..which is why it makes sense that this article should have appeared in the Telegraph rather than the Guardian (HT FT Alphaville).
Category: Fiscal Policy
I know some of our blog commenters are big fans of the idea of ending the EU-IMF deal and immediately running a zero deficit. I spoke with Kathy Sheridan from the Irish Times a while back about how this would be chaotic.
It’s interesting then to see US politicians apparently eager to try out this experiment on their own economy, pretty much for the hell of it. Here‘s an interesting analysis of the decisions that could be facing the US Treasury on August 2. A corresponding analysis for Ireland would be really interesting.
I had missed last week that NTMA had released an information note on Ireland’s financing situation. The note clarifies that funds from the EU and IMF that had been earmarked for bank recapitalisation can be used to fund fiscal deficits if, as the government is currently assuming, there are no further recapitalisation costs. Based on these assumptions, and projecting that fiscal deficits come in on target, they note that Ireland can get to the end of 2013 with minimal new funding.
Worth noting, however, is that there is an €11.8 billion bond maturing in January 2014. So, it would seem likely that if market funding is not accessed at some time before summer 2013 (or perhaps earlier), then the government will have to open negotiations on a new funding deal from the EU and IMF. I doubt if letting the clock tick all the way down to December 2013 would be a good strategy.
The mid-year Exchequer Return released on Monday gives a somewhat noisy insight into the state of the public finances. It is hard to draw exact conclusions about the behaviour of tax revenue and government expenditure because of the changes introduced in last December’s budget and the reporting of the relatively meaningless ‘net’ expenditure measure which was also affected by the Budget.
Anyway, in this little poke into the figures we will just look at the Exchequer Balance which allows us to throw all these anomalies into the mix and focus on the final outcome.
Here are the cumulative Exchequer balances for the past five years.
At €10.8 billion, the Exchequer Deficit for the first six months of the year is better only than the €14.7 billion deficit recorded in 2009, but is worse than the €8.9 billion deficit recorded in 2010. However, the Information Note which accompanies the returns tells us not to worry because:
The year-on-year increase in the deficit was primarily caused by the €3,085 million in non-voted capital expenditure Promissory Note payments to Anglo Irish Bank, INBS and EBS. Excluding these, the deficit fell by over €1 billion.
This is meaningless and should more appropriately be described as misleading.
If the objective is restored market access, the limits of exisitng crisis resolution arrangements were further exposed by Moody’s four-notch downgrade of Portugal. The FT has the story here. This bit is particularly important:
Moody’s cited the tortuous negotiations over Greece in its note, warning that although the likelihood of a restructuring in Portugal was lower than in Greece, the European Union’s “evolving” approach to providing further support “implies a rising risk that private sector participation could become a precondition for additional rounds of official lending to Portugal in the future as well.”
The full Moody’s statement is available via ft.com/alphaville.