Colm McCarthy: Ireland Has Lost Capacity to Borrow

Colm McCarthy has yet another important article in the Sunday Independent: see here.   I would be somewhat more positive about what was achieved this week with the stress tests (and associated recaptialisations), and also the strengthened commitment from the ECB to continue to act as lender of last resort.   But Colm is right that the critical next step is to demonstrate the capacity to push through with the fiscal adjustment.  

Ireland has lost the capacity to borrow and has been forced into rescue by official lenders. Any country in this desperate position should be making every effort to get the deficit down as quickly as possible.

The decision by the coalition partners for a relaxed programme of deficit reduction is a cop-out on, critically, the one dimension of macroeconomic policy entirely within our own control.

There is no shortage of wishful thinkers offering snake-oil solutions, including unilateral default or leaving the euro. There are no useful unilateral options available to my knowledge but the surging debt mountain is controllable.

A relaxed timetable for deficit reduction means the eventual debt will be higher, and the debt service costs costlier, for the debatable benefit of postponing adjustments which cannot be avoided. Government revenue must increase, and government spending must fall, in any plausible scenario, which means higher taxes and further spending cuts. Higher taxes are coming, everyone knows it, and no useful purpose is served by pretending otherwise. The 2011 levels of current and capital spending cannot be sustained even with large further tax increases. The soft option of borrowing indefinitely is not available unless the IMF/EU, the only lenders, decide that Ireland should be financed into further insolvency.

42 thoughts on “Colm McCarthy: Ireland Has Lost Capacity to Borrow”

  1. I posted a link and a comment on the “celebrity economists” thread but it seems to be stuck in some moderation limbo. Herewith the element of most relevance to a very significant article by CMcC in my opinion.

    I would, however, have two points; he says.

    “The Irish State is insolvent and headed for sovereign default. This is not my opinion, it is the opinion of the credit markets to which the Government must return within, at most, about two years”.

    That is the job of the credit markets. They have skin in the game. It is quite a different matter with regard to policymakers who cannot invest in a CDS to cover against any misjudgement. The fact is that we do not know what will happen (one eventuality being that we may not have to return to the markets in two years). As one commentator (Richard Curran) has just pointed out on today’s Marian Finucane show: what we are hearing from Brussels is “work the programme” and then we (i.e. they) can decide.

    This brings me to my second point. Colm McCarthy states that the one action still a matter solely for decision by the government is to move to reduce the fiscal deficit. What seems to me to be missing from the analysis is the extent the influence of the new government’s pusillanimity on this essential point is having on the assessment currently being made by the markets of Ireland’s overall financial situation.

    I am certain that it is a major one and it is action on this score that both the markets and the “international partners” wish to see and until it happens they may well stick to their hard-line position on easing the EFSF interest rate.

  2. My problem with this analysis is that it presents only part of the solution. There must be an attack on the illegality of what has happened as well.
    The question of constitutionality is brought up again here
    http://www.independent.ie/opinion/analysis/brians-couldnt-help-it-it-was-just-their-nature-2607414.html
    I can’t fathom how they be in hoc for the debts of some property developer they never even knew.
    It is contrary to protecting them from unjust attack. It is just mind boggling that the debts of one private individual can be assigned to another. It implies that anyone of us could be liable for the debts of another at the whim of two ministers acting without cabinet approval.
    I am sure this must be unconstitutional and think that most Irish people would be willing to pay something to have this tested in the courts of the land.

  3. So ‘Grainne O’Mallie’ has finally become wedged on that well-known reef; Rock-and-a-Hard-Place! We should open a Book on the possible Houdini-like contortions our politicians-in-gov will exert to extract themselves.

    Actually, we should make a list of the actions they will NOT contemplate 🙂 Probably be more fun.

    Alchemist! You know that bag I suggested you keep punching on! Well, having re-considered the spreading res property mortgage swamp, I recommend you sub a pickaxe handle for your fist! More satisfying thunk!

    In respect of the ‘markets’. Just exactly how much of their money is real, like cash, and how much is virtual – like credit? Surely you cannot ‘lose’ something you never possessed? Or am I confusing a fantas(tic) possession, with a futur(istic) one? Hmmmm.

    BpW

  4. I hope Paul Hunt will forgive me if I lift some important points that he made on the thread dealing with the ECB.

    QUOTE But two further points are relevant. Karl Whelan may perceive the ECB as being threatening, but it is struggling to plug a serious governance vacuum in the EZ and the EU. There is a serious democratic governance deficit in the EU and this has yet to be addressed. Ireland not only exploited this lack of effective central governance, but failed to develop its own. So this is a double whammy.

    Secondly, Colm McCarthy along with the FT, The Economist and other high profile organs and commentators are highlighting the fact that the sovereign bond market is unambiguously saying an Irish default is inevitable. (I sometimes worry about the objectivity of UK-based organs given their instinctive distaste for the Euro project. I’m prepared to give the ‘respectable’ ones some leeway, as it may be motivated by a recognition of the democratic governance vacuum which I see as the fatal flaw.)

    But is it not possible that these sovereign bond market players who gloriously under-priced risk in the run-up to this bust are now over-shooting the mark in the opposite direction? And, alternatively, but possibly reinforcing this, is there not also the possibility that, now that they may have analysed the Irish economy more closely they did previously, they see immense political opposition to the kind of very necessary internal reforms that would greatly enhance Ireland’s debt service capability? And that the absence of these reforms will impair debt service capability and justify current yields? UNQUOTE

    On the first point, the ECB, far from being the ogre that it is sometimes portrayed as, is generally viewed elsewhere as the hero of the hour and the only EU institution that has functioned with some degree of success. In short, it has filled the governance vacuum left by incompetent politicians right across Europe.

    On the second point, I would suggest, although I underline that I have no expertise in the matter, that the success or failure of the ECB in quarantining the sovereign debt crisis (and sovereign and banking crises are difficult to separate everywhere, although Ireland made any separation impossible) to Greece, Ireland and Portugal will become evident over the coming months. Likewise, whether Ireland can or cannot decouple from the other two countries should be evident in the trend – not the amount – of bond spreads between them.

    If the creditor countries of the euro area have a titter of political wit left, they will move on the EFSF interest rate even if very little is offered in return and not just because of the tardiness with which the two coalition partners are facing up to political reality but because the rate is based on false assumption with regard to moral hazard.

    One can also hope that the Irish “diplomatic onslaught” now promised will be treated with the seriousness that it deserves.

  5. Sorry – my post got a bit mashed. It was meant to read:
    I can’t fathom how our children are now liable for debts of a property owner they never even knew.
    It is bizarre and must be illegal

  6. In Colm McCarthy’s aricle he says: “The Irish Government will spend (at least) €18bn more than its revenue this year, with further huge sums adding to the debt in future years.”

    And ideas how this figure is arrived at?

  7. Eureka, sadly many things which governments do are bizarre but legal. The decision of the two Brians was ratified by the Cabinet and the Dail. It has cost holders of sovereign debt a fortune — if they could obtain redress by appeal to the courts I’m pretty sure some of them would have tried that by now.

  8. I suppose we need to step back and take stock. We have been cut off from credit markets for more than two years, but only now are we prepared to accept that we have been frozen out for what will perhaps be a long time.

    We have to somehow find a way to move forward purposefully. There are many people to blame, but those that carry most responsibility are our own dear leaders and their developer/banker paymasters. They MUST be prohibited from ever having the power to do this again.

    We can’t blame the ECB for insisting that the Irish government stand behind the guarantees they made. Once that guarantee was established in 2008, the private sector got their exit route. They pawned their crappy Irish paper at the ECB for hard cash and the ECB were bounced into accepting it because our leaders said they’d stand by it. Now that the ECB has bigger problems on it’s hands (Portugal for instance) it needs to unclog it’s own balance sheet. Why should it accept losses as a result of our government’s actions?

    It’s time for creativity and I don’t see much of it in the discussions. Ireland is creeping towards disaster as it discusses, on the one hand, who to blame (ECB, EU, Last guys etc) and on the other default/ kick it forward.

    The fact is, the Irish people will have to operate with primary surpluses for a generation to come in order to pay debt and cover public sector expenses. The ultimate size of this surplus will depend on the enormity of the debt mountain we allow to build up while we are in denial. There is no getting around this. It is possible that the country, with a culture of emigration, will not be able to even afford to fund a higher education system with access to all. WE HAVE TO CONSIDER THESE POSSIBILITIES.

    Lastly, Ireland has many friends and it needs to use them. They need to address the gaps that created this mess and they need to find access to capital. They have to tap their emigrant population, but they can only do that in conjunction with fundamental changes in how the country works.

  9. @Eureka

    The Dáil has the power to march us all off to war if it wants, never mind saddling us with the debts of others. The Dáil’s approval of the blanket guarantee almost certainly places it beyond any legal recourse. As the man says, elections have consequences. On the other hand, I was serious when said that articles 123-5 of Lisbon look like a promising basis for legal action against the EU Commission and the ECB. (IANAL.)

  10. @Eureka
    “I can’t fathom how our children are now liable for debts of a property owner they never even knew.
    It is bizarre and must be illegal”

    Agreed – the constitutionality of moving debts arbitrarily has not been challenged. But one thing which has been puzzling me for some time is despite accusations from all sides including Europe, that the bank guarantee was the direct cause of our problems, Europe is apparently insisting that not only must we honour that guarantee, but we must also not allow our banks to default on totally unguaranteed Seniors.
    Can anybody explain the contradiction in that position?

    Either this guarantee was what we all – including the EU – believe it to be – an unaffordable moment of insanity – or it wasn’t extensive enough which is the message we are getting now from Europe?

  11. “The Irish State is insolvent and headed for sovereign default. This is not my opinion, it is the opinion of the credit markets to which the Government must return within, at most, about two years”.
    Another way to state the facts: the credit markets are not going to welcome Ireland two years from now ,therefore the EZ partners and the IMF will be obliged to extend the duration of their loans, whether they like it or not.
    I agree with the main argument :nothing is more important and urgent than to regain a primary surplus of the budget. Until then Ireland will remain a ward of its partners with no sovereignty left. This is not an happy state of affairs, for you or for the damned foreigners.

  12. @Gavin Kostick
    “And ideas how this figure is arrived at?”
    Income of 52something billion, expenditure of 70something billion.

    Not that it is easy to find the consolidated figures. The last ones I can find are in the December 2009 Stability Program Update. See table 1H: http://www.budget.gov.ie/budgets/2010/Documents/Final%20SPU.pdf

    Why we have no update to this is a mystery to me…

    Anyway, the point is that a lot of the figures you see regarding the general government deficit miss some points –
    1. They do not include the USC (formerly PRSI). This is a large element of government income (some 20%?). And of course a large element on expenditure, since we only see in the GGD the top-up that the exchequer provides to benefits for the short-fall in social insurance income.
    2. They do not include capital spending (4.5ish bn (?) this year excluding the banks). While it is to be hoped that there will be a return on this for the economy and the state (hence it is not in the general government classification), the money still needs to be borrowed.
    3. The banks and the increasing interest bill on the additional 67.5 bn borrowed from IMF/EU (though some of this is to replace existing debt).

  13. From the article:

    “Score-settling is not a waste of time: it is an inescapable ingredient in developing a politically coherent response to the disaster. Nyberg’s report is thus of great political importance and should help to allocate responsibility for the mess the new Government faces, an essential step in focussing attention on the limited range of feasible policy options.”

    Every since John Gormley revealed that proposals for some form of guarantee had been batted around government in the week leading up to the guarantee, it has puzzled me that Lenihan didn’t seek the counsel of his EU colleagues prior to night of the Black Death. Possibly the nation would have saved itself an awful lot of trauma. Anglo and INBS – why were they saved is not the primary question as much as determining who was instrumental for securing their rescue? Sometimes in history a witch hunt makes god sense.

    I agree entirely with Colm McC on this matter of the origin of the guarantee. It must be pursued. The country has too much of a history with liberal sweepings of garbage polices under the mat for it to go undisturbed.

  14. @ anonym
    Thanks for the reply. I’m an amateur at law – so I defer to any expertise you might have.
    I’ve had a look at war under the constitution and the constitution gives the government very specific powers in times of war. It seems to accept that war time is extraordinairy and affords the government of the day a certain amount of leeway in this regard
    However this was no time of war. How can the government arbitrarily assign the debt of one citizen to another without it infringing its duty “to protect from unjust attack”. If you extend this logic any man can be saddled with the debt of another if the government so wishes.

    Re Lisbon: Is this the right paragraph:
    “Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.”

    So, in this case the ECB is not providing overdraft to the Irish Government (isnt’ that right) but it is providing some overdraft type facility to the two banks (but they are not national banks are they?). Is this their loophole around this. I dunno……

  15. I suspect a majority agree that fiscal adjustment is desirable as quickly as possible; at least until its their tax being increased, or their state salary/pension being cut or their social welfare being cut.

  16. @Eureka

    The clause you quote would seem to place Anglo squarely within its scope..Anglo now being a State institution.

  17. The state is bankrupt and yet the government has insisted that all its debts be paid. Since this is what they have decided, it is clear that austerity cuts are not enough. There is only one way for the country to afford this.

    The government must now raise income taxes to 70-80% or more not only for higher earners, but even medium income earners.

    This is the logical outcome of the governments decision. The public exchequer must be squeezed until the pips squeak in order to pay the bankers—foreign and domestic—their coveted bonuses, and to vindicate the feckless attitudes of the ECB to banking policy.

    This is what the latest €24bn really means. For the government to get that money, taxes must go up. The ECB won;t lend, the alpha gerbils in the markets won’t lend, foreign banks won’t lend. Therefore the Irish people must pay—ALL the Irish people this time. There’s no other way to pay.

  18. @hoganmahew,Aidan Kane & Hugh Sheehy RE: spreadsheet:
    Many thanks to all three.

    Some truely horrifying stuff there.

  19. @ Ceteris Paribus
    BUt are the ECB using “Overdraft facilities or any other type of credit facility” to fund Anglo?
    Is the Irish Govt not funding Anglo?

  20. @Eureka
    As I understand it the CBI through the magic money facility are funding Anglo and others with the imprimatur of the ECB. Printing the stuff to create a credit facility must therefore come within the ambit of the clause you quote

  21. @ Ceteris Paribus
    It was anonym who first posted on this. I just pasted the paragraph onto the board.
    I think that we need a kind of pincer movement on this.
    1: Austerity measures as Colm McCarthy suggests (these have to be done anyway)
    2: A refusal to draw down ECB money on the basis that it is against the Lisbon treaty (let the banks fail – we don’t need them)
    3: Consider a challenge to the legality of the bank guarantee in the first place

    Now – how to get the ball rolling on those legal challenges!?

  22. @Eureka

    I don’t think you could succeed on 3 above. I think it was grumpy who pointed out that it had been approved by the Oireachtas. It therefore enjoys a presumption of constitutionality which would be difficult to displace given the interests of the common good argument you would be met with, even if the decision was badly thought through at the time of enactment.

    No. 2 would automatically trigger no.1 and the slight difficulty here is paying the wages on Friday. Not to mention the ATM machines.

    The European angle seems the best. I have not heard what happened to the constitutional challenge the German professors brought in the Constitutional Court. The decision was expected in March but no mention of it anymore.

  23. @ Ceteris Paribus
    Thanks for the reply. Hadn’t realized that there was a presumption of constitusionality
    Think both sides have to fear the cashless ATM scenario – legal challenges might not be definitive in themselves but might just add enough of uncertainty to the scenario to cause a change

  24. The constitutionality aspect was (briefly) discussed on this other Colm McC thread. http://www.irisheconomy.ie/index.php/2011/03/13/colm-mccarthy-terms-of-the-bailout-deal-are-not-unfair-they-are-impractical/

    Ciaran O’Hagan asserted that the two guarantee laws were rock-solid and I haven’t any contacts with constitutional law experts to argue the point. (normal law people seem to go “oooh, that’s a constitutional question – not my field”)

    Winning the case would certainly be a way for a good constitutional lawyer with a strong human rights ethic to build a political career, but my question from last month would still be valid. Even if you did with that constitutional case, what would you do then?

  25. @ John McHale

    I too think that this is an excellent article and agree about the importance of addressing the fiscal crisis. Like you, I think the developments from the stress tests are more positive.

    Over the period 2008-2013 we will add €95 billion of deficit-related debt to the National Debt. From Thursday’s announcements it is evident that the bank-related debt accumulated from this crisis will be of the orde of €37 to €40 billion. The rest will be funded from the destruction of our sovereign wealth fund and existing cash reserves.

    Which is the bigger problem? We hope we are approaching the end game of the bank recapitalisations. The outcome of the NAMA process is uncertain and we will know more about the wind-downs of Anglo and INBS in a few weeks. The thing is that we appear to be getting near the end of process of wasting money on this banking fiasco.

    If Thursday’s announcements mean that we will have to borrow an additional €3 billion (with no further bank-related borrowings), I estimate that our end-2013 National Debt will be €173 billion and this can be broken down as follows:

    – Pre-crisis (2007) National Debt – €37,559 million (21.6%)
    – 2008-2013 deficit-related Debt – €94,880 million, (54.9%)
    – Banking-related Debt – €40,525 million, (23.5%)

    Less than a quarter of the debt will have come from the banking crisis. Our current deficits are the big problem. And by 2014 the deficit will still be around €10 billion.

  26. BTW, @hogan
    I’d be happy to put up the 2010 numbers, but it was Aidan Kane who did the heavy lifting. He did all the actual analysis. He’d have to repeat the task to make sure the data remained consistent.

  27. @hoganmahew

    Not that it is easy to find the consolidated figures. The last ones I can find are in the December 2009 Stability Program Update. […]
    Why we have no update to this is a mystery to me…

    When I went looking for the Dec 2010 SPU I found that there wasn’t one as it seems that with the European Semester the calendar has changed and that SPUs need to be submitted by the end of April, so there will be one soon, though it probably won’t appear till 11.59pm on April 30.

    The EU Commission’s Economic Adjustment Programme for Ireland report contains tables (pages 87-88) that show total expenditures, revenues, debt, deficit etc from 2008-2015. As well as projections in %GDP, they have projections in Euro amounts, which is very useful.

    In general it appears that the only place that consolidated figures are readily available is in EU-produced or EU-mandated material. The information provided by the DoF itself, and the manner of its presentation, is extremely poor, and I suspect it hasn’t changed much since the 1940’s. The EU actually singled out Ireland a while back for the poor quality of its published financial information – it is like the DoF have to be dragged kicking and screaming by EU writ to produce documentation that tries to be clear and coherent.

    Anyway, the point is that a lot of the figures you see regarding the general government deficit miss some points […]

    I think you meant “exchequer deficit” here rather than GGD, since my understanding was that the EU GGD included all these items – the arbitrary split into ‘exchequer’ and other government pools of money (e.g. PRSI) used in Irish gov accounting serves to obscure the true picture (and I think that the USC has now been moved into the exchequer part, which will make year by year comparisons even more difficult).

    @Seamus Coffey

    The EU Commission figures (from the above document) predict a debt of €203.7bn at the end of 2013. I think the difference from your figure of €173 bn can perhaps be explained by the fact that the EU GGD figures include the full amount of the €31bn promissory note debt up front whereas the National Debt probably only includes the promissory note payments as they are incurred. (The EU figures assumed a post-bailout bank recap cost of €25bn – not a bad guess). I’d be interested to know if the €30bn difference can be explained by the promissory notes or if there are more fundamental assumptions at play here.

    @All

    A bit late on this but last Thursday’s Tonight with VB was a very good program with an interview with Patrick Honohan and a strong panel which included Richard Bruton (I’ll post the link in a separate comment), and raised a few interesting issues (and one classic line on the bank bailout being a like a gold-plated yugo sinking in the sea)

    Bruton said “burden sharing is absolutely on the table (for Anglo/INBS)”, so this issue is not completely over yet. At this point it is all political/symbolic rather than financial however I think the potency of this issue remains. Fairness does matter (and Honohan agreed it is not fair) in getting public support for a large 8 year+ austerity program, so the lack of burden sharing makes cutting the deficit significantly more difficult in practice, since resistance will be greater.

    Constantin G. said that he predicted another €15bn was needed for Anglo and €3-4bn for INBS. I noticed that Honohan was always careful to qualify his statements with “for these 4 institutions” and excluded Anglo and INBS from his comments. I don’t know the basis for these numbers but it also seems the bank recap issue may not be over yet. He (or perhaps Paul Sommerville) also said that none of the Irish sovereign debt held by the banks is marked to market so there could be a further gap in the balance sheet if this were done.

    The consensus of the panel (excluding Bruton who had left by that stage) was that we are all heading to a structured default in 2013, so by now there are many domestic commentators, many international commentators, and the markets, all saying essentially the same thing.

  28. @ Bryan G

    I have included the Promissory Notes in the total. You can find the sums that give rise to the €173 billion figure here. In that analysis from a few weeks ago I assumed that the banks would need the full €35 billion from the contingency fund and that €25 billion would be borrowed. We now know that the four “live” banks will need an additional €24 billion with maybe around €3 billion of this borrowed.

    This excludes Anglo and INBS but we are told that they will not need any more money. It also excludes NAMA as the outcome of that process will not be known.

    I would have serious conerns about a lot of the analysis presented in the aftermath of Thursday announcements.

  29. @Seamus Coffey

    So looks like there’s still a €30bn gap between your figures and those in the EU report. It is possible that there are some offsetting balances that could net out some of the gross debt figures used by the EU, but I can’t imagine there will be much left in the NPRF or exchequer cash balances by the end of 2013. Perhaps the upcoming Stability Program Update/National Reform Program documentation will shed more light on this area.

    I don’t think there has been any official declaration that Anglo & INBS will not need any more money – they have their own stress tests in May. From Noonan’s statement

    A further assessment of the capital requirements of both institutions (i.e. Anglo/INBS) will be available in May. Should additional capital be required at that point, the Government will then consult with the external partners on the timeframe and means of recapitalising those institutions at minimum cost to the taxpayer, having regard to the financial stability impacts in Ireland and abroad.

  30. @Hugh Sheehy
    “I’d be happy to put up the 2010 numbers, but it was Aidan Kane who did the heavy lifting. He did all the actual analysis. He’d have to repeat the task to make sure the data remained consistent.”
    Sorry I didn’t make the point clear, thanks for the clarification. Yes, I meant a combination of your good self and Mr. Kane (for all he sounds like a Bond (as opposed to bond) villain!).

    @Bryan G
    Thanks for that, I’ll see if I can mock something up that is consistent on its own terms – trying to make one set of numbers match another would drive you mad in short order.

  31. @ Hugh
    I was thinking more along the:

    “The State shall, in particular, by its laws protect as best it may from unjust attack and, in the case of injustice done, vindicate the life, person, good name, and property rights of every citizen.” article

    By lumbering us with other peoples private debts they have left our individual good name, and property rights in jeopardy – for no good reason.

    As for what happens after – who knows! But the price of democracy is eternal vigilance. I know that this is becoming an unusual concept but if it is unconsititutional, we should challenge it just because its right the right thing to do.

  32. @Bryan G
    I already like the document you referred to:
    “Ireland’s strong pre-crisis growth performance was increasingly based on
    unsustainable drivers. The experience since the mid 1990s of persistently high growth in the context of the country’s successful catching-up process contributed to an underestimation of risk. This fed into an over-extension of credit, over-investment in physical capital and excessive increases in asset prices, as well as overly buoyant consumer expenditures. In this context, low real interest rates and easy access to credit contributed to inflating private sector balance sheets (see Figure 2) and property prices.
    Both household and non-financial corporate indebtedness rose sharply prior to the crisis to levels that were among the highest in the EU27”
    Pretty much in a nutshell on the credit bubble.

  33. @hoganmahew

    You may also be interested in DG ECFIN’s Q4 2010 report which has a good article on the credit bubbles that developed in Europe and which suggests some policies and tools to help prevent future ones. From the intro:

    The single monetary policy appears ill-suited to address the adverse effects of excessive credit growth with a strong regional dimension. In contrast, regulatory and supervisory tools could prove more effective in limiting the occurrence and magnitude of housing price bubbles by keeping banks’ leverage in check and by imposing higher standards on bank lending.

    There’s a fair amount of decent analysis at the EU Commission/DG ECFIN level on the causes of the crisis and what could/should be done to counteract it – it is only when you get to EU Council/ECOFIN level with its huge leadership and common-sense deficit that things seems to degenerate into a black and white saints and sinners theme.

  34. @ Bryan G

    That is an excellent document. I haven’t gone through it fully but here is a partial explanation for the differences in the debt levels.

    “The debt projections assume partial use of the contingency element of the programme – €25 bn in 2011, of which half is covered by an Irish contribution trough (sic) the Treasury cash buffer and investments of the NPRF.”

    The assume that there is additional borrowings of €12.5 billion in 2011 for this round of recapitalisations. This is now not going to happen. The assumption will also increase in the debt in 2012 and 2013 because of interest payments. As the document says this alone could knock 8 percentage points of the debt/GDP ratio, bring their projection down to near 110%.

    For details on the Anglo/INBS wind-down look at Appendix I of the stress test document (pp. 80-81). There is no suggestion that these institutions will need extra capital. We will know more in May.

  35. @Com @John

    Good informative article but I feele compelled to raise 4 points in my humble opinion:

    1)At the risk of sounding flippant (and please rest assure I have no desire to be) IMHO the title is a bit redundant. We are all aware Ireland cannot borrow and most of us(including Colm) are trying to find ways to deal with this.

    2) I agree that vague solutions which include rash references to “default” may sound like “wishful” thinking. When I first heard these suggestions as early as two years ago I also instinctively dismissed them out of hand.

    However I believe that we can no longer afford not to give serious consideration to this possibility. Default would not be a” soft option” or a “snake oil solution” but we have to consider it even if we (hopefully) do not opt for it.

    3)Leaving the Euro Zone would also most certainly not be a “soft option”. However (IMHO) Irelandś recent treatment by “partners” in Brussels and Frankfurt reveals that a possible Euro departure no longer deserves to be referred to as a “snake-oil solution”.

    4)The article optimistically clings to the false (IMHO) hope that Ireland is negotiating with coherent “partners” in the Euro Zone. We may have “friends” in the Euro Zone but it is more likely that most of our real “partners” do not use that currency.

    The ECB is also in a fairly precarious position at the moment. If that particular monetary titanic keels over Ireland needs to be already on a lifeboat heading for another “heartland”,and there are not many lifeboats on board that particular ship.

    Consequently we need to know now where our lifeboat is situated because we may need it a lot quicker than any of us dare to imagine. “Forewarned” is “Forearmed”.

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