Ireland: Stability Programme Update

The government has revised its macroeconomic and fiscal projections – the updated stability programme is available here.

11 replies on “Ireland: Stability Programme Update”

Reads like a instability programme to me.

It seems our masters in Europe want us to be nice Irish Austrians or maybe its Austrian Irishmen , I am not quite sure – so that our continental brethren can remain as hybrid monetarist / Keynesian – Teutonic/ Norman Knights.

The reduction of fiscal debt will probably leave this place a wilderness only suitable for risky safaris.

The wild swings between over consumption and under consumption will leave a permanent psychological scar on our clan.

We have been gamed out of existence – welcome to Ireland Inc lads – a economic test tube.

The DoF sends out an e-mail alert after 7pm on the Friday of a holiday weekend! Please don’t ask us any questions.

Growth is dependent on export growth which is projected at about 6¾% in 2011 and 5¾% in 2012.

It’s a case of keeping the fingers crossed.

On reforms, there is a reference to a fiscal council but isn’t it pathetic that the Department cannot produce a revenue and spending statement like a detailed P&L that would detail main spending categories incorporating all central, local and quango expenditure?

What is the total public sector of internal IT services; external IT services; legal costs and so on.

Good grief Dork. I trust you haven’t started praying to St Jude. Don’t you know the Irish always play our best when the game is lost ? It’s the winning we have problems with.

The programme includes this comment:

‘‘As discussed in previous Stability Programme Updates and in annex 4 of this Update, measuring the supply side in a very open economy such as Ireland is particularly difficult’

I wish I was enough of an economist to be able to take that apart. What we seem to have here is an FDI enclave, whose financial flows are opaque, whose financial footprint is far in excess of its production activities, and which is grossly distorting the profile of the ‘Irish’ economy. Meanwhile the rump domestic economy is further distorted by the property/banking/public sector debacle.

While its not a classic developing country case of the FDI tail wagging the domestic dog, the Irish wolfhound must be one of the strangest creatures on the economic planet. There has to be a PhD there in zoology, if not in economics.

The cut in the GDP forecast for 2011 was to be expected but at 0.75% is still higher than the IMF’s & BoI’s & Lloyds’ 0.5%. What undermines the projection is the suggestion that deficit:GDP % will be cut to 2.8% in 2015. It puts me in mind of the briefing notes released by the incoming Minister for Finance who was told that the over-riding consideration for the DoF should be the maintenance and promotion of confidence.

Its been the Golden Calf for a while now – if he can’t give me the goodies soon it may be best to make ritual sacrifices.

The best thing that ever happened to Ireland is the ECB. We have been deluged in cash since 2007 which allows us to ratchet up debt to 142% in 2013. A generous period of adjustment of 6 years which will probably stretch out past 10 years. Our cousins the Balts were given less than 2 years to balance budgets by the IMF. We have avoided short term trauma in return for moderate pain over a long period, probably up to 20 years. We have a courageous gov’t who can actually put on paper 142% in 2013. This means corrective action to balance the budget will not be rushed, most of the CT excesses will remain in place and we will enter a period of low/no growth as we struggle under a mountain of sovereign debt with interest payments sucking the life out of us. The ECB is turning out to be a mixed blessing, but I am sure the politicians are grateful.

There seems to be surprisingly little in the press or indeed on this blog on the “Stability Programme”, what you might think is a critical document in relation to Ireland’s future.
And the reports that I saw barely go into the details, with next to no reporting of the numbers or heavens forbid, a comparison of the estimates of the latest “Stability Programme” to those in the Joint EU/IMF Programme. Given the reluctance to put in effort and analysis, I’ll do likewise and keep number tracking for other forums.


Just one comment
“investor concerns … meant that the Irish Government had to seek financial assistance through a Joint EU/IMF Programme of Financial Support”. P26
Wrong. The government could have taken actions – even as late as October – to avoid availing of EU-IMF loans. This statement absolves the last government of any responsibility. It reflects the common attitude I see in Ireland, “let’s blame anyone but ourselves”.
Yet again, in a national newspaper this weekend, I saw a journalist taking it as a given that ECB imposed the blanket bank guarantee on the hapless government of the time.
Yet all the evidence I see indicates the contrary, that the decision was taken by Ireland against the advice from outside of the country and to the very considerable annoyance of authorities elsewhere in Europe.

After making this claim, the “Stability Programme” then goes on to argue that “The purpose of the external financial support is to provide a secure source of funding which the State can avail of over the period to 2013”.
Yet there is no recognition that most of the cash is being out this year, and no precise accounting of what it is being used for (other than what’s on p25), and no mention that Ireland is expected to return to markets next year. It can, but it would need radically different policies than the course set out in this report, and for those policies to be implemented shortly.

@ Ciaran O’Hagan

‘There seems to be surprisingly little in the press or indeed on this blog on the “Stability Programme”, what you might think is a critical document in relation to Ireland’s future’

You are correct in identifying a hiatus. God knows where the markets will be at next year, but wherever it is, Ireland is going to be somewhere else The troika know that, the government know it, and the educated classes are steadily digesting the reality. Hence the lack of interest in government projections. The French have a word for the state of mind which is taking hold. Anomie.

@ Karl/Philip

is this part not new? I’m referring to the change in the NPRF-being-used-for-the-bank-recaps part – now seems to say only 10bn will be used for this, with 10bn requiring “exchequer funding”, ie EU/IMF funding. But this would, i believe, still be covered within the 85bn figure, as much of the “35bn for the banks” was on a contingent basis, right, so this only implies a fuller drawing down of the original top level amount?

“General Government Debt is forecast to increase further in the coming years. Taking account of the recent announcement on the PCAR/PLAR exercise and the resultant €24 billion in additional recapitalisation required by the banking sector, combined with the weaker economic outlook, the General Government Debt to GDP ratio is currently estimated at end-2011 at 111% of GDP. This is some way in excess of the Budget 2011 forecast and reflects largely the additional borrowing that will be undertaken to fund the banking recapitalisations as well as the impact of a lower nominal level of GDP. In addition, the end-2011 debt ratio is also affected by the decision to advance borrowings from the various funding facilities to ensure that the Exchequer, at the end of 2011, has adequate funding to meet its estimated liabilities in the early part of 2012, which include a large bond redemption. This estimate of the end-2011 debt ratio assumes that €10 billion of the banking sector recapitalisation is provided from the National Pensions Reserve Fund. This was already included in the budgetary forecasts published in December 2010.

Of the remaining €14 billion, a substantial element will come from the Exchequer but there are a number of mitigating factors which will help reduce the requirement for funding for the banks from the Exchequer and alleviate the burden on the domestic taxpayer. These include burden sharing from subordinated bond holders, capital generating asset disposals by banks, and possible private sector investment. For the purpose of the fiscal and debt projections contained in this Update, it is assumed that Exchequer funding in the order of €10 billion will be required.”

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