A Modern History of Fiscal Prudence and Profligacy

New IMF work here.

Summary: We draw on a newly collected historical dataset of fiscal variables for a large panel of countries—to our knowledge, the most comprehensive database currently available—to gauge the degree of fiscal prudence or profligacy for each country over the past several decades. Specifically, our dataset consists of fiscal revenues, primary expenditures, the interest bill (and thus both the primary and the overall fiscal deficit), the government debt, and gross domestic product, for 55 countries for up to two hundred years. For the first time, a large cross country historical data set covers both fiscal stocks and flows. Using Bohn’s (1998) approach and other tests for fiscal sustainability, we document how the degree of prudence or profligacy varies significantly over time within individual countries. We find that such variation is driven in part by unexpected changes in potential economic growth and sovereign borrowing costs.

Sale of Subordinated Bond in BOI; NTMA 2012 Review

The sale of €1 billion of the Convertible Contingent Capital notes that the Exchequer purchased as part of the 2011 PCAR recapitalisation has gone through today.  The announcement from the Department of Finance is here, while a Bank of Ireland report providing some details of the sale is here.

The notes had an annual yield of 10%.  There are €2 billion remaining in AIB/EBS and PTSB.  Is the sale of the BOI portion a good deal?

The NTMA have published their Results and Business Review for 2012.  The value of the ordinary and preference shares held by the NPRF in AIB and BOI is estimated to be €8.6 billion, up from €8.1 billion at the end of the third quarter.  The value of the “discretionary fund” is €6.1 billion.

At the end of the year the balance in the Exchequer and Other Accounts was €20 billion. The Exchequer Borrowing Requirement for 2013 is projected to be €15.4 billion (or €18.5 billion if two Promissory Note payments are made).

This week’s activities will have pushed these balances to around €23.5 billion. The NTMA plan on raising another €7.5 billion of funds with medium- and long-term bonds during the year and the final €11.5 billion of EU/IMF programme loans are also scheduled to be drawn down.  With a €5 billion bond payment due in April this would result in cash balances of €22 billion (or €19 billion) at the end of the year.

UPDATE: Further statement from the Department of Finance on BOI bond sale here.

Fitch Report: Property Markets Remain Soft, Irish Borrowers on Strike

Namawinelake has a link to the new Fitch report on global property markets, including Ireland which gets considerable attention in the report. The Irish picture is mixed with some positive signals (affordability ratios have become more normal) and other negative signals (continued bank distress limits future mortgage lending).

Fitch also highlights the unusual behaviour of Irish arrears, and connects this to the Irish policy framework.

Irish Borrowers on Strike: Despite economic stabilisation, Irish arrears continue to trend upwards. Fitch believes this to be partially driven by policy framework changes. Lenders are constrained from large-scale repossessions, dis-incentivising borrowers from paying their mortgages. In addition, borrowers in arrears are also likely to benefit from significant debt write-offs when personal insolvency legislation becomes effective.”

Eurozone unemployment

Just like a year ago, we are hearing a lot of guff about how the euro crisis is over, and just like a year ago the people I talk to in Brussels are becoming increasingly alarmed by the complacency of the European establishment. It does seem as though the only thing that makes Europe’s useless political class worry is the risk of imminent cardiac arrest, as proxied by bond yields and the like; but the cancer of unemployment will do just as much damage if allowed to progress unchecked.

Here are the latest Eurozone unemployment statistics. Just because we are becoming used to this sort of news does not mean that they are even remotely acceptable. They are grim.

There are certain costs that are obviously not worth paying to keep the EMU experiment going. One is a dilution of the continent’s democratic traditions. Another is unemployment rates of the sort we are seeing in Spain and Greece. No doubt crocodile tears will be shed by supporters of status quo macroeconomic policies, but such responses are no longer acceptable. EMU supporters, and €-sceptics who are worried about the costs of an EMU break-up, now have to start being very concrete in terms of proposing Eurozone economic policies, including short run monetary and fiscal policies, that can start reversing these trends in 2013. (A group of us tried to do so here, for example.) And then we need to see such policies being implemented, quickly.

You have to live through times like this to really appreciate the wisdom of Keynes’ famous line about the long run.

Syndicated Tap of 2017 Bond

The NTMA have announced:

NTMA Announces Syndicated Tap of 2017 Bond

7 January 2013 – The National Treasury Management Agency (NTMA) has today announced to the market that it will seek to raise new money through a syndicated tap of its 2017 Treasury Bond in the near future, subject to market conditions.

A syndicated tap is the sale, at a pre-determined price, of additional amounts of an existing bond through a number of appointed banks and is open to all institutional investors. The NTMA has mandated Barclays, Danske, Davy, RBS and Société Générale as joint lead managers for the transaction, details of which will be announced in due course.

The finer details are scarce for the moment.  Someone referred to it as a “massive step”.  The indicative five-year yield as calculated by Bloomberg is here.

UPDATE: Results here.