Central Bank Economic Letter: Ireland’s External Debt: Economic and Statistical Realities - Conn Creedon, Trevor Fitzpatrick and Edward Gaffney

This post was written by Philip Lane

Available here.

8 Responses to “Central Bank Economic Letter: Ireland’s External Debt: Economic and Statistical Realities - Conn Creedon, Trevor Fitzpatrick and Edward Gaffney”

  1. Paul W Says:

    “Comparative analysis suggests that small open euro area economies tend
    to have higher levels of external debt than other economies.”

    Nah, Ireland just has a very low CT rate….One can’t deduce the above generality from Ireland’s position.

    Interesting paper though. IFSC represents most of the 1,047% of Ireland’s total external debt /GDP. No wonder the CT rate is so ‘red line’ for the country.

  2. john gallaher Says:

    quite interesting this jumped out…….so basically very few domestic institutions have benefited from recent rally in Irish bonds…typical!

    “The majority of euro area government debt
    is typically held by foreign residents (Andritzky,
    2012). However, this aggregate figure masks some
    important differences across countries. 78 per cent
    of Irish government bonds were held abroad at the
    end of 2011, compared to an average of 50 per
    cent in Greece, Italy, Portugal and Spain.”

  3. Paul W Says:

    @ jg
    It just shows also how important the bond markets were /are to the financing of Ireland Inc (with EU/ECJ and IMF taking up the lack for now of course).

  4. john gallaher Says:

    @Paul W the wide disparity btw. Irl and the ‘GIPS” is worth exploring,hopefully the authors will follow up or there may another paper out there.

    Some historical data would also be useful,is this a recent phenomena or historically was always close 80% held abroad…but ’sweet’ year for the holders,pity the knackered Irish banks or other domestic institutions have such a small piece and missed the spectacular gains/returns over 30% on the ten year.

  5. Paul W Says:

    @ jg Yes, this is a traditional profile so far as I am aware…US investors have always featured heavily as well.

    Whether it was a ’sweet year’ for investors or not really depends on when they bought. Most of them mark their positions to market. Obviously, if they bought at high yields and Ireland’s interest costs subsequently dropped, they benefit from a paper profit (prior to selling into the market realising the profit…but how good is the market…I saw somewhere that Templeton is holding approx. 10%….very difficult I imagine to offload large amounts…unless to a Templeton!).

    The Irish institutions are benefitting of course (directly and indirectly) from low Troika interest rates relative to what would be available in the market. As we have seen also, there has been some very small placement of paper by the NTMA and BOI also at decent rates.

  6. john gallaher Says:

    @Paul W yes Templeton is sitting pretty and its bonus time in NY…linked the paper referenced by the authors regarding holders of Irish bonds,this paper also points out the heavy reliance by Irish banks on short term Eurosystem liquidity………funding cliff approaching,they will have to be weaned of this or ….
    “Fourth, the suspension of access to term debt market funding for the domestically-focused Irish banks from the onset of the domestic financial crisis until recently, and the repayment of outstanding bonds, led MFIs to replace this funding with shorter-term Eurosystem liquidity. The growing
    share of monetary authority external debt, from negligible levels before 2008, reflects liquidity provided to the domestic financial system.”
    http://www.imf.org/external/pubs/ft/wp/2012/wp12158.pdf
    http://www.voxeu.org/article/government-bonds-and-their-investors-what-are-facts-and-do-they-matter

  7. Paul W Says:

    @ jg
    The re-nationalisation of banking /finance in Europe in particular has been very stark. Ireland has its many problems at present. Thankfully it still retains its international economy, as being discussed with MH on the forward thread.

  8. john gallaher Says:

    @Paul W agreed,i was actually at a meting in Stanford that day,also apprehensive about my kids and school the last few days.quick review of the vox paper reveals that ‘foreign’ holders of irish bonds was about 60% in 2000,90% in 2007 and 80% in 2011,so they actually declined from 2007.
    slightly off topic but the FT today had a interesting quote………….they aint seen nothing yet………..

    “If Europe today accounts for just over 7 per cent of the world’s population, produces around 25 per cent of global GDP and has to finance 50 per cent of global social spending, then it’s obvious that it will have to work very hard to maintain its prosperity and way of life,” Ms Merkel said in the interview.
    “All of us have to stop spending more than we earn every year.”

    http://www.ft.com/intl/cms/s/0/8cc0f584-45fa-11e2-b7ba-00144feabdc0.html#axzz2FPYiOnCu

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