A recent post looked at total debt and interest payments in the household, non-financial corporate and government sectors using data from the CSO’s Institutional Sector Accounts. There were some unanswered issues relating to the “interest paid” figure given for the three sectors in the accounts.
A quick query to the CSO has resolved this issue. The interest paid figure in the ISAs is actually an adjusted amount where the adjustments is for Financial Intermediation Services Indirectly Measured (FISIM).
The interest amount in the ISAs is based on a "risk-free rate" or some variation thereof. The remaining interest is considered a payment for service and appears elsewhere. The CSO’s accounts include this adjusted amount as interest paid (D.41).
The actual interest paid (D.41g) is available from the Eurostat database and is used to create this graph.
In 2010, the total amount of interest paid was €16.2 billion. This was 10.4% of GDP and 12.6% of GNP.
As interest rates have fallen the interest paid by the household and non-financial corporate sectors have fallen. In 2010, the household sector paid €6.3 billion of interest (and received €1.3 billion). In contrast the interest paid by the government sector has more than doubled in just two years and is set to be the largest amount in the coming years.
Two tables of comparative EU27 data for 2010 are also provided.
- Financial liabilities of household, corporate and government sectors
- Actual interest paid by the same sectors (incomplete)
As with the earlier post the measure of debt is the sum of the following liabilities: currency and deposits (F2), securities other than shares (F3) and loans (F4).
As has been stated a number of times (and discussed here) in terms of total debt Ireland is the most indebted country in the EU. In 2010, the total for the household, non-financial corporate and government sectors is 430% of GDP or 525% of GNP. No other country is above 400% of GDP and the unweighted average for the EU27 is 245% of GDP.
However, when it comes to actual interest paid Ireland is not such an outlier. In fact even with incomplete data there are four countries in which the three sectors combined paid more interest than in Ireland. At 10.4% of GDP the interest paid in Ireland is one-fifth more than the 8.6% of GDP unweighted average for the 20 countries for which 2010 data is available.
The may be a number of reasons why we are paying less interest such as lower interest rates and impairment in the household and corporate sectors. While the government can try to continually roll over the debt, the household and corporate sectors will try to repay the interest and capital. The non-consolidated nature of the accounts means that the debt may not be actually owed to third parties. This may be particularly true of the non-financial corporate sector, the debts of which make up more the half of the total debt figure for Ireland in the usual analysis.
The tables themselves are below the fold.
7 replies on “Debt and Interest (update)”
Has the indebtedness figure for Ireland removed the distorting influence of IFSC “offshore” debt?
the figure that stands out for me is household figure in the Netherlands at 6.2% of GDP
What is the explanation for this?
Are there a lot of home loans per person in the Netherlands?
I cant believe that they are paying much higher interest rates?
Take a look at this link regarding Dutch household indebtedness (and the comments section for some explanation).
The 222% of GDP for Non financial corporate seems to be very high. I would say that these figures do not take account of NAMA Bank loan writeoffs of €40 Billion in 2010 and they also appear to overstate corporate debt by not taking into account a build up of cash balances held by corporates who because of the Credit Crunch were holding on to loan facilities rather than paying them down because they feared losing the loan facilities going forward. Non financial corporates are the main entities that reacted to the crash in 2008 immediately unlike useless Politicians in Government , and, householders who were losing their livelihoods and could do nothing to reduce debt immediately. When I see Swedenand Denmark at 300% of GDP I actually dont feel that bad about our situation !!!
That article neglects to note that the Holland and Denmark have the highest level of pension assets per capita as well. So while they are not paying down mortgage principals, they are still huge savers elsewhere in the system.
I believe that interest payments are tax deductible in the Netherlands for 30 years after the purchase of the property. Therefore it probably makes financial sense to pay interest only and save the capital component until the end of the mortgage term. A form of endowment mortgage essentially.
This probably goes some way to explaining both the high interest payments and the high pension savings rate.
It is also worth noting, that Ireland has one of the largest proportions of variable rate mortgages in Europe. Therefore the falls in interest payments has probably been more pronounced here than in other countries.