Saturday, October 20, 2012

The Level of National Indebtedness

Writing in today’s Wall Street Journal, Eddie Hobbs has an article under the banner ‘Don’t Expect a Celtic Comeback’.  The overall thrust of the piece is true.  At best, we are at the end of the Celtic Collapse and the future direction of the economy is still uncertain.  Here, though the focus will be on a paragraph early in the article on the level of Irish indebtedness.

The myth of Irish pluck continues today, even amid the financial crisis. Prime Minister Enda Kenny recently graced the cover of Time magazine. But according to data from the International Monetary Fund, Ireland has displaced Japan as the world's most indebted economy. Government, household and nonfinancial company debt add up to 524% of Irish GDP. (The Central Bank of Ireland uses a different basis for calculating the debt of nonfinancial firms; its estimate for total debt would be lower than the IMF's.) Funding this gargantuan load at an average cost of 4.5% would swallow nearly 24% of GDP—in other words, Ireland's entire industrial output.

If the numbers used here were true then the Irish economy would be completely swamped by debt and would not even be treading water.  There is no way that an economy with a GDP of  €161.7 billion in 2012 would be able to carry a debt of €847 billion and an imputed annual interest bill of €39 billion.  As will be shown below the actual figures are around €500 billion and around €16 billion and these figures are determined from data hinted at in the article but then rather inexplicably ignored.

Although not attributed in the WSJ it appears that the numbers used come from this recent post over on the Trueeconomics blog.  The Irish economy is in dire straits but anything that suggests that the income of the economy needs to be compared to a debt mountain of close to €850 billion and an interest bill of nearly €40 billion is not grounded in reality.  We have a massive debt problem but not that massive.

The figures used comes from the recent release of the IMF’s Global Financial Stability Report.  The table can be seen on page 2 of chapter 2 and a spreadsheet of the data used in the table is here

As soon as the report was released I suggested that the debt numbers in relation to Ireland would be misinterpreted and today’s WSJ has confirmed my fears.  No breakdown of the 524% figure was provided in today’s article but using the IMF data linked above (and the IMF’s nominal GDP forecast from the World Economic Outlook) we can see that the breakdown is:

2012 Gross Debt Levels

One is immediately drawn to the €467 billion gross debt attributed to the non-financial corporate or business sector.  This is more than 55% of the total debt figure.  There is little dispute or misunderstanding about the gross debt position of the household sector and after some wild claims about the government debt around the start of the EU/IMF programme, outside of a few coverage issues (NAMA, IBRC), the extent of our public debt is now fairly well established. 

Although there are some caveats noted below the headline figures above accurately reflect the broad difficulties in the household and government sectors and even though both are worthy of further examination the initial emphasis here will be on the non-financial corporate figure as it provides the bulk of the 524% of GDP headline figure.

This is something I have already addressed across various outlets such as on here and here, on here and this site here, here and here.  Parts of these are worth repeating.

Last March, the CSO and the Central Bank made a joint presentation to the Oireachtas Finance Committee on the issue of non-corporate debt in Ireland (transcript).  The slides provided by Michael Connolly of the CSO are particularly information.  Here is the CSO data on non-financial debt from 2001 to 2010 on which the IMF data are based.

NFC Debt and GDP

The series shows that at the end of 2010, the CSO measure of non-financial corporate debt was just under €350 billion.   However, as is illustrated in the graph the most dramatic rise in debt occurred after the peak of GDP in 2007.  At the end of 2007 business debt was just over €200 billion but it then surged to the €350 billion figure shown above.   The IMF project that this will have further increased to more than €450 billion in 2012.

The huge increase after the bubble had burst and, more importantly, after the banks had ‘shut up shop’ suggests that there was something other than lending to Irish businesses driving the increase.  A subsequent chart explains the increase.

Lenders to NFCs

It can be clearly seen that the increase since 2007 is down to increased lending from Treasury operations, with indicates that the increase in gross debt is down to MNC activities rather than domestic firms becoming more indebted.  One final chart from the excellent CSO presentation show that the net financial position of the non-financial corporate sector has not significantly deteriorated, i.e. the increase in debt liabilities has been offset by an increase in financial assets.

Net Financial Position of NFCs

All this was summarised  nicely by Michael Connolly during his presentation to the Dail Finance Committee:

Michael Connolly: “We referred to the numbers increasing dramatically after 2008. What we see is that the treasury companies in the IFSC are lending substantial amounts of money to their affiliates in the non-financial corporate area. They are managing the international cash management for the multinationals. The lending by the treasury companies to multinationals in this country is increasing each year, certainly after 2008. We also find that they are lending to each other. I refer to affiliate lending between affiliates in the same corporate group. We then also see that borrowing from abroad, which is listed on the top bars in the chart, is increasing too.”

“When we look at bank borrowing, we see that borrowing from banks has been decreasing since 2008. That is all I have to say. I am just trying to provide context and to shed light on the big macro numbers that come out for this sector.”

“What I am telling the committee is that when one looks at the detail of the overall scale of debt for this sector, it is nowhere near as serious for the real economy of this country as one might imply at first sight. When one looks at the detail, it is really about a globalised, internationalised economy which has very large debt but also has very large assets. The two are off-setting one another when we take a net view on it. Of increasing importance is the interlinkage between some of the multinational corporations we have in the sector and their treasury affiliates in the financial sector. It is difficult to look at numbers in isolation because everything is intertwined.”

So how much debt is actually being carried by the business sector in Ireland?  This was helpfully answered by the presentation from Joe McNeill of the Central Bank at the same Oireachtas meeting.  The WSJ indicated that the Central Bank had an alternative measure of corporate indebtedness and given the problems with the gross, non-consolidated data assembled by the CSO shown above it is not clear why the Central Bank data was ignored.

Credit Advanced to NFCs

The figures are taken from this dataset on the Central Bank website and the surge of lending to the construction and real estate sector is very evident.  Lending to other more cash-flow based business sectors does not follow the same pattern.

The data show that lending from Irish banks to non-financial enterprises in Ireland peaked at €175 billion in the third quarter of 2008.  This is the extent of non-financial corporate lending by Irish banks and is the debt that matters for the Irish economy.  Most of the €467 billion that opens the piece has little relation to the actual economy.  There are a number of reasons for the dramatic drop since the September 2008 peak.

  1. As is continually pointed out access to credit is tight in the Irish economy so repayments on existing debt will have exceeded the issuing of new debt.
  2. There will have been some write-down of business loans.
  3. Bank of Scotland (Ireland) ceased operating as a bank in December 2010 and its €15 billion business loan book (mainly property loans) was transferred to Certus, a debt collection company.  These loans still exist but they are omitted from the above chart.
  4. Most importantly, €74 billion of developer loans were transferred from five of the covered banks to the National Asset Management Agency up to the end of 2010.  Again, most of these loans exist but are omitted from the above series.

During the Finance Committee session Joe McNeill revealed that once items 2, 3 and 4 were accounted for the reduction in business lending as a result of transactions alone (drawdowns and repayments) has been around 6% per annum since 2008.  The dataset shows that business lending, excluding property-related sectors, has fallen from €60 billion at the end of 2008 to €39 billion in June 2012.   This is close to the rate of decline indicated by the Central Bank.

At a time when the gross non-consolidated figures from the CSO suggest that the lending to non-financial corporates in Ireland has increased hugely it should come as no surprise to see that when it comes to the ‘real’ economy it has actually declined.  The CSO figures track the Central Bank data up to 2007 and the huge divergence since then is explained by MNC activities as detailed by Michael Connolly.

It is possible that Irish non-financial corporates could have sourced loans from banks based outside Ireland and that they could have raised finance by issuing bonds directly rather than drawing down a loan.  There are not many Irish businesses who would be in a position to do this.  The €175 billion from the Central Bank data will be the bulk of Irish non-financial business debt as both of the above factors unlikely to have been more than €10 billion.  

These will be included in the gross figure provided by the CSO and has the first chart about shows this figure was around €200 billion at the peaking of the economy/credit bubble in 2007 before the distortions from the MNC sector skewed the figures.  With the reductions to non-property lending and some repayments and writedowns of property lending it is likely that gross lending to the Irish non-financial corporate sector is no more than €170 billion in 2012, and is probably lower.

At the peak, banks in Ireland had issued €115 billion of loans to property-related sectors.  Most of this is still included in the €170 billion figure but it is pretty clear that all of this won’t be repaid.  The covered banks transferred about €50 billion of developer loans in Ireland to NAMA and crystallised losses of around €30 billion in the process.  This loss was covered by government recapitalisations and a lot of this money is now included in the gross government debt.

This means that if we use a €190 billion figure for gross government debt and a €170 billion figure for gross non-financial corporate debt we are actually double counting around €30 billion of property debt.  Either the developers will repay the full €50 billion they owe on their Irish loans to NAMA (they won’t) or the government will make good the losses through the bank recapitalisations and the Promissory Notes (they will). 

The same is true for probably another €20 billion of non-NAMA property, mortgage, consumer and other loan losses that remain as part of the gross debts on the covered banks’ balance sheet.  These loans will not be repaid and, in time, will be written down, but as a result of last March’s stress tests the banks have been recapitalised to cover these future losses so for the moment the debts are counted as household and corporate debt in the banks and also as government debt.  Just like the developer loans they will only be paid once.

A better estimate of the level of gross indebtedness of Ireland in 2012 is likely to be:

  • Household: €189 billion
  • Government: €190 billion
  • Corporate: c. €171 billion
  • Total: €550 billion

The non-financial corporate debt is an estimate based on Central Bank data.  And as we have noted above the figure for the Government Sector has been inflated to cover losses on loans in the household and corporate sectors that will not be repaid.  All told, Ireland is looking at a massive debt overhang of around €500 billion.  We don’t need to highlight the dangers of this excessive debt level by trying to pretend that the total is €850 billion.

And huge amounts of this debt won’t be repaid.  All told the covered banks have been provided with enough capital to cover close to €100 billion of loan losses.  The non-covered banks comprise about one-third of the Irish banking market and they have already made provision for close to €25 billion of loan losses

These losses need to be worked out but over time it is likely that close to one third of the €350 billion that was lent into the private sector during the credit bubble will not be repaid.  These make the gross figures look large now but repayments and writedowns will reduce it.

It is also true that looking at gross indebtedness only gives a part of the picture.  The IMF data show that as well as having €189 billion of financial debt the household sector has financial assets of €308 billion and thus a net financial position of plus €109 billion.   It should also be noted that around €32 billion of the debt relates to buy-to-let mortgages which have offsetting non-financial income-generating assets.  There are severe difficulties in this sector including negative equity and loan arrears as highlighted by provisional details released this week

It should also be noted that around one-third of the household sector debt is in incredibly cheap tracker-rate mortgages.  This reduced the interest burden of the debt.  More on this below.

The government has €190 billion of gross debt but has an offsetting cash mountain of nearly €23 billion, still has around €6 billion in the discretionary portfolio of the National Pension Reserve Fund, owns Irish Life the pensions and life assurance business as well as semi-state enterprises, has a €3 billion subordinated bond in the covered banks and is currently in negotiation to try and sell the state-owned equity in the viable banks to the ESM.  All these can offset the gross debt figure. 

The IMF put the net debt position of the government sector at €167 billion but a lower figure could be justified.  The net financial position of the non-financial corporate sector is around negative €100 billion as shown above.  The aggregate net financial position of the government, household and business sectors in Ireland is around minus €150 billion.   This is a long way from a gross debt figure of €850 billion.

Finally the WSJ piece said that:

Funding this gargantuan load at an average cost of 4.5% would swallow nearly 24% of GDP—in other words, Ireland's entire industrial output.

This is wide of the mark.  24% of GDP is around €40 billion.  Eurostat provide figures on the amount of interest paid in the sectoral non-financial accounts.  It is available as item D.41g in ‘non-financial transactions’ here.  The most recent figures for Ireland are from 2010 and the total interest paid by sector was:

  • Household: €6.3 billion
  • Government: €4.9 billion
  • Corporate: €4.9 billion
  • TOTAL: €16.1 billion

This was 10.4% of 2010 GDP and as shown here puts Ireland above the EU average but with an interest burden that is comparable to Belgium’s and lower than those of Greece and The Netherlands among others.  Even with increases in government debt since 2010 (and there have been reductions in household and corporate debt to somewhat offset that) it is clear that an article with an imputed interest bill of €40 billion is over-stating the true position by more than a factor of two.

There is no need for this exaggeration.  A €500 billion debt burden and a €16 billion interest bill are awful enough.


  1. Brilliant post Seamus. Using IMF or BIS data for Ireland is always dangerous given the lack of nuance on international sectors based here. Using this data suggests people either don't actually understand how to use the data, or they are deliberately trying to push an agenda.

    1. Thanks Owen,

      I'm not sure going through the numbers makes much difference for anyone in Ireland. We're in a deep hole and all that is really happening here is a sideline argument over how deep it is. I think it is important as the gross figures can be presented in a way that makes our predicament utterly hopeless.

      Incredibly, the Eddie Hobbs article appeared exactly 52 weeks after this appeared in The New York Times:

      Mr. Mathews estimates that if you include household and nonfinancial corporate debt, Ireland’s total debt burden is a shocking 490 percent of its G.D.P. — which, he claims, makes Ireland the most indebted country in the world.

      Peter actually misrepresented the answer to one of his PQs which was in terms of GNP. Even then the use of the gross figures is inappropriate and I made a limited attempt to reply in this thread. There is one interesting link towards the end of the thread which provides the following quote:

      Combined Government, household and domestic non-financial corporations’ debt in Greece stood at 273% of GDP in January 2011. In Ireland the same figure was 400% relative to GDP and 494% relative to GNP.

      The inclusion of the word 'domestic' belies what the source data actually represents. We're in a mess but figures appearing in the NYT and WSJ that suggest the real level of debt in the Irish economy is something around 500 percent of GDP are not helpful. Any readers who are reasonably clued in but not familiar with the Irish situation would be left with little conclusion but that the position here is hopeless.

      We are in a deep hole but it can be worked through. Usually, it is possible to get a snapshot of the real gross indebtedness of an economy by adding the household, government and corporate debt levels. Financial sector debt is left out as that usually results in double counting of debts. However, the links between our government debt and the bad loans from the household and corporate sectors means that such double-counting will be a factor until the loan losses are recognised for the private sectors. Accounting for this is not easy but it should be pretty easy to acknowledge that the massive corporate debt figures attributed to Ireland (which give rise to the 500% figures) actually have little relevance to the real economy.

  2. Many thanks for the depth and clarity of this post, Seamus.

    Looking forward to the 'tweets'....!

    1. Thanks artied,

      I'm not sure about the Twitter machine. I've had that account for a couple of years but it was only this evening that I realised the importance of filtering emails from Twitter away from my Inbox. The above post has over 2,500 words (not all mine). I'm not sure I have the discipline for 140 characters!

  3. Seamus
    "At the peak, banks in Ireland had issued €115 billion of loans to property-related sectors. Most of this is still included in the €170 billion figure"
    I don't fully understand where you get the €170 billion figure.
    The Central Bank (latest) report(table A1) gives the NFC loans at ~86 billion at the end of July. What other figures are added to get to the ~€170 billion figure.

    Another question, if I may, again from the CB report (July 2012 Table A1). This concerns what I would refer to as 'sectoral financial balance', the three sectors being household, NFC, and Ins corp / other.
    The loans-Deposits-Net figure for each are given below:
    Household: Loans 106, Deposits 92, Net -14 billion
    NFC : Loans 86, Deposits 31, Net -55 billion
    Ins/Other: Loans 119, Deposits 43, Net -76 billion
    Total Loans 311, Deposits 166 Net -145billion.

    I wonder have I got these figures right. Can they be interpreted as follows:
    The household sector is neatly in balance, the NFC sector is heavily 'subsidised' in liquidity provision, and the 'Insurance' sector either has taken a hugely disproportionate amount of liquidity out of the country or is being heavily subsidised in terms of liquidity provision by 'official' funding.

    I find the NFC imbalance unusual. Could it be case that this sector is holding its deposits outside the country, or is hiding losses. i.e its loans will not be repaid.

    I would welcome as post on the entire subject, as from my own humble interpretation, it seems to me that householders are being rapidly deleveraged, while two other sectors seem not to deleverage or to be holding significant funds outside the country.

    1. Hi Joseph,

      The €170 billion figure is my estimate of the current debt of the non-financial corporate (NFC) sector. We know that at the peak banks in Ireland had issued €175 billion of loans to Irish companies. To this we have to add debt raised by issuing bonds and loans obtained from banks outside of Ireland.

      The Irish corporate bond market is quite small and it is likely that Irish businesses obtain most of their loans from Irish resident banks.

      The CSO put the total debt of the NFC sector in 2007 (year of GDP peak) at €213 billion. This can be used as an estimate of peak NFC debt for Irish companies (and only if we assume that MNC debt was zero at this time).

      From the Central Bank data we know that lending to non-property related sectors has dropped by €21 billion since 2008 (€60 billion to €39 billion). Lending to property-related sectors has fallen from €115 billion to €57 billion, but most of that can be explained by NAMA loan transfers out of the bank and the closing of Bank of Scotland (Ireland). The transaction data from the Central Bank shows a fall of €6 billion in property-related lending. It is hard to know what drop has happened to the NAMA and BoSI loans but repayments and/or writedowns could bring the total drop in business lending to around €35 billion.

      The €170 billion figure takes the peak bank lending figure to the NFC sector of €175 billion, subtracts the €35 billion reduction outlined above and makes allowance of directly issued debt and borrowing from non-Irish banks to reach the €170 billion figure. This isn't a science but it is a better reflection of Irish business debt than a figure of €467 billion!

      As to the sectoral issues you outline. I don't think any table from the Money, Credit and Banking Statistics are useful for that purpose. I would recommend the sectoral financial accounts of either the CSO or the Central Bank. They are largely compatible outside of a few coverage and definition issues.

      Using the CSO data the net financial position of the sectors for 2010 are:

      Household: +€117.2 billion
      Non-financial corporate: -€192.8 billion
      Financial corporate: -€3.6 billion
      Government: -€77.6 billion

      The NFC figure might look bleak but liabilities are only offset by financial assets. Companies could have non-financial assets to offset the debt. In the Irish data aircraft leasing companies could have large financial liabilities (debt) and equally large non-financial assets (aircraft) that are not included above.

      Also companies don't need cash or assets to cover their debts. Firms with negative net financial position can be service and repay their debts from future cash flows. The Irish banks chased asset-based lending during the boom and now need to re-orientate to cash-flow-based lending.

      For the household sector the value of housing is not included so that the net 'wealth' figure of the household sector is much larger (maybe €300 billion) than the figure given above.

      The household sector is deleveraging. Again according to the CSO data loans to the household sector peaked at €202.6 billion at the end of 2008. In the two years after that it had fallen to €185.5 billion. The official 2011 data will released shortly and a further drop can be anticipated.

      We know that lending to the business sector is tight similar drops in the credit outstanding to private sector enterprises is recorded in the Central Bank data.

  4. @ Seamus
    "The non-covered banks comprise about one-third of the Irish banking market and they have already made provision for close to €25 billion of loan losses."
    Accepting your figure of €170bn corporate debt and that the non-covered banks hold 1/3 of that or €57bn. The €25bn provisioning /write-off level for the non-covered banks indicates only aggregate average 44% provisioning /writeoff, after 4 years of crisis and recession. That's shockingly low but isn't too far from what those in the know privately indicate (some of the non covered banks are well short of this %). Unfortunately, that is nothing to be optimistic about. There is a huge way more to go in writing down debt. Do you have any data for the covered banks' provisioning level?
    Beyond that, the Irish central bank is right to demand quicker write off against the capital of the covered banks. Kicking the can down the road on provisioning is just adding to losses as property values fall, etc with more to come as the Budget and subsequent adjustments accelerate economic deterioration.
    Your acknowledgement of the awfulness of the €500bn of debt and €16bn of interest is noted. However, the overall trajectory remains 'awful' also. Optimism /talking up the country's economy is all very well. However people like yourself and Mr. McHale & co. who have influence with the Government should be preparing the country for the worst rather than hoping for the best.

    1. Hi Anonymous,

      The provisions for the non-covered banks are for their entire loan books and not just their business lending. Their full loans books added to €126 billion. While the provisions may appear low they are from March 2011 so they would have been increased since. Details of the provisions in the covered and non-covered banks can be seen here.

      The point about the provisions is that it is expected that a huge amount of loans issued into the Irish economy will never be repaid. I can't see that saying there will be massive loans losses in Ireland is optimistic.

      Between the NAMA transfers (c.€42 billion), the AIB/BOI/EBS/PTSB stress tests (c.€40 billion), the Anglo/INBS stress tests (c.€13 billion) and the original provisions in the banks it can be shown that more than €100 billion of loans losses in the covered banks have been accounted for (see here). As stated, the non-covered banks comprise around one-third of the Irish banking system and their losses are additional to that.

      Let's say they're not as bad as the covered banks and end up with €30 billion of losses. That would be €130 billion of loan losses on an aggregate loan book of €540 billion.

      A goodly portion of these loans were not issued in Ireland. For example the four banks in last March's stress tests had about €45 billion of mortgages in the UK. The loan losses will be mainly in Ireland so the €130 billion will be concentrated on a narrower portion of the loan book.

      The country is prepared for €130 billion of loan losses. I don't know what the final outcome will be and facing up to the debts that will never be repaid needs to be accelerated.

      Do you have an estimate of aggregate loan losses (with a covered/non-covered breakdown) you think the Irish banking system will have to absorb as the crisis plays out?

    2. @ Seamus
      Thanks for that. I am not in a position to share info here. However, suffice it to say that, on the non-covered side where I have some intimate knowledge, provisioning is still hugely inadequate on both business and mortgage books. Looking at some of the better business books, best provisioning level has been circa 50-55%. More independent analysis has shown that up to 70-75% is required.
      The covered banks will come in much worse in due course (of course).
      While I admire your article for its logic and analysis, every academic economist I read consistently underestimates how bad the situation really is (and still is). Insider economists clearly cannot disclose confi info.
      Note though -it has been clear for some time that Patrick Honohan & co. at the Central Bank are highly concerned with the mortgage default trajectory.

      The overall point is that the current spin on bank capitalisation is just that. Fixing things will require large amounts of further retained earnings or direct equity capital.

      What would be really great to see would be a "break" model analysis to emphasise the room for manoruvre. In fairness, John McHale & co. at the Fiscal Council have done some work on this, as per their recent report. However, they 'diplomatically' avoided showing a realistic break analysis. I understand that from a Government and Ireland Inc. point of line with current Govt strategy to talk up the economy. However, is it not time for a more open and realistic analysis?

  5. Hi Seamus
    The big problem I see with your 16 billion figure is that its a 2010 figure.

    Fair enough, if its the latest available but you are ignoring the very likely trend at least on government dabt.
    We know that the interest as a % of GGD has risen rapidly and IS SET TO CONTINUE A RAPID UPWARD TREND. According to a report on Finfacts i found the NTMA in 2009 expected the interst payments as a % of geneal tax receipts to raise from 3.8% to 20% in 2013
    We can see the massive actual growth in previous years below.

    Are the interestpayments for corporate and household debt set to increase also?

    1. Hi eamonn,

      Yes, the €16.2 billion interest total is a 2010 figure but at least it is verifiable. Go back to 2008 and the total was €21.5 billion. However in June 2008 the ECB rate was 4.25%; it is hard to see that level being reached in the medium term.

      The general government interest bill was €5 billion in 2010 and is expected to €10 billion by 2015 (I would make the point that more than €1.5 billion of that is interest on the Promissory Notes which is paid to the 100% state-owned IBRC but that would get us down a siding we don't want to travel).

      Even if there are interest rate increases for the household and business sectors these will be offset by repayments and writedowns.

      In 2008, the household sector paid €9.7 billion of interest and the business sector paid €9.6 billion of interest. Interest receipts were €2.7 billion and €1.5 billion respectively.

      The interest bill of the household and business sectors may increase from the €4.9 billion and €6.3 billion figures recorded for 2010 but I can only see the increases being modest at best. With so much of the business lending concentrated in property-related sectors some repayments and write-offs are going to be the order of the day rather than interest payments.

      As the eurostat data is added to over the next few years I think it would be surprising if the interest bill for the economy got back to 2008 levels (€21.5 billion). Whatever way you look at it, it is a long way short of €39 billion.

  6. @eamonnmoran
    Good point. Clearly variable rate mortgage holders have been negatively affected by significant increases in variable rate rate mortgages since 2010. God help the country if ECB rates increase over the medium term (never strategically contemplated notwithstanding the potential for huge future negative disruption, outside Ireland's control...all we get is the short view "It should also be noted that around one-third of the household sector debt is in incredibly cheap tracker-rate mortgages").

    Then, the impact of grindingly high unemployment on default rates and continuing, accelerating immigration is ignored in the overall snalysis and hiding of true unemployment levels.

    The increasing negative economic trajectory continues to be demonstrated in numerous, objective ways e.g. retail numbers issued today. So when will the economic 'turn' begin. Kenny's meeting with Hollande today indicates that it will be at least a year more before any discussion on debt restructuring can be "possible". Seamus et al can therefore continue to hope and deny in the meantime.

    While therefore Eddie Hobbs' numbers can of course be criticised, perhaps his message is a necessary one to counter the continuing unrealistic optimism (delusion) of the establishment. Despite all this misplaced optimism driving official strategy, the continuing negative variances versus budgets and projections, etc. are airbrushed over (as in Seamus' article above) in favour of 'hope value' rather than reality.

  7. Hi Seamus
    I respect that you always try to give people the figures without a suger coating. Its a very rare quality in economics where many show us figures that fit their analysis and ingore the rest. Even though I disagree with your final analysis.

    "The general government interest bill was €5 billion in 2010 and is expected to €10 billion by 2015"

    Brian hayes made a comment on front line last night that our intrest rate repayments are already reaching 20% of general taxation.
    I think that would mean he thinks we have hit the 10 billion already?

    I have been thinking about the household part too.
    Its true you are correct to point out that 1/3 or the intrest payments are fixed on trackers and I dont expect them to rise any time soon (infact i think they will stay below 2% for ever unless there is breakup in the Euro but thats another story.) but there have been large increases in the intrest rates charged by banks on the other 2/3s in the last while.
    if one third stays flat but 2/3 increase then that will lead to an increase.
    I take your point on restructuring. That will lead to some reductions but I think the reductions will be fairly modest. AIB bank can only afford to write down 5-7 billion and they have no intention of doing that much. The interest payments on 5 billion at 5% per anum is only 250 million. Add in the other covered Banks i am guessing you might get up to about 700 million.

  8. "Brian hayes made a comment on front line last night that our intrest rate repayments are already reaching 20% of general taxation.
    I think that would mean he thinks we have hit the 10 billion already?"

    Two points:

    1) Interest Bill for 2012 is estimated at 7bn
    (PAGE 9)

    2) General Tax Revenues = Exchequer Revenues = approx 36bn.
    Actual Goverenment income is closer to 55bn.
    (PAGE 49)