There are reports that the negotiations between the government and unions representing public sector workers have concluded. Some details are provided here.
UPDATE: A briefing note on the LRC proposals is here.
Author: Seamus Coffey
The Commission have released their updated economic forecasts for 2013 and 2014. With an estimated –0.6% contraction in 2012 the eurozone is forecast to contract by a further –0.3% in 2013.
Ireland is set to be the third fastest growing eurozone country with the 1.1% growth forecast behind only Estonia (3.0%) and Malta (1.5%). This is not a reflection of any strong performance in Ireland’s case. Inflation for the eurozone at 1.8% is “close to but below 2%” though.
The public balance for the eurozone is forecast to fall from -3.5% of GDP last year to –2.8% of GDP this year. No eurozone country is expected to run a surplus and at –7.3% of GDP Ireland will have the largest public deficit in the eurozone (the UK at –7.4% of GDP is expected to have the largest deficit in the EU27).
All of the details are available from this page (though for the moment some of the numbers in the interactive map do not match those in the statistical annex).
The statement from the Minister for Finance is here.
The CSO have published the headline figures for the 2011 SILC as well as revised figures for the 2010 SILC which can be found in the release.
There will be some interest in the revision of the 2010 figures but as the data by income decile will be published at a later date we are still unsure of the specific impact the revisions will have on this graph. The reason for the revision is given as:
In 2010 changes had been made to the processing of the data which resulted in an incorrect treatment in some cases of tax, income and pension contributions. This became clear when unusual trends in certain categories between 2010 and 2011 were further analysed.
On income inequality the revisions of the overall figures for 2010 include:
- Gini Coefficient: from 33.9 to 31.6
- Quintile Share: from 5.5 to 4.9
- At-risk-of-poverty rate: from 15.8% to 14.7%
These are all significant changes. The reported figures for 2011 indicate a drop in the Gino coefficient to 31.1 but a rise in the at-risk-of-poverty rate to 16.0%.
Under the old Promissory Notes arrangement there were four interest rates involved:
- Promissory Note Interest Rate: 8.2% (from 2013)
- ELA Interest Rate: 2.50% (MRO + 1.75%)
- ECB Interest Rate: 0.75% (MRO)
- Government Borrowing Rate: 3.3% (under EU/IMF Programme)
As was eventually realised it is really only the latter two that matter. The repayments in the Promissory Notes converted very cheap debt at the ECB MRO rate to more expensive debt at the government borrowing rate. The problem was never the interest rate on this debt, the problem was that it needed to be paid down too quickly transforming it into higher-interest debt. Under the old arrangement the average duration for this was around seven years.
If we just focus on the Promissory Notes element of the arrangement (and ignore the transfer of IBRC assets to NAMA) the key interest rates in the new arrangement collapse to:
- Long-Term Government Bond Rates: c.3.5% (spread over Euribor)
- ECB Interest Rate: 0.75% (MRO)
Initially the interest rate on the new government bonds doesn’t really matter. The interest is paid to the Central Bank which repays it back to the Exchequer. The Central Bank pays the ECB MRO for the facility to hold the bonds.
Once the Central Bank sells the bonds the interest becomes payable to a third party and will no longer be returned the the state. This will start slowly with €0.5 billion of the bonds to be sold by the end of 2014. This will continue at a rate of €0.5 billion per year up to 2018, €1 billion a year from then until 2023 and €2 billion a year thereafter. Under the proposed schedule the Central Bank will have fully disposed of the bonds by 2032.
It is through this process that the cheap debt (based on the ECB MRO) will be transformed into more expensive debt (based on the rate on the new bonds). The difference now is that this process takes place at a much reduced speed over an extended period. The average holding period by the Central Bank is nearly 15 years.
In effect the period we have access to funding at the ECB rate has been extended by nearly eight years.
After the bonds have been fully disposed there is little difference between the Promissory Note arrangement and the Long-Term Bond arrangement. As stated this will happen in 2032.
The emphasis on what happens with the bond redemptions from 2038 to 2053 is somewhat misplaced. There was always going to be debt to service/roll-over during this period as a result of the Anglo catastrophe. As pointed out the real cost of this will likely have been significantly reduced but yesterday’s announcements make little real difference to this period.
The key gains are the short-term funding benefit with the cancellation of the Promissory Note repayments and the fact that the period for which cheap ECB funding is available has been extended from around 2022 out to 2032. The benefits are not related to the length of the bonds used (and nor does using long-term bonds generate an additional cost).