53 replies on “Budget 2012: White Paper on Receipts and Expenditures”
@Philip Lane
Thanks for posting. It makes depressing reading.
A deficit before the budget of €21.5 billion and only €1.3billion (the Irish Life recap) of expenditure is not recurring.
The interest payments are really starting to kick in now. Going from ~5 billion this year to €7.5 billion next year. It look like an average interest rate of about 4.5%.
It is very hard to see a way out of this.
Rise on voted but fall in non-voted expenditure. What does this actually mean? Is the budget for education “voted” for example? Or are parts of it “voted” and others non-voted?
Sorry thats in the Capital section. Does this mean that we’re looking mostly at not building some new buildings but pay costs would overall stay the same or go up as in the current part?
In an earlier thread Joseph brought our attention to the fact that the Portuguese are taking their bank employee pension funds…. in an unorthodox way to hit their deflict targers
Now Ive no idea how much they have put into their banks but I would doubt if they have put more than we have….
Why is this not happening here…. bank employee and directors pension funds going in to the hold in the banks on slightly worse terms than the NPRF?
The precedent has been set; go for it Mr. Noonan… Take their assets and use them to start to solve the problems these people created.
“promissory note payment to certain banking institutions”
Interesting that income tax is projected to rise by 10% from €13.8bn in 2011 to €15.1bn in 2012 in this pre-Budget 2012 projection.
Has anyone calculated the adjustment needed in 2012 to bring us down to a deficit:GDP of 8.6% if the ESRI projections on economic growth in 2012 issued last Wed 30th Nov turn out to be correct?
Also does anyone know where you can find on the DoF website the tables of last year, current year actual, current year profile for the Exchequer Statements – the latest Nov 2011 Exchequer Statement says that these tables exist on the DoF website but they’re not obvious.
Thanks but no. THe November 2011 Exchequer Statement says
“Tables detailing the performance of voted expenditure and tax revenues on a year-on-year basis as well as against profile
for the period covered by this Exchequer Statement are available on the Department of Finance Website at http://www.finance.gov.ie”
I was hoping to see a table (or Excel spreadsheet) showing last year actual, this year actual, this year profile, by month.
@ Jagdip
This appears to be year-on-year, January – October 2010/2011:
Can’t see anything by month. Hope that’s some use.
@Joseph Ryan
“A deficit before the budget of €21.5 billion ”
Can you remind me…. what was the figure in 2008 and 2009? Has it actually come down very much? It feels like we’ve taken €20bn out of the economy since 2007 (?) but we don’t seem to be bringing the deficit down that much. I forget where we started from.
@ Pr Guy
“I forget where we started from”
Wasn’t it to ensure that the contagion didn’t spread to the core ?
@PR guy @Joseph
I forget where we started from.
I could be wrong but I think we “started from” 58BN (with very litttle interest/repayments ) down to 42 BN expenditure in 2012 in addition to the “non voted expenditure” of 9Bn in 2012 up from 6Bn in 2011.
If I remember correctly national debt at the beginning of 2008 was around 50BN so “non voted expenditure” (interest/repayments) should not have been more thn 2Bn.
This would indicate “adjustments” close to 15BN over three years.
It also looks like “non voted expenditure” in 2012 will be almost 25 % of “voted expenditure” and close to 20% of total expenditure.
Perhaps someone could remind us what we were supposed to be afraid of in October 2009 if we voted the “wrong way” a second time in Lisbon II.
Four things jump out:
1. A couple of weeks ago, the Medium-Term Fiscal Statement told us that ECOFIN had determined that our General Government Deficit “must not exceed 8.6% of GDP in 2012” (€13.6bn). Yet this document predicts a GGD of 10% (€16.2bn) in 2012.
2. Income tax receipts are forecast to rise more than a billion (9%) despite a government commitment not to change income tax rates bands or allowances. (Perhaps they will raise USC)
3. VAT recipts are predicted to be static following a 2% rise in the standard rate, which begs the question “Why bother?”. A paper about the Laffer curve for European VAT is here: http://www.tandfonline.com/doi/abs/10.1080/713673162 Maybe some of you have expertise in this area?
4. Nominal 2012 GDP was predicted at €159bn last month, yet this month’s GGD/GDP ratio implies a 2012 nominal GDP of €162bn. I thought ESRI was reducing its GDP estimates, so why is DoF increasing them?
Philip should have put the words “pre-budget” in blinking red capital letters.
“Ms. Merkel signalled on Friday that she is having second thoughts about the wisdom of emphasizing bondholder losses. “We have a draft for the ESM, which must be changed in the light of developments” in financial markets since the Greek-restructuring decision in July, she said after meeting Austria’s chancellor in Berlin.
Austrian Finance Minister Maria Fekter, speaking at a conference in Hamburg on Friday, was more direct. “Trust in government treasuries was so thoroughly destroyed by involving private sector investors in the debt relief that you have to wonder why anyone still buys government bonds at all,” Ms. Fekter said”.
If at least one of the disastrous mistakes made by Merkel and her advisers is reversed, the overall budgetary picture in many countries, and not just Ireland, should begin to look brighter.
@ Ossian Smyth
The projections in the document do not include the changes that will appear in next weeks budget.
So to get next years deficit subtract €3.8b from €16.2bn and you get a deficit of about €12.4b for 2012.
The same is true for the VAT projections.
The GGB (the EU measure of the deficit) goes from -€15.6bn to -€16.2bn in 2012.
This is with a €6bn reduction in capital expenditure.
‘Austerity’ is obviously working so well, we need more of it.
@PeterJ
Fair enough. Why was income tax predicted to rise, though?
Having a situation where bank bondholders are made whole, but sovereign bondholders are not is utterly ridiculous.
@Ossian Smyth
“I thought ESRI was reducing its GDP estimates, so why is DoF increasing them?”
They are reducing their estimates, but still positing growth (of 0.9%, I believe?). You are right, though, that this does not amount to GDP of 162bn, not unless we have deflation (and a VAT rise of 2% makes that unlikely).
Of course, acknowledging that GDP will be 162.4bn next year would require a further cut in the budget to stay on target…
@ Hoganmayhew
I think that there may be misunderstanding on your part. The intent is to rectify the situation that you rightly describe as ridiculous.
Incidentally, the ESM is not formally a draft as a text was actually signed by Ministers for Finance in July when Merkel was riding high and the world was whatever she said it was (a bit like the Mad Hatter’s tea party).
@PR Guy / Livonian
re
“I forget where we started from.”
[You would be better referring to Seamus Coffey slides rather than an amateur like me to get historical data.]
As far as I can tell from the following link, the Gross Govt income and Gross govt exp for the following years is as below. I am not clear if the diff is the exchequer surplus/deficit but it comes close. I have seen a lot of frustration expressed at the govt use of “netting” off expenditure against income to give net figures. The figures below are gross.
It just seems to me that the hill to climb is getting bigger.
The interest bill goes up by 2.5 billion next year to 7.5 billion and of course there is the 3.1 billion prom note.
So whatever little progress that is being made on the expenditure side which is falling on non Croke Park protected citizens, it is being more than lost increased interest payments.
Go to page 25. That page did not refuse ink and projects Ireland coming out of the storm.
But that was when the euro storm was just brewing nicely before it became a force 5 that it currently is.
@DOCM
“I think that there may be misunderstanding on your part. The intent is to rectify the situation that you rightly describe as ridiculous.”
There’s no misunderstanding. The lady who was not for turning may have turned, but the genii is out of the bottle. Even the sovereigns who have not resorted to ‘bailouts’ who fall into trouble will have an excess risk weighting applied.
The risk weighting (in part the result of the PSI genii and in part the rewriting of CDS rules) will not easily go back into the bottle. What is required is an explicit statement that from the ECB that eurozone sovereigns will always be accepted with zero risk weighting – the rating of the country will not matter, the sovereign bond will be accepted as par – for repo either at the ECB itself or at the NCB. This is how it would be if a country still had its own currency, this is how it must be in the eurozone.
An additonal ‘help’ would be an inversion of sovereign haircuts at central banks in the ESCB so that longer duration bonds have a premium to shorter duration one. The main part of the sovereign problem is that the ECB (as other central banks) has been targeting short-term rates. The Fed has realised this mistake and is attempting to flatten the curve by targeting the middle of the belly.
If there is a desire to resist mad debt issuance by governments, then I think one possibility would be that each eurozone government pays 25% of its revenue into a common eurozone budget fund. They then get that plus/minus any net contribution back as long as they remain within fiscal guidelines. If they do not, the excess that they go overbudget x some amount goes into an FU fund… it won’t solve the problem, but it will give pause for thought.
The government doesn’t seem to have included in their calculations all the people (hairdressers, barmen, dustbinment, postmen, etc.) who, in a fit of national unity, are going to declare for tax all the tips they receive this Christmas – and received during the course of the whole of 2011.
I will of course declare the various bottles and cheeses I receive this year though I do believe the total will be down on last year (considering I deal with a lot of creative people, there’s a big lack of imagination when it comes to Christmas gifts).
When Enda is on tonight telling me how I’m going to have to suck it all up in this and future budgets for the forseeable, I will probably resolve not to give out any tips this year.
Looking at these very poorly presented numbers by the DOF it seems as if we are going backwards: Current Spending increasing year on year and Revenue standing still.
Are we all kidding ourselves that this strategy will ever get near a position where we could possibly begin to pay down our borrowings?
Its time to get real and look at alternatives – a plan which shows a credible reduction in borrowing at realistic growth assumptions.
@Ossian Smyth
I *think* the income tax growth is from 2011 GDP growth. Even if there was no growth in 2012 the lowest monthly GDP in 2012 would equal to the highest of 2011 so average monthly tax revenue would be higher.
But this is just a guess.
@hoganmayhew
I think that we are at cross purposes. I agree with your points with regard to sovereign and banking debt. What I think, however, that you may be under-estimating the significance of the shift in position by Merkel. I have never made any secret of the fact that I consider her handling of the crisis to have been disastrous from start to finish. What has changed in recent weeks is the fact that the ill-informed support she has enjoyed within Germany is evaporating. The SPD annual conference, for example, has seen a sequence of speakers, from Schmidt down, denouncing her “government’s” policy.
That Germany’s second largest commercial bank is on the verge of nationalisation is, however, the leading indicator.
@DOCM
Welll, I’ve said for a while now that the tune would change when it was French and German banks threatening their sovereigns. The tune has certainly changed in France, now maybe in Germany. Next step is increases in short-term funding costs, an inverted yield curve and a sovereign downgrade.
DOCM,
Two things happened this week I) coordinated action by the global adult CBs ii) a softening of the ECB attitude towards bond buy backs. They might come in now on conditions.
Hogan is correct. Many EZ banks are in a peril now with reduced access to funding. Rumour has it that the nationall CBs will accept any asset as collateral including intangibles. A banking collapse in the core would now undermine that sovereign. Imagine if Comedybank collapsed , would Deutsche be far behind.
The peripheral countries now have a whip hand. They should stare Merkel down and tell her to stick treaty change. It is the ECB howitzer or the Euro now.
@Tull
I think it might actually be time to dangle some carrots in front of the maultier…
1. centralised supervision and “no-cost” funding of national bad banks. (ECB very long-term repo of zero worth assets, states pay for the cost of their bad banks on the long finger).
2. an expansion of EU infrastructure funding… (where does the money recycle to?). It could come, like US stimulus, with a “buy EU” rule. Averting recession in the core is as important as stimulus in the periphery – there are enough patients in the sick room.
3. Fiscal escrow – debt is issued centrally to approved levels. States give up their ability to issue debt on their own account. The debt issued is still under national law, so a bund is still a bund, but it cannot be issued without the okay of the EU Debt Sustainability Agency.
More is of course required, nothing in the above would have stopped what happened in Ireland and Spain, but the urgent need is to agree some initial measures before moving on to knottier problems of capital flows.
For those of you who won’t have time to tune in later, here’s that Enda Kenny address to the nation in full:
Fellow citizens…
Darkest hour…
All in this together…
Will get worse before it gets better…
Euro faces its sternest test…
I will be working shoulder to shoulder with my European colleagues over the next few days to find solutions….
We shall overcome…
Those ba5tards in FF slipped me a right hospital pass
Avoid a referendum at all costs coz you idiots will only get it wrong (Was that meant to be in there? Ed.)…
It’s not a question of giving away sovereignty…
Sacrifices need to be made…
Except for bondholders….
Wouldn’t be able to return to bond markets…..
Confidence…
Export growth….
Light at end of tunnel….
TINA
Only game in town
Ireland will do its bit….
European partners… equals…
For our young people….
Er,
That’s it..
Was there anything else Mr and Mrs Merkozy?
Fade out to tune of Uber Alles with words ‘No bondholder shall be made to suffer’
Fade to Black
Really, really, really black.
PR guy,
U must have missed the news. Secured Bondholders in BOf I were given a trim this week. U must have be busy writing Meehawl’s response to Enda.
@Tull
“Secured Bondholders in BOf I were given a trim this week”
Are you sure? Out on the beach all afternoon with a kayak. Missed any news today! Funny but I thought they were going to give bondholders a trim earlier in the week then they weren’t because BoI raised 350m themselves on Thursday/Friday so Noonan said there was no need (and that fact that hedgies who were holding were threatening to sue as well).
p.s. word on the street is that Commerzbank to be nationalised as part of the upcoming EZ deal and maybe some other banks in EZ to be forcibly recapitalised.
Bluster, especially the Irish variety, has a shorter and shorter shelf-life.
@Eoin
“The lender avoided State control after the Government sold 35 per cent of the bank in July to North American investors for €1.1 billion. The State injected €4.2 billion into the lender and holds a 15 per cent shareholding.”
(From the IT piece DOCM links to).
You still reckon there’s nothing dodgy about the above? That it represents good value for money for the taxpayer?
“Many EZ banks are in a peril now with reduced access to funding. Rumour has it that the nationall CBs will accept any asset as collateral including intangibles.”
They wasted two years laughing at ‘stupid Americans’ instead of fixing the EU banks’ problems. And now when they’re in deep shit the FED is helping them with low swap rates. When America is in trouble America comes to rescue. When Europe is in trouble America comes to rescue. Bloody Europeans with their fiefdoms aren’t even capable of having a decent central bank to get them out of shit. Incredible. All that posturing in Brussels and Strasbourg – all for nothing.
I’d prefer a second ledger on all banking/bailout related debt including detail on Banking recapitalisation:
I’d also like a full eg White Paper reporting on all progress/lack of negotiations on bailout and reduction of eg:
Promissory Note payments to certain banking institutions: 3,085
But I doubt if any of that hidden ledger stuff will ever be made public as the Irish negotiators chase EMU lorry hoping something will fall off the back.
BofI bought back mortgage back securities below par in sufficient volume to geneate a 350 m gain. These are further up the capital stack than the sub debt. Yet it has received little notice. Eoin B has raised this as a possibility Before.
dom k,
Plus 1. Last week was a Kosovo moment.
@ Dom K.
Low swap rates could turn out to be a poisoned chalice if the euro falls against the dollar over the coming months!!
Those dollars have to be paid back in full sometime in the not so far future at whatever price was there when the swap occurred!
Forex casino!
Repost here from previous article, hopefully formatting slightly better.
As you listen this evening, draw your own conclusions on any parallels that exist between Ceauceso’s efforts and our governments efforts to pay back loans:
“Foreign debt Ceaușescu’s political independence from the Soviet Union and his
protest against the invasion of Czechoslovakia in 1968 drew the interest of
Western powers, who briefly believed he was an anti-Soviet maverick and hoped to
create a schism in the Warsaw Pact by funding him. Ceaușescu did not realise that
the funding was not always favorable. Ceaușescu was able to borrow heavily (more
than $13 billion) from the West to finance economic development programs, but
these loans ultimately devastated the country’s finances. In an attempt to correct
this, Ceaușescu decided to repay Romania’s foreign debts. He organised a
referendum and managed to change the constitution, adding a clause that barred
Romania from taking foreign loans in the future. The referendum yielded a nearly
unanimous “yes” vote. In the 1980s, Ceaușescu ordered the export of much of the
country’s agricultural and industrial production in order to repay its debts. The
resulting domestic shortages made the everyday life of Romanians a fight for
survival as food rationing was introduced and heating, gas and electricity
black-outs became the rule. During the 1980s, there was a steady decrease in the
living standard, especially the availability and quality of food and general goods
in stores. During this time, Ceaușescu shut down all radio stations outside of the
capital, and limited television to one channel broadcasting only two hours a day.
The official explanation was that the country was paying its debts and people
accepted the suffering, believing it to be for a short time only and for the
ultimate good.[citation needed] The debt was fully paid in summer 1989, shortly
before Ceaușescu was overthrown, but heavy exports continued until the revolution
in December.”
Austerity is one thing, if it has hope for success; quite another, if the loans it is intended to make headway against, are not only immoral, but unmanageable : meaning you need to kill the payback geese, the economy that lays the golden eggs.
sorry about formatting quote, its not displaying as is in message window, but has retained some hidden line breaks….
“The Irish Government is likely to be faced next week with a proposal that eurozone countries should commit to some form of closer fiscal union in exchange for German agreement to permit the ECB to end the financial panic.”
Does anyone seriously believe that the markets will accept some fuzzy political commitment to greater fiscal union somewhere down the road. Colm mcCarthy ignores the central fact the both the ECB and the Bundesbank have on numerous occasions stated that such actions would be illegal. Weidmann may have only one vote but his organization holds remarkable sway over the ECB.
Add to that the Constitutional court has told the German government that it has gone is far as it will be allowed by the court.
It appears that the credibility of the ECB would be seriously damaged if it engaged in the course advocated by many….large scale purchases of sovereign debt in the absence of actual treaty changes.
“Low swap rates could turn out to be a poisoned chalice if the euro falls against the dollar over the coming months!!
Those dollars have to be paid back in full sometime in the not so far future at whatever price was there when the swap occurred!
Forex casino!”
As much as I’d love to see the Euro tank, I am damn sure the Yanks will do their best to make the $$ follow suit.
Enda wants to be the Taoiseach that regains our economic sovereignty……
Wonder why he is going over next week to give it away permanently.
CetPar,
Still short I see. Must be hurting?
In the face of Gombeenomics, Ceaucesonomics we’ll look to Thermopylae without Leonidas 🙁
CP,
If ur banks are loaded with sov debt and if CDS don’t work then you better make sure sovereign debt is really risk free otherwise you are going to have to explain to your voters that your banks and insurance companies are bust. German savers are much more concerned about Allianz than Comedybank.
@Tull
The people are behind Angela…..
“No, Germans are not blind to the extent of the debt crisis. On the contrary, a disillusionment has grown in light of the failure to implement sweeping rescue efforts. The vast majority (84 percent) even thinks that the worst is yet to come, a record level in the new ARD poll. A basic trust, that can really calm the situation for international policies, was lost among the population long ago.
As bad as the big picture is, and as large as the distrust is in the competence and self-assertion of the states against the financial markets, people still seem to feel like they are in good hands with the chancellor. Angela Merkel’s approval ratings have gone up during the crisis, polls show. In a domestic Infratest poll, Merkel crossed the 50-percent-mark. One in two respondents found that Merkel has handled the crisis “correctly and decisively.” In a recent poll conducted by the ZDF network, almost two-thirds of those surveyed rated Merkel’s crisis management positively.
“There is again a positive feeling about Merkel,” says Manfred Güllner, head of the polling institute Forsa. “People have the feeling that she is plugging away at the euro crisis.” They reportedly like it that the chancellor does not let herself get pushed around.”. From Der Spiegal
So poor old Nicky is unlikely to get concessions tomorrow.
@ Hogan
Happy to update the numbers, but I don’t think the data is available in the same format. Is it? If so, point me at it and I’ll get it done.
53 replies on “Budget 2012: White Paper on Receipts and Expenditures”
@Philip Lane
Thanks for posting. It makes depressing reading.
A deficit before the budget of €21.5 billion and only €1.3billion (the Irish Life recap) of expenditure is not recurring.
The interest payments are really starting to kick in now. Going from ~5 billion this year to €7.5 billion next year. It look like an average interest rate of about 4.5%.
It is very hard to see a way out of this.
Rise on voted but fall in non-voted expenditure. What does this actually mean? Is the budget for education “voted” for example? Or are parts of it “voted” and others non-voted?
Sorry thats in the Capital section. Does this mean that we’re looking mostly at not building some new buildings but pay costs would overall stay the same or go up as in the current part?
In an earlier thread Joseph brought our attention to the fact that the Portuguese are taking their bank employee pension funds…. in an unorthodox way to hit their deflict targers
http://www.irisheconomy.ie/index.php/2011/12/02/time-for-a-deal-on-ela/#comment-202945
Now Ive no idea how much they have put into their banks but I would doubt if they have put more than we have….
Why is this not happening here…. bank employee and directors pension funds going in to the hold in the banks on slightly worse terms than the NPRF?
The precedent has been set; go for it Mr. Noonan… Take their assets and use them to start to solve the problems these people created.
“promissory note payment to certain banking institutions”
Interesting that income tax is projected to rise by 10% from €13.8bn in 2011 to €15.1bn in 2012 in this pre-Budget 2012 projection.
Has anyone calculated the adjustment needed in 2012 to bring us down to a deficit:GDP of 8.6% if the ESRI projections on economic growth in 2012 issued last Wed 30th Nov turn out to be correct?
Also does anyone know where you can find on the DoF website the tables of last year, current year actual, current year profile for the Exchequer Statements – the latest Nov 2011 Exchequer Statement says that these tables exist on the DoF website but they’re not obvious.
@ Jagdip
Is this any use?
http://www.finance.gov.ie/viewdoc.asp?DocID=-1&CatID=5&StartDate=1+January+2011
@Gavin,
Thanks but no. THe November 2011 Exchequer Statement says
“Tables detailing the performance of voted expenditure and tax revenues on a year-on-year basis as well as against profile
for the period covered by this Exchequer Statement are available on the Department of Finance Website at
http://www.finance.gov.ie”
I was hoping to see a table (or Excel spreadsheet) showing last year actual, this year actual, this year profile, by month.
@ Jagdip
This appears to be year-on-year, January – October 2010/2011:
http://www.finance.gov.ie/documents/exchequerstatements/2011/octobernote.pdf
Can’t see anything by month. Hope that’s some use.
@Joseph Ryan
“A deficit before the budget of €21.5 billion ”
Can you remind me…. what was the figure in 2008 and 2009? Has it actually come down very much? It feels like we’ve taken €20bn out of the economy since 2007 (?) but we don’t seem to be bringing the deficit down that much. I forget where we started from.
@ Pr Guy
“I forget where we started from”
Wasn’t it to ensure that the contagion didn’t spread to the core ?
@PR guy @Joseph
I forget where we started from.
I could be wrong but I think we “started from” 58BN (with very litttle interest/repayments ) down to 42 BN expenditure in 2012 in addition to the “non voted expenditure” of 9Bn in 2012 up from 6Bn in 2011.
If I remember correctly national debt at the beginning of 2008 was around 50BN so “non voted expenditure” (interest/repayments) should not have been more thn 2Bn.
This would indicate “adjustments” close to 15BN over three years.
It also looks like “non voted expenditure” in 2012 will be almost 25 % of “voted expenditure” and close to 20% of total expenditure.
Perhaps someone could remind us what we were supposed to be afraid of in October 2009 if we voted the “wrong way” a second time in Lisbon II.
Four things jump out:
1. A couple of weeks ago, the Medium-Term Fiscal Statement told us that ECOFIN had determined that our General Government Deficit “must not exceed 8.6% of GDP in 2012” (€13.6bn). Yet this document predicts a GGD of 10% (€16.2bn) in 2012.
2. Income tax receipts are forecast to rise more than a billion (9%) despite a government commitment not to change income tax rates bands or allowances. (Perhaps they will raise USC)
3. VAT recipts are predicted to be static following a 2% rise in the standard rate, which begs the question “Why bother?”. A paper about the Laffer curve for European VAT is here: http://www.tandfonline.com/doi/abs/10.1080/713673162 Maybe some of you have expertise in this area?
4. Nominal 2012 GDP was predicted at €159bn last month, yet this month’s GGD/GDP ratio implies a 2012 nominal GDP of €162bn. I thought ESRI was reducing its GDP estimates, so why is DoF increasing them?
Philip should have put the words “pre-budget” in blinking red capital letters.
@ All
FYI
http://online.wsj.com/article/SB10001424052970204012004577073623507093122.html
Notably;
“Ms. Merkel signalled on Friday that she is having second thoughts about the wisdom of emphasizing bondholder losses. “We have a draft for the ESM, which must be changed in the light of developments” in financial markets since the Greek-restructuring decision in July, she said after meeting Austria’s chancellor in Berlin.
Austrian Finance Minister Maria Fekter, speaking at a conference in Hamburg on Friday, was more direct. “Trust in government treasuries was so thoroughly destroyed by involving private sector investors in the debt relief that you have to wonder why anyone still buys government bonds at all,” Ms. Fekter said”.
If at least one of the disastrous mistakes made by Merkel and her advisers is reversed, the overall budgetary picture in many countries, and not just Ireland, should begin to look brighter.
@ Ossian Smyth
The projections in the document do not include the changes that will appear in next weeks budget.
So to get next years deficit subtract €3.8b from €16.2bn and you get a deficit of about €12.4b for 2012.
The same is true for the VAT projections.
The GGB (the EU measure of the deficit) goes from -€15.6bn to -€16.2bn in 2012.
This is with a €6bn reduction in capital expenditure.
‘Austerity’ is obviously working so well, we need more of it.
@PeterJ
Fair enough. Why was income tax predicted to rise, though?
@DOCM
As I said on the Bad Arguments thread:
http://www.irisheconomy.ie/index.php/2011/12/03/bad-arguments/#comment-203681
Having a situation where bank bondholders are made whole, but sovereign bondholders are not is utterly ridiculous.
@Ossian Smyth
“I thought ESRI was reducing its GDP estimates, so why is DoF increasing them?”
They are reducing their estimates, but still positing growth (of 0.9%, I believe?). You are right, though, that this does not amount to GDP of 162bn, not unless we have deflation (and a VAT rise of 2% makes that unlikely).
Of course, acknowledging that GDP will be 162.4bn next year would require a further cut in the budget to stay on target…
@ Hoganmayhew
I think that there may be misunderstanding on your part. The intent is to rectify the situation that you rightly describe as ridiculous.
Incidentally, the ESM is not formally a draft as a text was actually signed by Ministers for Finance in July when Merkel was riding high and the world was whatever she said it was (a bit like the Mad Hatter’s tea party).
@PR Guy / Livonian
re
“I forget where we started from.”
[You would be better referring to Seamus Coffey slides rather than an amateur like me to get historical data.]
As far as I can tell from the following link, the Gross Govt income and Gross govt exp for the following years is as below. I am not clear if the diff is the exchequer surplus/deficit but it comes close. I have seen a lot of frustration expressed at the govt use of “netting” off expenditure against income to give net figures. The figures below are gross.
http://www.finance.gov.ie/documents/guidelines/BESSept2011.pdf
Taken from Table 1 and table 4. And SPU update July adn Prelim budget data
Year Inc Exp Diff
2000 33.3 31.1 2.2
2001 35.3 36.1 -0.8
2002 38.9 40.0 -1.1
2003 41.0 43.0 -2.0
2004 45.2 45.7 -0.5
2005 50.0 50.7 -0.7
2006 57.3 56.1 1.2
2007 60.1 62.9 -2.8
2008 54.0 68.7 -14.7
2009 46.9 75.8 -28.9 (exp incl 4B Anglo/3B NPFR=7B)?
2010 47.3 68.9 -21.6
2011 50.1 68.7 -18.6 ?? [Exp includes 7.5 non recurring bank recap]
2012 ??? ??? -21.6 [incl 1.3 Ir Life non recurring]
It just seems to me that the hill to climb is getting bigger.
The interest bill goes up by 2.5 billion next year to 7.5 billion and of course there is the 3.1 billion prom note.
So whatever little progress that is being made on the expenditure side which is falling on non Croke Park protected citizens, it is being more than lost increased interest payments.
On the other hand (! I even thought about doing economics 35 years ago!), if you want to be positive here is link to the Stability program update.
http://www.finance.gov.ie/documents/publications/reports/2011/spuirelandapr2011.pdf
Go to page 25. That page did not refuse ink and projects Ireland coming out of the storm.
But that was when the euro storm was just brewing nicely before it became a force 5 that it currently is.
@DOCM
“I think that there may be misunderstanding on your part. The intent is to rectify the situation that you rightly describe as ridiculous.”
There’s no misunderstanding. The lady who was not for turning may have turned, but the genii is out of the bottle. Even the sovereigns who have not resorted to ‘bailouts’ who fall into trouble will have an excess risk weighting applied.
The risk weighting (in part the result of the PSI genii and in part the rewriting of CDS rules) will not easily go back into the bottle. What is required is an explicit statement that from the ECB that eurozone sovereigns will always be accepted with zero risk weighting – the rating of the country will not matter, the sovereign bond will be accepted as par – for repo either at the ECB itself or at the NCB. This is how it would be if a country still had its own currency, this is how it must be in the eurozone.
An additonal ‘help’ would be an inversion of sovereign haircuts at central banks in the ESCB so that longer duration bonds have a premium to shorter duration one. The main part of the sovereign problem is that the ECB (as other central banks) has been targeting short-term rates. The Fed has realised this mistake and is attempting to flatten the curve by targeting the middle of the belly.
If there is a desire to resist mad debt issuance by governments, then I think one possibility would be that each eurozone government pays 25% of its revenue into a common eurozone budget fund. They then get that plus/minus any net contribution back as long as they remain within fiscal guidelines. If they do not, the excess that they go overbudget x some amount goes into an FU fund… it won’t solve the problem, but it will give pause for thought.
@Joseph Ryan
Aidan Kane’s figures as transcribed by the lamented (by me anyway) Hugh Sheehy are a good source for historical numbers. I still await an update with bated breath… https://spreadsheets.google.com/ccc?key=t_Ls5IutKMhwkmRrtPfBfig&authkey=CJnk5PYE&hl=en#gid=0
@Joseph Ryan
Thanks that was the info I was looking for.
The government doesn’t seem to have included in their calculations all the people (hairdressers, barmen, dustbinment, postmen, etc.) who, in a fit of national unity, are going to declare for tax all the tips they receive this Christmas – and received during the course of the whole of 2011.
I will of course declare the various bottles and cheeses I receive this year though I do believe the total will be down on last year (considering I deal with a lot of creative people, there’s a big lack of imagination when it comes to Christmas gifts).
When Enda is on tonight telling me how I’m going to have to suck it all up in this and future budgets for the forseeable, I will probably resolve not to give out any tips this year.
Looking at these very poorly presented numbers by the DOF it seems as if we are going backwards: Current Spending increasing year on year and Revenue standing still.
Are we all kidding ourselves that this strategy will ever get near a position where we could possibly begin to pay down our borrowings?
Its time to get real and look at alternatives – a plan which shows a credible reduction in borrowing at realistic growth assumptions.
@Ossian Smyth
I *think* the income tax growth is from 2011 GDP growth. Even if there was no growth in 2012 the lowest monthly GDP in 2012 would equal to the highest of 2011 so average monthly tax revenue would be higher.
But this is just a guess.
@hoganmayhew
I think that we are at cross purposes. I agree with your points with regard to sovereign and banking debt. What I think, however, that you may be under-estimating the significance of the shift in position by Merkel. I have never made any secret of the fact that I consider her handling of the crisis to have been disastrous from start to finish. What has changed in recent weeks is the fact that the ill-informed support she has enjoyed within Germany is evaporating. The SPD annual conference, for example, has seen a sequence of speakers, from Schmidt down, denouncing her “government’s” policy.
That Germany’s second largest commercial bank is on the verge of nationalisation is, however, the leading indicator.
http://www.stern.de/politik/deutschland/banken-stresstests-bund-erwaegt-commerzbank-verstaatlichung-1758683.html
@DOCM
Welll, I’ve said for a while now that the tune would change when it was French and German banks threatening their sovereigns. The tune has certainly changed in France, now maybe in Germany. Next step is increases in short-term funding costs, an inverted yield curve and a sovereign downgrade.
DOCM,
Two things happened this week I) coordinated action by the global adult CBs ii) a softening of the ECB attitude towards bond buy backs. They might come in now on conditions.
Hogan is correct. Many EZ banks are in a peril now with reduced access to funding. Rumour has it that the nationall CBs will accept any asset as collateral including intangibles. A banking collapse in the core would now undermine that sovereign. Imagine if Comedybank collapsed , would Deutsche be far behind.
The peripheral countries now have a whip hand. They should stare Merkel down and tell her to stick treaty change. It is the ECB howitzer or the Euro now.
@Tull
I think it might actually be time to dangle some carrots in front of the maultier…
1. centralised supervision and “no-cost” funding of national bad banks. (ECB very long-term repo of zero worth assets, states pay for the cost of their bad banks on the long finger).
2. an expansion of EU infrastructure funding… (where does the money recycle to?). It could come, like US stimulus, with a “buy EU” rule. Averting recession in the core is as important as stimulus in the periphery – there are enough patients in the sick room.
3. Fiscal escrow – debt is issued centrally to approved levels. States give up their ability to issue debt on their own account. The debt issued is still under national law, so a bund is still a bund, but it cannot be issued without the okay of the EU Debt Sustainability Agency.
More is of course required, nothing in the above would have stopped what happened in Ireland and Spain, but the urgent need is to agree some initial measures before moving on to knottier problems of capital flows.
For those of you who won’t have time to tune in later, here’s that Enda Kenny address to the nation in full:
Fellow citizens…
Darkest hour…
All in this together…
Will get worse before it gets better…
Euro faces its sternest test…
I will be working shoulder to shoulder with my European colleagues over the next few days to find solutions….
We shall overcome…
Those ba5tards in FF slipped me a right hospital pass
Avoid a referendum at all costs coz you idiots will only get it wrong (Was that meant to be in there? Ed.)…
It’s not a question of giving away sovereignty…
Sacrifices need to be made…
Except for bondholders….
Wouldn’t be able to return to bond markets…..
Confidence…
Export growth….
Light at end of tunnel….
TINA
Only game in town
Ireland will do its bit….
European partners… equals…
For our young people….
Er,
That’s it..
Was there anything else Mr and Mrs Merkozy?
Fade out to tune of Uber Alles with words ‘No bondholder shall be made to suffer’
Fade to Black
Really, really, really black.
PR guy,
U must have missed the news. Secured Bondholders in BOf I were given a trim this week. U must have be busy writing Meehawl’s response to Enda.
@Tull
“Secured Bondholders in BOf I were given a trim this week”
Are you sure? Out on the beach all afternoon with a kayak. Missed any news today! Funny but I thought they were going to give bondholders a trim earlier in the week then they weren’t because BoI raised 350m themselves on Thursday/Friday so Noonan said there was no need (and that fact that hedgies who were holding were threatening to sue as well).
p.s. word on the street is that Commerzbank to be nationalised as part of the upcoming EZ deal and maybe some other banks in EZ to be forcibly recapitalised.
@ PR Guy
FYI
http://www.irishtimes.com/newspaper/finance/2011/1203/1224308522323.html
Bluster, especially the Irish variety, has a shorter and shorter shelf-life.
@Eoin
“The lender avoided State control after the Government sold 35 per cent of the bank in July to North American investors for €1.1 billion. The State injected €4.2 billion into the lender and holds a 15 per cent shareholding.”
(From the IT piece DOCM links to).
You still reckon there’s nothing dodgy about the above? That it represents good value for money for the taxpayer?
“Many EZ banks are in a peril now with reduced access to funding. Rumour has it that the nationall CBs will accept any asset as collateral including intangibles.”
They wasted two years laughing at ‘stupid Americans’ instead of fixing the EU banks’ problems. And now when they’re in deep shit the FED is helping them with low swap rates. When America is in trouble America comes to rescue. When Europe is in trouble America comes to rescue. Bloody Europeans with their fiefdoms aren’t even capable of having a decent central bank to get them out of shit. Incredible. All that posturing in Brussels and Strasbourg – all for nothing.
I’d prefer a second ledger on all banking/bailout related debt including detail on Banking recapitalisation:
I’d also like a full eg White Paper reporting on all progress/lack of negotiations on bailout and reduction of eg:
Promissory Note payments to certain banking institutions: 3,085
But I doubt if any of that hidden ledger stuff will ever be made public as the Irish negotiators chase EMU lorry hoping something will fall off the back.
BofI bought back mortgage back securities below par in sufficient volume to geneate a 350 m gain. These are further up the capital stack than the sub debt. Yet it has received little notice. Eoin B has raised this as a possibility Before.
dom k,
Plus 1. Last week was a Kosovo moment.
@ Dom K.
Low swap rates could turn out to be a poisoned chalice if the euro falls against the dollar over the coming months!!
Those dollars have to be paid back in full sometime in the not so far future at whatever price was there when the swap occurred!
Forex casino!
Repost here from previous article, hopefully formatting slightly better.
As you listen this evening, draw your own conclusions on any parallels that exist between Ceauceso’s efforts and our governments efforts to pay back loans:
Stupid is as stupid does, Forrest Gump:
“http://en.wikipedia.org/wiki/Nicolae_Ceau%C8%99escu
“Foreign debt Ceaușescu’s political independence from the Soviet Union and his
protest against the invasion of Czechoslovakia in 1968 drew the interest of
Western powers, who briefly believed he was an anti-Soviet maverick and hoped to
create a schism in the Warsaw Pact by funding him. Ceaușescu did not realise that
the funding was not always favorable. Ceaușescu was able to borrow heavily (more
than $13 billion) from the West to finance economic development programs, but
these loans ultimately devastated the country’s finances. In an attempt to correct
this, Ceaușescu decided to repay Romania’s foreign debts. He organised a
referendum and managed to change the constitution, adding a clause that barred
Romania from taking foreign loans in the future. The referendum yielded a nearly
unanimous “yes” vote. In the 1980s, Ceaușescu ordered the export of much of the
country’s agricultural and industrial production in order to repay its debts. The
resulting domestic shortages made the everyday life of Romanians a fight for
survival as food rationing was introduced and heating, gas and electricity
black-outs became the rule. During the 1980s, there was a steady decrease in the
living standard, especially the availability and quality of food and general goods
in stores. During this time, Ceaușescu shut down all radio stations outside of the
capital, and limited television to one channel broadcasting only two hours a day.
The official explanation was that the country was paying its debts and people
accepted the suffering, believing it to be for a short time only and for the
ultimate good.[citation needed] The debt was fully paid in summer 1989, shortly
before Ceaușescu was overthrown, but heavy exports continued until the revolution
in December.”
Austerity is one thing, if it has hope for success; quite another, if the loans it is intended to make headway against, are not only immoral, but unmanageable : meaning you need to kill the payback geese, the economy that lays the golden eggs.
sorry about formatting quote, its not displaying as is in message window, but has retained some hidden line breaks….
“The Irish Government is likely to be faced next week with a proposal that eurozone countries should commit to some form of closer fiscal union in exchange for German agreement to permit the ECB to end the financial panic.”
Does anyone seriously believe that the markets will accept some fuzzy political commitment to greater fiscal union somewhere down the road. Colm mcCarthy ignores the central fact the both the ECB and the Bundesbank have on numerous occasions stated that such actions would be illegal. Weidmann may have only one vote but his organization holds remarkable sway over the ECB.
Add to that the Constitutional court has told the German government that it has gone is far as it will be allowed by the court.
It appears that the credibility of the ECB would be seriously damaged if it engaged in the course advocated by many….large scale purchases of sovereign debt in the absence of actual treaty changes.
“Low swap rates could turn out to be a poisoned chalice if the euro falls against the dollar over the coming months!!
Those dollars have to be paid back in full sometime in the not so far future at whatever price was there when the swap occurred!
Forex casino!”
As much as I’d love to see the Euro tank, I am damn sure the Yanks will do their best to make the $$ follow suit.
Enda wants to be the Taoiseach that regains our economic sovereignty……
Wonder why he is going over next week to give it away permanently.
CetPar,
Still short I see. Must be hurting?
In the face of Gombeenomics, Ceaucesonomics we’ll look to Thermopylae without Leonidas 🙁
@Tull
Neither short or hurting.sorted that on the bounce.
I see the Germans are about to relent on CACs.
http://www.reuters.com/article/2011/12/04/us-eurozone-germany-bondholders-idUSTRE7B30S220111204
CP,
If ur banks are loaded with sov debt and if CDS don’t work then you better make sure sovereign debt is really risk free otherwise you are going to have to explain to your voters that your banks and insurance companies are bust. German savers are much more concerned about Allianz than Comedybank.
@Tull
The people are behind Angela…..
“No, Germans are not blind to the extent of the debt crisis. On the contrary, a disillusionment has grown in light of the failure to implement sweeping rescue efforts. The vast majority (84 percent) even thinks that the worst is yet to come, a record level in the new ARD poll. A basic trust, that can really calm the situation for international policies, was lost among the population long ago.
As bad as the big picture is, and as large as the distrust is in the competence and self-assertion of the states against the financial markets, people still seem to feel like they are in good hands with the chancellor. Angela Merkel’s approval ratings have gone up during the crisis, polls show. In a domestic Infratest poll, Merkel crossed the 50-percent-mark. One in two respondents found that Merkel has handled the crisis “correctly and decisively.” In a recent poll conducted by the ZDF network, almost two-thirds of those surveyed rated Merkel’s crisis management positively.
“There is again a positive feeling about Merkel,” says Manfred Güllner, head of the polling institute Forsa. “People have the feeling that she is plugging away at the euro crisis.” They reportedly like it that the chancellor does not let herself get pushed around.”. From Der Spiegal
So poor old Nicky is unlikely to get concessions tomorrow.
@ Hogan
Happy to update the numbers, but I don’t think the data is available in the same format. Is it? If so, point me at it and I’ll get it done.
I don’t think it’ll make pretty reading.