Deal on bank debt likely in next 18months?

oscarBravo · 20-06-2014 11:08pm

tomwaterford wrote: »

...to borrow for day to day running of the country is wrong and a default would finally put an end to that nonsense (im aware that many who propose default aren't aware of this.....there will inevitably have to be cuts to services....but to keep borrowing indefinetly and not run the country properly will not end well for anyone invovled

This nonsense annoys me. I've seen it over and over again: "austerity isn't fair, we should default". It's particularly annoying when it has been pointed out to you over and over and over again that default would have consequences that would have people yearning for the good old days of austerity.

But you're not listening. You're fixated on the idea that borrowing is the worst thing there is, to the extent that having no money at all is better than having borrowed money.

For me, it comes down to this: given the choice of not eating anything at all for a week and having to borrow to buy food, I know which I'd choose. I know which any sane person would choose. I can't understand anyone who claims that starvation is the better option.

Zubeneschamali · 23-06-2014 10:03am

tomwaterford wrote: »

to keep borrowing indefinetly and not run the country properly will not end well for anyone invovled

What's this "not end well" exactly? What's the worst that could happen? Some day in the future we might not be able to repay all this debt, and we might have to default.

So you are arguing that to avoid the possibility of this terrible future disaster, a default, we should take action now and default.

That's like saying we could die in an accident any day, so we should prevent that by killing ourselves immediately.

noodler · 23-06-2014 2:52pm

There was rather misinformed person on the Marian Finuchan show yesterday repeating some of the falsehoods in this thread.

Ireland runs a deficit....hence we have to borrow...hence we have to look like we can pay our debts.

Some people have maintained throughout the crisis that default will somehow fix the deficit but that is blatantly untrue. If all our bank relate debt was wiped in the morning, we would obviousy have to pay less on our national debt interest (I estimate €2bn ish) but the primary deficit for public services remains.

Godge · 24-06-2014 12:15am

noodler wrote: »

I am not sure what the debt-GDP ratio has to do with it!

The point is that €45bn has to be raised /rolled over in 2019/2020!

Maybe I missed your point but regardless of our debt ratio at the time it will be a significant undertaking to borrow that much in the years in question.

Nevertheless, seeing the NTMA managed to reduce a 14bn cliff in Januray 2014 to a much more managable 7/8bn with a lot less notice and in less favourable conditions - I still expect them to act before then to spread this out way in advance.

The debt/GDP ratio is the key stat for international decision-makers looking to buy Ireland's bonds. If it is on the way down and heading for less than 100%, we are a good bet. If it is on the way up and heading for more than 140%, nobody will lend to us.

tomwaterford wrote: »

however the celtic tiger of the mid to late 90s was a massive boost....they might just about get away with it....but where will this boom come from....the way it is now...it will be inevitable a crash and burn:(

no one is argueing against raining in spending and raising taxes....im full aware it is necessary...but as I said for those less well off....how is it fair to ask them to pay raised taxes to pay off bank bailout.....essentially less well off bailing out the rich....robin hood in reverse for all the world

as for lending...I wouldn't lend to Ireland now....definely not in event of default...to borrow for day to day running of the country is wrong and a default would finally put an end to that nonsense (im aware that many who propose default aren't aware of this.....there will inevitably have to be cuts to services....but to keep borrowing indefinetly and not run the country properly will not end well for anyone invovled

This is more nonsense. There is no crock of gold from rich people out there. Sure, eliminating rollover relief on CGT, cutting the exemptions from CAT, extending the property tax will all raise some money from the rich, but anything more and they will be gone.

The social welfare bill is where the big problem is.

noodler · 24-06-2014 8:33am

noodler wrote: »

There was rather misinformed person on the Marian Finuchan show yesterday repeating some of the falsehoods in this thread.

Ireland runs a deficit....hence we have to borrow...hence we have to look like we can pay our debts.

Some people have maintained throughout the crisis that default will somehow fix the deficit but that is blatantly untrue. If all our bank relate debt was wiped in the morning, we would obviousy have to pay less on our national debt interest (I estimate €2bn ish) but the primary deficit for public services remains.

Godge wrote: »

The debt/GDP ratio is the key stat for international decision-makers looking to buy Ireland's bonds. If it is on the way down and heading for less than 100%, we are a good bet. If it is on the way up and heading for more than 140%, nobody will lend to us.

.

Ok...??

Addressing your seperate point though, our debt-GDP ratio is incredibly high. However, Greece's is at 175% and yet they were able to borrow earlier this year and have seen their yields go below 6%.

None of that makes sense, its worth taking a step back and asking yourself if you are not being a bit naive in suggesting Ireland manageing to halt its debt ratio at 120% GDP and planning to decrease it ever so slightly in the next few years is the reason we can borrow at such low rates.

The reason is Draghi and OMT - it is affecting the entire Eurozone.

Good loser · 24-06-2014 11:46pm

That 4% difference between us and Greece is significant. Our debt/GDP ratio is why we're at the lower level as the Draghi factor is common to both.

I think also the Greek budget is balanced whereas we're €7 bn away from balance.

That means we're adding €7 bn to our (State) debt this year while Greece adds nothing.

comongethappy · 25-06-2014 12:25am

Good loser wrote: »

I think also the Greek budget is balanced whereas we're €7 bn away from balance.

That means we're adding €7 bn to our (State) debt this year while Greece adds nothing.

Where it so easy for poor Greece!

They have eliminated their primary deficit 1year ahead of Ireland (ours will be gone by the end of 2014).

Their total deficit is much more of a struggle though
Namely €23 billion for 2013 vs Ireland's €12 bn.

They also face the huge challenge of increasing the role of the private sector in their economy.
58% of their GDP is government expenditure.

Both countries are making great strides though, despite massive opposition, especially in Greece.

nice_guy80 · 25-06-2014 6:04pm

comongethappy wrote: »

Where it so easy for poor Greece!

They have eliminated their primary deficit 1year ahead of Ireland (ours will be gone by the end of 2014).

Their total deficit is much more of a struggle though
Namely €23 billion for 2013 vs Ireland's €12 bn.

They also face the huge challenge of increasing the role of the private sector in their economy.
58% of their GDP is government expenditure.

Both countries are making great strides though, despite massive opposition, especially in Greece.

they got half their government debt written off
we didn't
we actually took on more debt (banks).
thanks for that Fianna Fail and ECB

Good loser · 25-06-2014 10:14pm

nice_guy80 wrote: »

they got half their government debt written off
we didn't
we actually took on more debt (banks).
thanks for that Fianna Fail and ECB

FF and the ECB have nothing to do with the €7 bn we're adding this year.

SF and their likes would be adding a lot more.

tomwaterford · 26-06-2014 8:31pm

[QUOTE=Good loser;91001560]FF and the ECB have nothing to do with the €7 bn we're adding this year.

SF and their likes would be adding a lot more.[/QUOTE]

yes because FF didn't bloat the public sector with overpaid cronies atal...or indeed hand out public service contracts which are dubiously priced at best:rolleyes::rolleyes::rolleyes:

Jonny7 · 26-06-2014 9:20pm

noodler wrote: »

Ok...??
Addressing your seperate point though, our debt-GDP ratio is incredibly high. However, Greece's is at 175% and yet they were able to borrow earlier this year and have seen their yields go below 6%.

Last I checked Greece is 9 levels below investment grade, Ireland is two or three above.. Greece still has a long way to go

dlouth15 · 27-06-2014 2:14am

Thought it might be worth introducing a few figures into the discussion.

Here's a chart of Ireland's primary deficit from the ECB.

What this means is that the deficit currently stand at about 2.5 percent of GDP. That is at the start of the year. Although the rate of reduction in the primary deficit has slowed, it seems reasonable that the figure has probably halved by now to about 1.25 percent.

It is quite likely that by the end of the year or shortly after, the primary deficit will be zero. What this means is that the entirety of public spending (hospitals, schools and so forth) is being met by tax revenue.

Now I'm not saying that Ireland should default (there are other consequences after all), but possibly those who are arguing on this thread that should we default there would be literally no money for schools, hospitals and so forth once the deficit is closed should revise their views a little.

noodler · 27-06-2014 8:30am

Jonny7 wrote: »

Last I checked Greece is 9 levels below investment grade, Ireland is two or three above.. Greece still has a long way to go

Woosh!

Sand · 28-06-2014 9:41pm

dlouth15 wrote: »

It is quite likely that by the end of the year or shortly after, the primary deficit will be zero. What this means is that the entirety of public spending (hospitals, schools and so forth) is being met by tax revenue.

Now I'm not saying that Ireland should default (there are other consequences after all), but possibly those who are arguing on this thread that should we default there would be literally no money for schools, hospitals and so forth once the deficit is closed should revise their views a little.

You have to remember, economic activity in Ireland would be affected by the chaos of a sovereign default. I don't have stats but I would be very, very surprised if Irish banks and pension funds were not the primary holders of Irish sovereign debt. A sovereign default would lead to those banks going into a fresh crisis (further choking credit to the Irish economy) as their assets were devalued or eliminated, and a gaping hole in most peoples pensions. It wouldn't be hard to imagine the government revenue raising abilities declining in such a scenario.

Additionally, tax revenue does not arrive in just as it is required to pay bills. Even governments with balanced budgets will borrow to smooth their income while waiting for revenue to arrive in Q4. That ability would be cut off to Ireland at reasonable rates, leading to a need to introduce emergency taxes or emergency stops to wages and public services until tax revenues were collected.

Basically, I have always been in favour of leaving private creditors to burn. But an Irish sovereign default would be incredibly bad. The green jersey brigade have successfully completed their objective of translating private bank debt into Irish sovereign debt. They won. They even get to pat themselves on the back as being wise statesmen rather than thieves. But the door for "burning the bondholders" closed firmly and finally with the promissory notes being turned into Irish sovereign debt. We never, ever, ever want to see an Irish sovereign debt default.

That doesn't mean it cant happen - Ireland is literally in that Wiley Coyote stance where its run off the cliff and keeps peddling its legs believing that hope alone will keep it aloft. We're just one economic shock away from plummeting, we've got nothing in reserve to save us should Ukraine get worse, Iraq turn the rest of the middle east into a quagmire, etc. But it would be disastrously bad.

dlouth15 · 28-06-2014 9:55pm

Sand wrote: »

You have to remember, economic activity in Ireland would be affected by the chaos of a sovereign default. I don't have stats but I would be very, very surprised if Irish banks and pension funds were not the primary holders of Irish sovereign debt. A sovereign default would lead to those banks going into a fresh crisis (further choking credit to the Irish economy) as their assets were devalued or eliminated, and a gaping hole in most peoples pensions. It wouldn't be hard to imagine the government revenue raising abilities declining in such a scenario.

Additionally, tax revenue does not arrive in just as it is required to pay bills. Even governments with balanced budgets will borrow to smooth their income while waiting for revenue to arrive in Q4. That ability would be cut off to Ireland at reasonable rates, leading to a need to introduce emergency taxes or emergency stops to wages and public services until tax revenues were collected.

Basically, I have always been in favour of leaving private creditors to burn. But an Irish sovereign default would be incredibly bad. The green jersey brigade have successfully completed their objective of translating private bank debt into Irish sovereign debt. They won. They even get to pat themselves on the back as being wise statesmen rather than thieves. But the door for "burning the bondholders" closed firmly and finally with the promissory notes being turned into Irish sovereign debt. We never, ever, ever want to see an Irish sovereign debt default.

That doesn't mean it cant happen - Ireland is literally in that Wiley Coyote stance where its run off the cliff and keeps peddling its legs believing that hope alone will keep it aloft. We're just one economic shock away from plummeting, we've got nothing in reserve to save us should Ukraine get worse, Iraq turn the rest of the middle east into a quagmire, etc. But it would be disastrously bad.

That's why I was not actually advocating default as such. But yes merely closing the primary deficit would not be sufficient. A significant reserve would need to be built on top of that before default could be considered. Who the holders of sovereign debt are would also need to be looked at.

Whilst I don't advocate default I think it is important from the point of view of bargaining leverage. We need to be in a position where default, though painful would not be immediately catastrophic. Only then do we have leverage to get a deal on bank debt and thereby avoid outright default.

tomwaterford · 28-06-2014 10:10pm

dlouth15 wrote: »

That's why I was not actually advocating default as such. But yes merely closing the primary deficit would not be sufficient. A significant reserve would need to be built on top of that before default could be considered. Who the holders of sovereign debt are would also need to be looked at.

Whilst I don't advocate default I think it is important from the point of view of bargaining leverage. We need to be in a position where default, though painful would not be immediately catastrophic. Only then do we have leverage to get a deal on bank debt and thereby avoid outright default.

100% agree...will Europe ever let Ireland get into as strong a position where it holds more than 1 strong card??

Good loser · 29-06-2014 10:48pm

dlouth15 wrote: »

That's why I was not actually advocating default as such. But yes merely closing the primary deficit would not be sufficient. A significant reserve would need to be built on top of that before default could be considered. Who the holders of sovereign debt are would also need to be looked at.

Whilst I don't advocate default I think it is important from the point of view of bargaining leverage. We need to be in a position where default, though painful would not be immediately catastrophic. Only then do we have leverage to get a deal on bank debt and thereby avoid outright default.

If we build 'a significant reserve' there will be no need to default. And a threat to default then would not be credible.

dlouth15 · 29-06-2014 11:50pm

Good loser wrote: »

If we build 'a significant reserve' there will be no need to default. And a threat to default then would not be credible.

By reserve I should have said primary surplus though a cash reserve would also be needed.

I think the key is that in order for a threat to be credible, the option to carry it out must be there. Obviously we would hope that we would not have to carry out the threat.

We don't have to default now anyway and nor should we. We are most likely in a situation of unsustainable debt but that does not mean we are immediately forced to default.

noodler · 30-06-2014 8:43am

dlouth15 wrote: »

Thought it might be worth introducing a few figures into the discussion.

Here's a chart of Ireland's primary deficit from the ECB.

What this means is that the deficit currently stand at about 2.5 percent of GDP. That is at the start of the year. Although the rate of reduction in the primary deficit has slowed, it seems reasonable that the figure has probably halved by now to about 1.25 percent.

It is quite likely that by the end of the year or shortly after, the primary deficit will be zero. What this means is that the entirety of public spending (hospitals, schools and so forth) is being met by tax revenue.

Now I'm not saying that Ireland should default (there are other consequences after all), but possibly those who are arguing on this thread that should we default there would be literally no money for schools, hospitals and so forth once the deficit is closed should revise their views a little.

The MoF has said repeatedl;y that we could have a primary surplus this year.

Worth noting a primary balance if a deficit MINUS interest repayments. We will still be borrowing the guts of 8/9bn to pay our interest bill.

That being said, all we can do is get the primary balance under control.

hmmm · 30-06-2014 9:43am

tomwaterford wrote: »

100% agree...will Europe ever let Ireland get into as strong a position where it holds more than 1 strong card??

Europe are not forcing us to spend more than we collect in taxes, so I'm not sure why you're accusing them of holding us back.

dlouth15 · 30-06-2014 2:36pm

noodler wrote: »

The MoF has said repeatedl;y that we could have a primary surplus this year.

Worth noting a primary balance if a deficit MINUS interest repayments. We will still be borrowing the guts of 8/9bn to pay our interest bill.

That being said, all we can do is get the primary balance under control.

It was really just to counteract the notion that if we defaulted we would have literally no money for public spending when in fact the vast bulk (about 98.5%) is currently covered by revenue.

Sand is correct too, that even a primary balance is not suffient to default without serious difficulties. We need a significant primary surplus in order to do that.

However it has to be said that we need a significant primary surplus anyway to make inroads into our debt. How much we need depends on the rate of interest we're paying on our debt. Currently, as you pointed out earlier, we pay a low rate but this could easily change.

aliveandkicking · 02-07-2014 11:49am

Apologies if this is a completely ridiculous question to ask but is there any way the government can refuse to pay just the €64 billion we put into private banks but continue to pay everything else we owe?

noodler · 02-07-2014 11:56am

aliveandkicking wrote: »

Apologies if this is a completely ridiculous question to ask but is there any way the government can refuse to pay just the €64 billion we put into private banks but continue to pay everything else we owe?

First of all, we borrowed the vast majority of the €64bn:

Speaking very roughly here:
1) 20 odd billion from the NPRF (i.e. money we had) went to AIB/BoI - this money is gone
2) The rest we borrowed from others. So , you would be telling someone who lent you money that they aren't being paid back because we no longer like what we spent it on.

Also, the 64bn bailout was excessive BUT:

1) We have reduced this by a couple of billion already and could probably knock another 10bn off for our stakes in BoI and AIB. I'd say we will be left holidng about 40bn.

2) There was never ever a scenario, imo, where we didn't pump billions into the banking system. Its just the 34 for INBS and Anglo I'd have a problem with.

Deal on bank debt likely in next 18months?

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