, if all living Nobel Economics laureates with relevant expertise had paraded weekly in front of Government Bldgs. since 2000 decrying public economic policy, they would have been ignored.

Rossa White is on that frightening slope for a man in his position, from the sublime to the ridiculous.

Or in his case from Davy’s to the NTMA.

I have read some utter nonsense since this whole debacle kicked off back in 2008 but this attempt to smother the truth is bordering on insanity.
Read this article with suspicion is my advice. Then read the article on the opposite page of the IT by John McManus and try as hard as you might not to be cynical about the current mind set of the NTMA

@ PH:

I was going to pen a short reply to Adrem. Your is much better. I fully concur.


If use of BIS data is damaging to the State interest by allowing overestimation of exposure, then the State should produce its own numbers rather than forcing people* to estimate using inappropriate data.

*(i.e. the economic illiterates in the meeja, whose editors are making them write copy cheques their education can’t cash – like if you got me to write said copy)

I tend to agree with Adrem. At least Rossa White is spreading some hope around and I don’t see anything wrong with his figures. The trendy economists seem to do nothing but criticise the establishment and spread a negative message about Ireland internationally. By the way I also admire Antoin Murphy and John McHale who are not afraid to challenge this consensus of negativity which seems to pervade the media nowadays.

@ Michael

‘Pervasive negativity’ is the consequence of economic relativity, relative to others our position is negative. If however the debt laden, more accurately the immesurably debt laden Irish economy was to be compared to that of ancient Gaul no doubt the messgae would be more positive. I dont see the need for emotion or opinion, the facts speak for themselves

@ Rich

not entirely sure how your view that:

“I dont see the need for emotion or opinion”…

tallies with your previous comment that:

…”helpully Rossa White and lotta shite rime”

Interestingly, no one appears to have actually disagreed with any of Rossa’s major points. The general reaction seems to be a combination of “he used to work for Davys” and “he now works for the NTMA”. Skepticism is all well and good, but simply ignoring all of his points without much of a rational retort seems a bit myopic in the extreme.

Would like to see his model & assumptions before making judgments.

-Usually it is easier to have impressive % growth figures from a low base so I have some doubts about how it easy it is portrayed to be.
-Quite a lot of deleveraging to be done still just to come down to european average. Might need to go even further as some might not like the idea of being in negative equity.
-Salaries & costs were controlled in the export industry during the bubble years, I wouldn’t expect salaries to go up a lot with the current level of unemployment.
-Taxes went up (necessary), still it will decrease domestic spending/economy.
-Mortgageholders might be getting hit by increased interest rates, if it happens it is likely to decrease domestic spending/economy.
-Renters are blessed with lower rents, if I’d be still living in Ireland I’d move to better accomodation for the same rent & if others were to be do the same then no big effect on domestic spending/economy.

If his model and assumptions are correct (which are not available for analysis) then we might be able to evaluate his prediction.

& a basic question, who are ‘we’ as referred to in:
‘We know that there is strong domestic resolve across the political spectrum to produce a healthy primary budget surplus, eg the surplus ex-interest payments by 2014.’

I’m not yet convinced by how the Irish politicians are dealing with or proposing to deal with the situation & quite frankly I have doubts about their resolve.

@ Eoin

Why has the 10 year yield been above 8% since the beginning of November? I am all for giving a man a fair chance but why isn’t the market listening? Any sign of that NTMA roadshow yet ?

How likely do you think it is that €10bn will be the end of the banking recap?

I thought this was very poor form coming from the chairman of Anglo who hasn’t done anything to protect the taxpayer in that role.

Madam, – Sarah Carey’s comments “Angry men lack the courage of conviction” (Opinion, February 3rd) contained more political insight and democratic common sense than a month’s worth of Fintan O’Toole’s ramblings. – Yours, etc,

Tully West,
Kildare, Co Kildare.

@ Jesper: “Would like to see his model & assumptions before making judgments”

I second this: Wish more would demand that commentators put their economic models where their mouths are. You cannot realistic critique someone’s comments if you have to infer their Reference Frame.

Just to correct the current level of Neg Eq in the residential market (which will decline even further by about 50% – 70% of present value!), we would need +7% ‘growth’ for 10 years!


For what it’s worth, I have a few specific issues with Rossa‘s analysis.

1) We are moving beyond the point where private and public overseas debt are fungible. The idea that the overall balance of payments, private plus public, is what matters is based on the assumption that the government can take control of a private sector surplus to service its overseas obligations. There is obviously some truth in that, but I think that government debt is stacking up so fast that at the margin it no longer reflects reality. While Rossa may be right that we are not living beyond our means, I think it is the case that the Government is living beyond our means.

2) Irish unit labour cost data are extremely misleading as a competitiveness indicator. Irish unit labour cost data look as if they have moved back in line with the rest of Europe because of an explosion of productivity in pharma, which has no competitiveness implications elsewhere in the economy, and a collapse in low productivity construction employment, which does not have a major immediate impact on the competitiveness of the rest of the economy. Moreover, a lot of the rest of unit labour cost gain over the years has been in areas of productivity proprietary to FDI companies, which could just as easily benefit them elsewhere in the world, and therefore do not genuinely contribute to Irish competitiveness.

3) As has been hashed out here many times, figures for total exports are by themselves an extremely unreliable indicator of real economic activity in Ireland. Exporting an extra 20% value of pharmaceuticals or software may have virtually no net impact local to the Irish economy. When I see someone quoting exports as a strength without deeper analysis, I assume that I can safely ignore whatever point is being made, because the point is being made in the absence of useful evidence.

4) The discussion of primary budget surpluses is referenced to GDP, which is a poor measure of the tax bearing capacity of the Irish economy. GNP isn’t a perfect measure either (Karl is spot on in his technical criticism), but as a matter of coincidence as much as anything else it is in the right ballpark. GDP was 11% higher than GNP in 1992, but the gap has widened to 22% in 2009. As a consequence, Rossa’s comparison with the early 1990s will look sigificantly worse if re-referenced to GNP.


I agree with you on the “hurlers on the ditch” and “I told you so merchants” that have very little positive to offer on how to deal long term with our economic problems. I do commend John Mc Hale for his positive attitude to dealing with our problems.

@Paul Hunt

We have every right to pillory Academic Economists who were for the most part asleep in the passenger seat when the so called Celtic Tiger/Property Bubble was running headlong out of control. To say that there were not many qualified in finance and banking at the time who could have seen this is quite amazing when in the space of two years they have all become selfproclaimed experts in this area ready to appear on any TV/radio panel at the drop of a hat. For my part I predicted the demise of the Property Bubble to clients in 2002 which was five years too early.

I really liked this article. It was clear and simple.
This is what it seems like to me – the relevant banks owe about 280 bn. They in turn are owed about 330bn by the Irish mortgagees.
If the mortgagees could pay off their mortgages straight away then the bank debt would be paid off and we’d all be ok.
But, obviously they can’t.
What if the government was to pay off the mortgagees debt for them and take over their mortgages? So, they recapitalize the banks by taking over their mortgages.
It has the advantage in that the government has “an asset”. The government can set the conditions of mortgage repayments (low interest in times of recession and increase interest rates when we recover) and would limit the number of repossessions.
Is it a runner?

Having read the article I am surprised by the paucity of hard figures. No reference is made to private debt and the abilty of Ireland to shoulder interest rate on the public debt depends very much on the extent of that public debt, Kiberd in the Sunday Times suggests €300 billion is the current public bill. The interest bill is estimate at €10 billion annually on a fraction of this

The balance of payments surplus may indicate we are living within our means but is it enough to pay our debts? Irish balance of payments is a red herring in my opinion, repatriated profits through multinational adjusted pricing for corporation tax purposes explains away this surplus

No refernce to the ongoing bank run and associated credit crisis

The last refuge of a scoundrel eonomist, waiting for the patriotic call to arms in the sequel

@ Eureka 8.39

Sounds like a plan.

Anyone disagree?

How do we account for inflation/deflation of asset values relative to current market conditions over the term?

Wheres the split?


‘Comment is free’; and I take your point that it seems to have become far too free and easy. But in response I would like to make two points. First, the unholy consensus that emerged to participate in, fuel and cheer on the bubble economy brooked absolutely no dissent – irrespective of whether or not those who dissented, in David Begg’s words, were ‘persons of standing’.

Secondly, the process of policy-making and governance does not allow the adversarial contest of ideas and concepts supported by evidence to provide the basis for sensible decision-making. Policies are cobbled together in close to final legislative form by a cabal comprising a minister, special advisers and senior department officials (influenced by who knows what special interests and, occasionally, tame external consultants). And the legislation is rammed through the Oireachtas by the government whips with totally ineffectual ‘debate’ and scrutiny. Little wonder that we’re in this mess.

Until the Dail and Oireachtas Cttees have the power and resources to compel Ministers and their advisors and official to front up before the Cttees and to retain expert advice to subject policy proposals to scrutiny and contest we’ll get the same balderdash being steam-rollered through.

It’s the absence of a proper forum to thrash out policies in an adversarial manner that is creating the vacuum which is being filled with so much noise.

Could I ask a question. Could one of the many fine economists here tell me what effect say a 2.5% cut in our corporate tax rate would have, a) initially in oyr tax take b) the medium term effects on our tax take say 5 years hense? What might the employment creation effects be? Could any of the politicos here calculate the potential effects such a move would have o Sarcozys blood pressure and is there a corrolation? No, seriously if 12.5% is good then surely is 10% not better? A debate now during the election on LOWERING our Corporation tax would send out a very strong message to both sides of the atlantic.

“Interestingly, no one appears to have actually disagreed with any of Rossa’s major points. ”
I’ll disagree.

The immediate liabilities of the Irish banks are not the only concern.

In the first place, I believe the figure of 135% of GDP to be mistaken. At end of Q3 2010, there were 147 bn of assets guaranteed under ELG. Recently there has been about 140 bn between ECB repo and ICB ELA. I am sure there is some crossover between the two, but we are probably looking at 250 bn between the two figures. Add to this DGS liabilities. The Irish DGS covers a wide range of institutions in the state, not just the banks resident here. How much it is, I’ve no idea, but it is not a trivial amount.

This is before the 150 bn of national debt is added in…

Now, Mr. White is careful to say “total banking liabilities guaranteed by the State”, but this is a total strawman. The problem is not one particular aspect of the debt burden, it is the totality of it relative to income.

And on the income side, touting Irish export performance is all well and good, but it hasn’t amounted to increased tax income (despite rising rates). Exports that don’t produce jobs and that don’t purchase domestically are pointless. Seamus Coffey has a series of excellent posts on how there has been no real change in the value of exports to the domestic economy despite their increased volume.

So the two problems remain – a potential government debt burden in excess of 200% of GDP and an income level of barely 30% of GDP to service it.

Given spoof and bluster worked so badly with the problems we have faced, one wonders why it is persisted with. And then one remembers… it is what institutional Ireland does best.

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