NTMA Presentation on Ireland

Worth looking at to see how Ireland is being marketed to investors, lots of good data here too. Of course there’s a little spin here and there, but overall an interesting powerpoint deck.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

43 replies on “NTMA Presentation on Ireland”


For start they have included the recent bond swap in the Feb edition.

There are probably other sundry updates re: CSO stats etc.

“Ireland doing everything asked of it that is within its control”

Cue sardonic laughter.

Real disposable per capita income (p15) is estimated to have fallen in 2011 by around 10% from its peak in 2008. The price level is estimated to be 13% above the Euro Area average price level for 2011 – and the pace of decline from the peak premium (around 26%) in 2008 seems to be grinding to a halt.

My question for the economists who know about these thing is: by what percentage approximately would real disposable per capita income increase if the Irish price level were brought down to the Euro Area average?

In summary: The Irish, a great bunch of lads.

So we’ll have a primary surplus in Q2 2014 (slides 78)… I had thought it was 2013. They show the primary surplus for 2014 and 2015…… they should extend the graph for another 20 years to show actual capital repayment.

Never judge a book by its cover.

FDI always camouflages a lot – – the only problem is that policymakers can begin to believe the propaganda e.g unit labour costs.

‘Domestic economy still in deleveraging phase’ – – fckd in simple terms.

Ireland has been warned to expect further austerity in 2013. The Dublin finance department tweaked its “memorandum of understanding” with its lenders – it now expects to cut “at least €3.5bn” next year (the “at least” is new). HT Daily Telegraph.

Of course there’s a little spin here and there….

A little? Reading this makes me I feel like I’m living in the Soviet Union.

The most egregious manipulation of figures occurs in slide 6. The exchequer deficit figures are given, but excluding the bank recapitalization costs. The slide then presents 2011 as an improvement when in fact the defecit was the largest in the history of the state. This slide makes Seamus Coffey cry.

Slides are littered with “trend” arrows showing where graphs are “going”. It’s obvious that these have not been obtained by any kind of regression analysis, and are just the result of someone drawing an arrow in the direction they want our eyes to follow. The worst example of these is the unemployment graph in slide 14. The arrow trends down, but I would be confident that actual analysis would extrapolate that unemployment is increasing.

Slide 19 needs to be pasted onto the head of every economist and property commentator in the entire country for the rest of their lives.(McWilliams and Kelly get a free pass) (Yes the graph is actually zeroed).

Slide 25 about how the economy has “rebalanced” makes me quite angry. Very angry in fact.

Slide 34 is basically a lie. We’ve seen 60%+ falls from the peak.

I’m not going to read any further into this. It’s making me too angry seeing such blatant manipulation of figures and data. Essentially, the NTMA has blown its credibility with me for a very long time. If this is how seriously and honestly the state is treating this crisis, it’s no wonder that the response to the crisis has been so desperate up to now.

This must have been what it was like to live behind the Iron Curtain.

Oh God. Someone please tell me that the figures on slide 85 are wrong. Why does ILP have more residential mortgages than AIB?


cos ILP was the main residential mortgage lender in the country? c.25% share pre-crash i think.

It would be entirely inappropriate and morally reprehensible to seek to establish an equivalence between life in Ireland now and life (existence even) under the Soviet tyranny. But the intent, in principle, is identical because the objective of those who exercise power and influence is to compel the vast majority of citizens to ‘live a lie’.

So, showing due respect to those who suffered, and continue to suffer, under brutal and opressive tyranny, let’s call it what it is: an ‘optical illusion’ that is projected and sustained by a well-rewarded cast of thousands and which protects and advances the interests of those exercising power and influence.

No. I’ll call it what it is—Propaganda.

Shameless, Soviet-era, economic propaganda.

Anyone who thinks I’m being rhetorical should just read the document.


“The worst example of these is the unemployment graph in slide 14. The arrow trends down, but I would be confident that actual analysis would extrapolate that unemployment is increasing.”

Well, the unemployment rate is actually falling, albeit for some technical reasons – people leaving the workforce. And Slide 13 is titled “Employment decline accelerates”, so its not like they didnt mention the negative dynamic in place.


God you have given me the laugh of the day!

“Slides are littered with “trend” arrows showing where graphs are “going”. It’s obvious that these have not been obtained by any kind of regression analysis, and are just the result of someone drawing an arrow in the direction they want our eyes to follow. ”

Would those lovely colors be crayons that have gone missing from the children’s creche?

@ Bond. Eoin Bond.

“Well, the unemployment rate is actually falling, albeit for some technical reasons – people leaving the workforce.”

Leaving the workforce or leaving the country?

@OMF Relax….. Of course its propaganda… They are trying to sell something … thats their job… 🙂

Marketing is a much nicer term than propaganda.

@OMF Relax….. Of course its propaganda… They are trying to sell something … thats their job…

Marketing is a much nicer term than propaganda.

We’re not talking about a private operator hocking twinkling wares. The NTMA is a state institution; indeed the institution responsible for managing our national assets.

The NTMA is required to tell the truth, to the Irish public and others. They are not supposed to distort, embellish, or indeed completely fabricate data and statistics. This is the kind of thing that went on constantly in dozens of failed and failing states. We should expect, not more, but simply a very basic standard of truth which this presentation does adhere to.

It’s a worrying development from an institution that continues to fall from grace.

Lots of Oucchh to describe the pit we’re falling into:

Surely ‘stabilising is a misnomer’ This describes an economy on artificial life support; that even though its on artificial life support, its dying.

“Unemployment rate stabilising at 14%-14.5%

Real disposable income still declining (€ per person)

Consumer spending still declining: set to continue
through 2012 (quarterly €m is scale)

Investment as a % GDP at all-time low”

Little on the slides to describe the deleveraging of the banks in terms of the number of employees, branch closures and no volume mortgage sector.

I was interested in the following from the NAMA:

“The UK and NI accounts for 37% of the portfolio. Assets outside Ireland account for 43%
• The most difficult part of the portfolio to monetise is likely to be L&D in Ireland of €5.4bn but
Dublin accounts for €3bn of this.
• The remaining €26.4bn should be realised (in today’s money) from the rest of the portfolio”

Firstly, what a waste of money setting up NAMA to monetize those assets outside of Ireland. That job should have been left with the banks. Marking to market of those assets has been a dreadful mistake. But unfortunately, we can’t pore over the NAMA’s books and investigate precise losses it has made on assets outside Ireland 43% on a case per case basis. Therefore we can’ assess NAMA’s performance. For example, we are told NAMA is to meet its targets for 2013, but what property has it sold; is it choosing to sell off its best tranche and keeping the unsaleable until last in its fog of commercial sensitivity.

In Ireland, NAMA is interfering with the market place by witholding large volumes of stock that potentially can cripple both rental values and upward only rent reviews.

Because of this NAMA should be forced to liquidate its abscess and clean its books to remove its sword of democles over the residential and commercial property sector.

Lets go further and ask what the heck its doing with the ghost estates as they deteriorate in quality and value.

There is a case for an outside agency like NAMA to assist the banks in liquidating and deleveraging local toxic assets the banks have proven unable to; there is no case for an expensive outside agency like NAMA to sit like a great big cuckoo in the commercial/residential property sector in Ireland and do NOTHING with ‘most difficult part of the portfolio’; less so to monetize/liquidate external assets 43% of NAMA at losses NAMA is probably incurring on these, that the banks had best information upon.


I currently dive a 2003 1.9D Audi. The kind that is supposed to go ‘Vorspruning durch technik’.

The oil sensor is gammy, comes on all the time. Loads of oil.
The servo brakes are also giving trouble. A common problem with a lot of VAG cars as I now understand it.

But you will still see the ads

‘Vorsprung durch technik’. And it still sells cars.
(Well, not to me because I cannot afford one. That Audi could well have to last my lifetime. It may be a photo finish).

The NTMA boys are entitled and indeed well paid to present the most positive case.
Many of the people looking at those charts probably would not know an X-axis if it hit them on the ass.

@ All

Meanwhile back at the ranch (or, rather, Mission HQ), the Commission publishes its first report on the elephant in the room.


Alphaville also has a very interesting take on the situation.

Meanwhile, in another part of the forest, the Greek drama continues. Juncker has cancelled the meeting of finance ministers scheduled for this week.

“I welcome recent further progress made regarding the second adjustment programme for Greece. In particular, I welcome the agreement reached between the troika and the Greek government on the programme as well as the positive vote ofthe Greek Parliament last Sunday. At the same time, following today’s Eurogroup Working Group meeting, it has appeared that further technical work between Greece and the troika is needed in a number of areas, including the closure of the fiscal gap of € 325 million euro in 2012 and the debt sustainability analysis. Furthermore, I did not yet receive the required political assurances from the leaders of the Greek coalition parties on the implementation of the programme. Against this background, I have decided to convene ministers to a conference call tomorrow in order to discuss the outstanding issues and prepare the ordinary meeting of the Eurogroup on Monday, 20th February 2012”.

@ All

P.S. I found the NTMA presentation rather uncanny (even if I did not understand all the graphs) in that it largely coincided with the perception which I would guess most people have of the situation. The gap between the GNP and the GDP figures is the real giveaway. One must assume that informed investors are not unaware of the dominant role of MNCs in Ireland’s export performance.

This feeling is confirmed by the number of indicators glowing red in Ireland’s case in the Commission’s analysis.

The happy coincidence of Germany being excluded by coming in just under the 6% limit for balance of payments surpluses may also be noted. The NTMA is in not even in the same league as the EU when it comes to the imaginative presentation of figures.


It seems to me that Germany has decided that Greece must be pushed out, with Greece making the decision ‘to leave’ rather than a messy ejection.
The easiest way to push Greece out is not to sign the cheque. Just keep putting up additional hoops to be jumped through. That way there is no need for formal decisions with all the fuss and mudslinging that might entail.
@Grumpy has a good succinct analysis in the previous thread.
“If Greece stays in the Euro and does what it is told, it could be very inconvenient.”

I note you comments re the ‘Alert Mechanism’ and the real cause of the crisis being significant trade surplus’ year on year by Germany, Netherlands etc and deficits in all the countries now struggling.
In fact I would go further and say that the trade imbalance between the ‘West’ and China of ~500 billion per year, which has been going on now for many years is similar in nature and an equally large factor in current problems.

The temporary return of such surplus’ into western bank accounts causes more harm than good with Ireland being a prime example of the harm aspect of these ephemeral capital flows. In Ireland’s case the flows being it would appear from within the European continent.

I am not a protectionist but I cannot rationalise such trade imbalances continuing without them coming to a shuddering halt at some point.

I thought it was an okay presentation. The green they used was nice and it quite jazzy for powerpoint.
They have to put a positive spin on it.

I note they use non core rather than PERIPHERAL. There was also some line about flexibility ie the Paddies don’t mind. I have saved the file and will relook at it in 2017. Check out the trend development.

@ JR

I think Germany wants to kick Greece out too. I don’t understand why nobody is standing up for Greece. It is all very shoddy.

@ Joseph Ryan

You could well be right regarding Greece! The CEO of Bosch, for example, has been quite explicit in the matter. A very well known German proverb states “Better and end to pain than pain without end”. Both sides may come to this conclusion. It would, however, be a wild leap in the dark.

I was impressed by the commentary of a leading French journalist in Le Figaro who said that “injustice is more intolerable than poverty”, adverting to the fact that the “maritime” bourgoisie and that of the “liberal professions” had organised themselves in such a way as to make little or no contribution to the maintenance of the Greek state. This irresponsibility has its counterparty in violent extreme left wing, anarchist in effect, which caused the arson damage in recent days.

The net result is a total collapse of confidence by the trapped middle class in their political representatives.

I agree with your point regarding imbalances. They are the real source of the crisis in the euro.


If I could find a teeshirt saying “We are Greeks now”, I would wear it.

On a historical note, Gladstone was the first to recognise back in the late 1840s that long term damage was being done to the UK by virtue of hundreds of thousands leaving Ireland for the US with animosity towards England. One hundred years later Joe Kennedy do England no favours in helping to bring the US into the war.

Germany, given the historic resonances, will not be easily forgiven this time for its ruthless approach to Greece. The most immediate consequence is that EU ‘solidarity’ is now the oxymoron of the new century.


re the NAMA Presentation:

Excellent covered bank balance sheet summary on page 95. The last page.
If only somebody had a similar summary on Sept 28th 2008, I doubt we would be where we are today.

Come to think of it, was John Corrigan waiting in the reception room that night as well!

Of course somebody might have banged the table and insisted that all customer loans were AAA gold nuggets!!


Perhaps it just me but the information contained on slides 34 and 35 is trying to convey a situation whereby a return to average rental yields of 6% to 7% is just around the corner. Slide 34 suggests to get to the PCAR adverse scenario would require an additional 24% fall in house prices from here – like this is sooo not going to happen roight?- sadly wrong – its massivelt understating the pricing error.

The authors convieniently don’t mention the fact that the 6% to 7% long run average yield include the 2001 to 2008 period in the their ‘average’ calculation. The 2001 to 2008 period is a time when housing supply was rising far in excess of demand i.e. a period when yields should in fact have been rising not falling. The average yields calculation should correctly exclude this period as it represents a truly wild period in asset pricing with supply in excess of demand and ongoing price rises – (economics breaking new ground here ).

The average yields should be calculated over a period where supply and demand were in relative close sink and analysis of the 1974 to 2000 period would suggest average gross yields of c9% are more appropriate as a benchmark in the RoI. Recent Allsops auction results are gravitating towards this number, and if anything Allsops yield results have been trending marginally higher as we moved through 2011 given the fact that cash only buyers are becoming more extinct as time moves on and the additional financial risk required over and above cash only buyers will naturally impose higher risks in any transaction thereby necessiate higher yields/returns.

That said, using a 9% yield would have peak to trough falls in Irish house prices in the region of 75% to 85% – depending on location – but that’s the sort of number that a basic yield analysis would suggest we’re eventually going to. Given the tendancy of asset markets to mean revert of time I for one would not be betting on any number less than this.

At current price levels, yield analysis would suggest additional falls of 40% are in fact required to bring us back to something approaching ‘normal’ market metrics.

So 24% additional falls per slide 34 from here look very optimistic, and as a result most of the PCAR document and the related slides from 35 onwards are drawing conclusions which are in many respects complete nonsense (as was noted at the time of the PCAR publication in March 2011)

Frome reading these slides I get a sense that Rossa White is the lead scribe in many of them. In relation to the residential property yield analysis he knows a lot better than whats produced here, as he first raised serious doubts about house pricing in March 2006 and has been proven since to be absolutely accurate in that analysis.

I’ve suggested here many times that the pricing error in Irish house prices when it finally bottoms out will be truly remarkable with average PTT falls of the order of 80% now looking about right. With an L shaped recovery pattern expected thereafter. Mortgage defaults – the party is only warming up folks.

The lack of imagination is stunning – it just leaps from those green pages.

The problem lies with the core – the periphery is only manifesting the outward signs of Imperial Entropy.
Who really gives a toss about concrete yields ?.
The core needs a massive burst of technological capital formation before this baby can reignite.


Tks for that link..Massive trade surpluses, says it all in that link. Having sucked the periphery dry, looking outward now to China, what a mess the euro proved to be:


“But Greece and Portugal reported the worst performance, with Current Account deficits over 10% of GDP for several years, as the countries became increasingly dependent on imports.

As a small, fragile economy with GDP of only €172 bln in 2010, Portugal has a structural trade deficit (exports of €37bln and imports of €55 bln in 2010), importing more than three quarters of its food and energy needs. ”

What the heck, with Portugal’s climate, imports three quarters of its food! Waht the heck happened there?

@ Colm

“What the heck, with Portugal’s climate, imports three quarters of its food! Waht the heck happened there?”

After the socialist/communist government came to power in the 70’s, they nationalised pretty much everything, and all the better skilled and ambitous ‘managers’ (of everything) emmigrated to Brazil, where they have been a key part of the economic boom there. In the meantime, all sectors of industry in Portugal grew incredibly uncompetitive, govt grants and cronyism killing any real enterprise.

@ Yield or Bust 12:10 am

Terrific post there. Not in any way part of the Estate Agency industry, I have a question. Its to with question of affordability. Traditionally pre boom there were ready reckoners against which residential house prices were marked eg 1.5 times combined income was used as total mortgage the lender would lend out. This would be added to savings and determine the affordability of the property the couple would seek. Across income groups residential property was built using this economy of scale built against this money supply; housing in better areas would reflect pricing against affordability in the higher income group range.

Right now mortgage lending has zero volume. The question is; if there are no jobs only part time jobs in the public sector, even if there are further pricing drops with additional falls of 40%, what is going to determine the baseline of future pricing of residential property.

Will it be a fair profit on building costs plus availability of finance; should it be a Germanic model with new building regulations, specific insurance type mortgages, or what should a new pricing baseline be based upon?

@ Bond

tks for that info…..plus the recycling of Germany’s massive current surpluses handed to them a blank cheque to build upon their previous failures with more failure….They say a lender is only as good as its debtor…so ECB ends up like a massive Anglo. Bottomline, I take your point but the design of the euro with its faultlines are perfectly exposed in Portugal’s instance.


“After the socialist/communist government came to power in the 70’s, they nationalised pretty much everything, and all the better skilled and ambitous ‘managers’ (of everything) emmigrated to Brazil, where they have been a key part of the economic boom there.”

Hmmn . Brazil only started taking off recently. What did the portuguese superstars do in the 1980s? Death squad consulting ? Both Brazil and Portugal have huge levels of inequality with large swathes of poor.

@ Seafoid

not sure, but i suppose it would take a bit of time to feed through to overall economy, and they didnt just leave overnight! I read an incredibly detailed report into the entire Eurozone crisis from a US hedge fund, and they had very good long term (into the past) economic overviews of all the periphery, how they got to where they are today.

Mr. Bond,
Would be able to secure the permission of this hedge fund to post the edited highlights of their take on Ireland. Should make interesting Reading.

From March…its a long ‘un…

Ireland’s problems – unlike Greece’s over-sized public sector, unsustainable entitlement spending, and high government debt-to-GDP – mainly resulted from its severely outsized banking sector and its losses from the collapsed real estate bubble, along with the related major economic recession. As shown on page 19, Ireland’s banking assets reached 794% of the €160 billion GDP for 2009, or 491% when including only domestic assets (up from 160% in 2003). Losses in the banking system began to accelerate following the September 2008 bankruptcy of Lehman Brothers, prompting the Irish government to invest capital into its major banks and temporarily guarantee Irish banking liabilities to
prevent a run on their deposits and preserve their market access. However, the scale of the banking system relative to the government made it “too big to bail”. The sliding property prices and economic conditions produced losses on banking assets that triggered concerns about bank liquidity; these quickly grew to concerns of bank solvency, before evolving into concerns of sovereign liquidity then solvency.

Prior to the banking troubles, Ireland enjoyed a long period of economic prosperity as its economy shifted from agriculture to a focus on services, industry, and investment. From 1995 to 2007, the country’s real GDP growth averaged 7.2%, earning it the “Celtic Tiger” nickname. As with Greece, this growth was spurred by optimism, lower borrowing costs, foreign capital inflows after admission into the EMU. Much of this was justified by Ireland’s efficient, low-cost, and skilled English-speaking work force, low 12.5% corporate tax rates, attractive location for an export base, and strong gains in productivity. All this led to major increases in private debt loads for banks, companies, and households that contributed to booming consumer spending, construction, and investment. However, this economic boom teamed with weakening lending standards to build a frothy property market in the early 2000s, with increasing prices and speculative building. Irish housing prices increased 12.5% on average per year from 1997 to 2007, while financial sector assets multiplied by 9.0x. By 2007, roughly 20% of Ireland’s jobs were connected to the real estate industry through either construction (roughly 13%) or supporting roles like brokers and bankers. Prices soared as domestic and foreign speculation grew in residential and commercial property, aided by cheap financing from banks. Such aggressive lending practices – the majority of mortgages became floating rate loans, interest-only loans accounted for 16% of borrowings in the third quarter of 2007, and several banks offered 100% financing – helped Irish private debt more than double to roughly 190% of GDP from 2003 to 2010.

The financial crisis and economic recession of 2008 and 2009 drastically impacted the Irish economy and burst the property bubble. Ireland’s real GDP, with its dependence on construction and real estate, contracted 3.5% in 2008 (the first European government to officially declare a recession) and another 7.6% in 2009 as property prices tumbled (now down nearly 40% from the peak in 2006); unemployment soared from 4.6% in 2007 to 13.5% in 2010 as deflation appeared; and a wave of debt defaults spread over the country. Ireland’s public debt-to-GDP soared from 25% in 2007 to an estimated 94% in 2010 due to deficit spending and bank bailouts beginning in 2008. As a result of major declines in government revenues and GDP, along with a generous state pension system built during more prosperous times, fiscal deficits reached 7.3% of GDP in 2008 (after running surpluses the five prior years). The deficit worsened to 14.6% of GDP in 2009 and 17.7% in 2010 (11.9% excluding the cost of bank bailouts).

The extraordinary construction activity produced a massive oversupply of projects, especially with demand and prices falling in the recession. The inability to sell properties and property depreciation quickly exposed the
banks to tremendous write-downs on loan portfolios. The resulting erosion of the banks’ equity capital spooked markets, which strained liquidity in the banking system With $123 billion of cross-border liabilities as of
December 2008, and much of them short-term, Irish banks were extremely vulnerable to such shocks in the global capital markets. In September 2008, the Irish government attempted to control the banks’ liquidity crisis by providing guarantees for bank deposits and lenders, backed by taxpayer funds. They declared “The Government has decided to put in place with immediate effect a guarantee arrangement to safeguard all deposits (retail, commercial, institutional and interbank), covered bonds, senior debt and dated subordinated debt (lower tier II), with the following banks:
Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society, and the EBS Building Society.”

Despite these guarantees, the Irish banks’ equity prices continued to decline. In December 2008, hidden loan scandals emerged at Anglo Irish Bank, Ireland’s third largest bank, resulting in the resignation of the CEO and two other executives. These departures and the bank’s losses left the government few options to prevent a bank run except via full nationalization, which was completed in January 2009. With fears affecting other banks and the Irish equity index hitting 14-years lows in February 2009, the government put €3.5 billion of equity into the two largest banks: Allied Irish Bank and Bank of Ireland. Also in February, rising unemployment and weakening economic conditions were producing social instability and increased protests, including over 100,000 people taking to the streets of Dublin.

The government also tried to remove troubled assets from the banks by forming the National Asset Management Agency (NAMA) in April 2009. This “bad bank” would acquire property development loans from Irish banks in return for government bonds. Although NAMA’s goal was to improve availability of credit and support the Irish banking system, it seriously damaged the sovereign’s credit quality by effectively converting the banks’ private debt into the government’s public debt. The government’s efforts were not enough to prevent foreign capital from fleeing the Irish banks, which forced the banks to begin collateralized borrowing from the ECB. As shown on page 35, Ireland accounted for roughly 23% of the ECB’s total funding despite accounting for only 2% of the Euro-Zone’s GDP. This put Ireland and the ECB on a collision course due to the ECB’s increasing unwillingness to contaminate its balance sheet with Irish collateral of questionable value.

Banking troubles continued to mount in March 2010, as the Irish government nationalized Irish Nationwide Building Society and EBS Building Society, infusing €2.6 billion and €875 million of capital, respectively. Also, more capital was required at Anglo Irish Bank due to increased losses; by May 2010, as Greece’s rescue was finalized, €22.3 billion had been injected or earmarked for this bank. These increased capital commitments and assumptions of ever growing liabilities added strain to the government’s deficit and financial flexibility. As a result, Standard & Poor’s downgraded Ireland from AA to AA- in August 2010; their research estimated that the costs to support the Irish banks could be as high as €50 billion. This helped push up borrowing rates for Ireland and its banks, with spreads hitting new highs in September 2010 as additional analysis suggested Irish Nationwide and Anglo Irish would need roughly another €3 billion and €7 billion of capital, respectively, and even more under a stress scenario.

By late October 2010, the cost of recapitalizing the Irish banks was clearly far greater than originally expected, meaning the government’s earlier pledge to support bank depositors and lenders was proving extremely costly.

By this time, the government’s banking bailout totaled €80 billion of common equity, preferred equity, promissory notes, and asset purchases (compared to the IMF’s estimated banking losses of €35 billion in June
2009). In response to mounting costs, Standard & Poor’s further downgraded Ireland’s long-term sovereign rating to A and warned of additional downgrades if negotiations with the IMF and EU failed to alleviate the funding crisis.

The Rescue of Ireland – After Ireland became the largest user of ECB funding (see following chart), the ECB began to resist taking further Irish risk and requested that European governments take up the needed support for Ireland. Despite protests from Ireland’s Finance Minister that aid was not necessary (yet CDS levels rose to new highs), he was eventually convinced to formally request financial assistance. On Sunday, November 21, 2010, Ireland requested €85 billion in financial support from the EU, EMU, and IMF. This package consisted of €12.5 billion from internal pension reserves, €5 billion of treasury reserves, €22.5 billion from each the IMF and EFSM, €17.7 billion from the EFSF (its first usage), and €4.8 billion of bilateral loans (€3.8 billion, €0.4 billion, and €0.6 billion from the U.K., Denmark, and Sweden, respectively). The interest rates are 5.7% for the EFSM loans, 6.05% for the EFSF loans, and 3.12% for IMF loans (increasing to nearly 4% after three years; require repayment over 10 years, beginning after 4.5 years). These high rates, which the government (especially the likely incoming new government) is attempting to lower, include a penalty premium and therefore do not lower Ireland’s effective interest burden.

The package is intended to be sufficient to recapitalize the banks (at least the ones intended to continue as going concerns), refinance debt maturities for the key banks, and cover the government’s financing needs from deficits and debt maturities through June 2013. The government expected to immediately recapitalize certain banks with €10 billion, preserve €25 billion for banking contingencies, and use €50 billion for budgetary financing needs. In exchange for receiving this capital and flexibility, the Irish government had to agree to numerous conditions,
many with the goal of improving the deficit-to-GDP to 3% by 2015:

• Cut €10 billion in public expenditure and raise €5 billion in taxes over four years; this includes €6 billion planned for 2011.
• Retain 12.5% corporate tax but VAT increases to 23% by 2014.
• Cut social welfare €2.8 billion and health spending €1.4bn by 2014.
• Cut minimum wage to €7.65 per hour.
• Cut pay 15% for new entrants to public service.
• Cut public service pensions by an average of 4%.
• Introduce property tax in 2012 and domestic water charges in 2014.

The rescue financing also required the Irish government to effectively nationalize Allied Irish Bank by injecting an additional €3.7 billion of capital. This followed the government’s earlier take-overs of Anglo Irish Bank, Irish Nationwide Building Society, and EBS Building Society. Allied Irish still needs another €6.1 billion of capital by the end of February 2011 to comply with national regulation.

Other banks also face likely liability restructurings, with losses expected for bondholders. It had been unclear if senior bonds would be impaired, as expected for subordinated bonds. Certain Irish political leaders increasingly favored placing the burden of the bank restructurings on all bondholders; in contrast, other European politicians and banking officials have voiced a preference to leave senior bonds unimpaired in order to send a signal that other senior bondholders would be protected and therefore should continue to finance the banks at low interest
rates. This uncertain burden sharing was resolved with the recent announcement by the Irish government to merge Anglo Irish Bank and Irish Nationwide, which they already control, and wind down operations by taking much of the combined assets into NAMA in exchange for NAMA bonds (these bonds are 95% guaranteed by the Irish government). The government then plans to divest a significant portion of the bank assets and sell the depositor base to stronger, systemically important banks (and thus benefitting the funding situation of these banks). The government’s action plan to restructure these wind-down banks will produce losses for senior bondholders, which could exceed 50%, depending on the value of residual assets after these transactions. Allied Irish (92% owned by the Irish government) and Bank of Ireland (36% owned by the Irish government) could be likely buyers of the assets, though both still need to raise additional capital over time to avoid full nationalization.

Ireland clearly has a difficult road ahead, but has moved forward well on austerity measures and is on the right track with bank restructurings. Still, CDS spreads and bond yields clearly indicate the market remains skeptical about the resolution. One thing seems sure: the economy, real estate, wages, and unemployment are likely to remain strained for quite some time. The IMF is forecasting 2% to 3% real GDP growth each year from 2011 to 2013, though with public debt-to-GDP increasing from 94% in 2010 to 104% in 2012 before stabilizing.

However, unlike certain other European economies, Ireland’s future could benefit from achievable fiscal reforms and favorable competitiveness.

Thank you, Mr. Bond. As sharp as they seem to be, they appear to have fallen as well for the optical illusion. Keep at the ‘achievable fiscal reforms’ and maintain the ‘favourable competitiveness’ and it’ll all come right eventually. Oh dear.

@ Paul Hunt

this was intended, i believe, as a 120+ page ‘primer’ for US institutional clients of this hedge fund, who may have been less aware of the finer details of the individual Eurozone economies. A kinda “here’s the big picture, in big detail”.

@Mr. Bond,

No wish to diss you, since you have kindly provided this information, nor to diss these hedge fund analysts, since this top-level picture they have presented is solid and accurate, but it just confirms to me the optical illusion that successive governments (and this one is no different) have been able to project internationally. Sure, isn’t Ireland the most open and flexible small economy in the whole wide world.

I agree that the tradable and exposed sectors have shown a resilience far in excess of that demonstrated by the other PIIGS (and other EU member-states) – and the reduction in the price level ‘premium’ (as the NTMA) describes it) over the EA average of 26% in 2008 to 13% in 2011 is largely down to rapid adjustments in these sectors. But we seem to be stuck at this 13% ‘premium’ and it’s being generated in the main by inefficiencies, rent-seeking and excessive costs in the sheltered sectors.

This ‘premium’ is a burden on the domestic economy and must be reduced if the domestic economy is to get on a sustainable recovery path.

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