McCarthy on Greece and Ireland

I guess Colm has better things to be doing then putting links up on blogs but for those of you who haven’t seen it, Mr. McCarthy’s column in today’s Irish Times makes for interesting reading. Colm points out that “It would be unfortunate to celebrate the centenary of 1916 with macro-policy dictated from Brussels and Washington.” I wonder whether Martyn Turner had seen this column before producing today’s cartoon.

Promissory Notes and Deficits

After the announcement that the €4 billion used to recapitalise Anglo Irish Bank last year has to be included in the General Government Deficit, I was surprised to see speculation on this blog and elsewhere that the €8.3 billion in promissory notes issued this year might not count towards the deficit. Yesterday in the Dail, Brian Lenihan made it clear that this full amount was being added to the general government debt:

The recapitalisation of €8.3 billion by issuing a promissory note has been recorded as increasing Ireland’s general Government debt by that full amount in 2010 and, pending the agreement of the restructuring plan, it is appropriate not to include it in the deficit measurement until the matter can be reviewed on foot of any decision made by the European Commission on the plan.

So, the full amount has been added to the stock of debt but we are awaiting a decision on whether it adds to the deficit.

Personally, I like my stock-flow identities to add up, so I can’t see any reason why the full amount wouldn’t be added to the deficit. Perhaps others who understand the statistical issues better than me could explain how these additions to the debt—which are clearly “non-financial transactions” as defined by Eurostat—will not be counted as part of the general government deficit.


The domestic response to yesterday’s Eurostat announcement has been fairly predictable. Opposition politicians are treating it as a substantively bad development that makes our fiscal problems worse. The government are calling it a mere technicality that is nothing to worry about.

I’ve generally been critical of those who seek to ease our fiscal problems via accounting gimmicks. So, on this point, I’m more inclined to agree with the government than the opposition. There may be some particularly uninformed bond traders out there for whom it was news that the government’s €4 billion recapitalisation of Anglo last year wasn’t actually an investment but I wouldn’t imagine there’s too many. Irish government bond yields may have risen a bit yesterday but this may be more related to increased jitteriness about the Greek situation and its potential spillovers than the fact that our headline deficit figure has been changed.

Of course, one problem that the government has in making its “just a technicality” argument is that this same government practically bent over backwards to create the strange beast that is the NAMA SPV and then emphasised how important this accounting gimmick was. For instance, we were told that Brian Lenihan “heartily welcomed” Eurostat’s decision to keep the NAMA debt off balance sheet and that he said the SPV “is an essential device for ensuring that our national debt is off balance sheet in Eurostat terms”. So I think there’s an element of live by the sword, die by the sword about this situation.

Eurostat Revises Irish Deficit to 14.3%

Eurostat has today announced that the Irish general government deficit for 2009 was in fact 14.3% rather than the 11.7% figure that the government has been reporting. Reuters report

Irish Finance Minister Brian Lenihan said this was a result of a technical reclassification associated with government support provided to the banking sector.

“It is important to note that the underlying 2009 general government deficit for Ireland is 11.8 percent of GDP, which is broadly similar to that projected in December’s budget,” he said.

“There is no additional borrowing associated with this technical reclassification. This is a once-off impact, and will not affect the government’s stated budgetary aim of reducing the deficit to below 3 percent of GDP by 2014,” Lenihan said.

Though the Eurostat document does not state this, the revision appears to be related to reclassifying the €4 billion used to recapitalise Anglo Irish Bank as part of the deficit (at this point, I can’t resist an I told you so moment.) If this is indeed the case, I’m not sure that the once-off impact comment is correct since there’s more money going in this year.  Hopefully it is indeed the case that we’re not still pouring money into Anglo in 2014.

Oh, they also revised the Greek deficit upwards and said mean things about Greek budget statistics. So nothing new there.

2009 Exchequer Deficit

The December Exchequer returns have now been published. The Exchequer deficit for 2009 was €24.6 billion, almost twice the level recorded in 2008. That said, the figures came in a bit better than most people expected a number of months ago, which is good news.

As an aside, I’d note that this outcome clearly falls somewhat short of the “close to €30 billion” deficit mentioned in the letter signed by the 46 economists in August. As I noted at the time, I think this was pretty reasonable in the context of what was known then. Of course, this figure was not an important part of the letter. The substance of the letter related to NAMA and the only point of the deficit references, as I understood it, was to put the risk of NAMA losses in a context.

I have little doubt now that the comments section here will soon contain denunciations of the famed “46” declaring them to be all sorts of evil. But then flame-throwing trolls are an unfortunate part of any blog that allows comments.