Is Ireland going to go bankrupt?

darkman2

Simple question. Whats your own honest opinion? Don't be trying to make others feel better by dampening your true expectations of what is to come. Overall in this crisis do you believe this country will go bankrupt? And if you want to elaborate will Ireland get a bailout and what will be the price? It's gonna be the IMF or Germany or possibly neither.


My own opinion is yes it will. It feels so ominous now. The whole atmosphere of the country is becoming confined to it's faith. It's very bleak. The numbers are too big. The correction required is just impossible even in 5 years. It's too late.

tuff1

eh no. tbh i cant see us doing an "iceland" and going bankrupt.

while things are bad here they are also bad throughout the world, americas in trillions of dollars of debt, the tokyo stock exchange has collapsed, britain (and many other countries) are making plans to get out of the crisis by printing banknotes.

i think a lot of doom and gloom is being unnecessarily spread by the media. it seems newspapers much prefer to report job losses than job creations.

just how i see it. please tell me if im wrong or mistaken:)

mikemac

The media were happy to glorify our economic succuss and deride doom mongers.
So you can't realy turn around now and say the media is making it worse.

If a factory closes with 400 job loses are they supposed to ignore.
They report most major business stories, be they job losses or new jobs.
Sure they often mention "there was good news for x town"

I don't know about Ireland going bankrupt. There are highly paid civil servants in the Department of Finance, lol but I put my trust in them to do what's best.

If we go bankrupt there will be other countries before us. Latvia, Hungary and Italy all have massive public debt. The UK is taking a risky startegy, I hope it works out for them.

dolby

I think myself this should have happened a long time ago about 2002 but after 9/11 the world regained confidence in spending money. Ireland have no money and they wont improve till they look proactive at the problems rather than taxing people who wont/cant spend money.

Ordinary man

The banks really need to get funds moving again, a lot of good businesses are coming under pressure because of cash flow. I believe we will muddle though

mikemac

dolby wrote: »

but after 9/11 the world regained confidence in spending money.

Not for a good few months they didn't.
I remember insurance rates putting small business under pressure and general low confidence. Yes, insurance is always a cost but people lost jobs over this.
It eventually recovered but it wasn't immediate

nesf

I saw an estimate that put Iceland's external debt at €300,000 per person. That's bankruptcy, we're nothing close to that kind of insanity.

imeddyhobbs

Eh..Ireland is bankrupt.

SkepticOne

imeddyhobbs wrote: »

Eh..Ireland is bankrupt.

Not yet. People are still lending to us.

Shiny

nesf wrote: »

I saw an estimate that put Iceland's external debt at €300,000 per person. That's bankruptcy, we're nothing close to that kind of insanity.

Are there any estimates on what the Irish level is per person ?

SkepticOne

darkman2 wrote: »

It's gonna be the IMF or Germany or possibly neither.

I think most likely it will be the ECB.

Économiste Monétaire

There's no mechanism for the ECB to directly bail out any country. The only possibility is for the ECB to purchase our debt on secondary markets do drive yield down.

Article 101: 1. Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.

There is the no bailout clause in the EU:
Article 103: 1. The Community shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.

But there is this sneaky little piece that they'll invoke if we end up needing assistance:
Article 100: 2. Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken.

Look to the EBRD, EIB, IMF, and member states like Germany to provide the loans.

DJDC

we're nothing close to that kind of insanity.

Eh..no. When the Irish government placed a guarantee on all the toxic property debt held by the Irish banks, they increased the sovereign debt per person hugely. Does anyone have access to the exact figure?

Hence why the CDS on Irish debt has tripled in the last few weeks, we are much closer to Iceland than many people like to think. Hence why the upcoming budget is going to be severe in terms of tax rises,capital spending cutbacks. The whole economy has been exposed as house of cards built on construction expecially in rural areas.

When Moodys downgraded Irish credit rating forecast o negative last week, they made it clear that unless serious actions were taken over the public finances, Ireland would lose its AAA credit rating.

gar32

If we are in the mess some people say we are then a price has to be paid. Blame has to taken or even put on the banks or more like the people responsible. If you lend money out to someone who can not pay you back. It the banks problem. Any money own to banks should be ear mark to be paid back some how any how from the person or company that borrowed. The if the house of cards has to fall doing it so be it. People should be followed up on paying their deaths until they die if need be. Responsibility for action has to be taken. Example is the AIB head getting E690,000 a year for what?? He should have to work on minimum wage until he sorts out the issue he was involved in. When working class people are hit they hit back so look out high paid TD’s and look out heads of business as if you don't sort things out fast & too people satisfaction HEADS WILL ROLL!!!!

DJDC

When working class people are hit they hit back so look out high paid TD’s and look out heads of business as if you don't sort things out fast & too people satisfaction HEADS WILL ROLL!!!!

So to sort out our economic issues you threaten class warfare :rolleyes:

The working class you mention are also the same people who got most caught up in the private debt cycle buying cars, satelite TV's and holidays abroad they couldn't afford often on the back of over inflated wage packets as a result of labour shortages in brickies and tradesmen. Sure you hear about the architects, solictors and bankers losing their jobs but the vast majority of new additions to live register have been working class manufacturing workers, admin staff and construction workers. If we had a regional breakdown in unemployment I'd like to see what the % not working is like in Tallaght, Ballyfermot and other traditional working class areas now. I would guess it has increased significant in the last year or so.

ZYX

gar32 wrote: »

When working class people are hit they hit back so look out high paid TD’s and look out heads of business as if you don't sort things out fast & too people satisfaction HEADS WILL ROLL!!!!

There are 2 problems facing this country
1 The world economic crisis, which we can do very little about
2 Massive public spending with very low income tax. This we can do lots about. I am not sure how you define working class, but, 43% of people in this country pay no income tax. I presume most of these would be defined as "working class". They will have to pay more. Our current deficit this year will be about €10,000 per worker in this country. We need much higher cuts (either pay or staff) in public service as well major tax increases for everyone.
The vast majority of people in this country benefited from the Celtic Tiger and therefore will have to pay.

P. Breathnach

ZYX wrote: »

There are 2 problems facing this country
1 The world economic crisis, which we can do very little about
2 Massive public spending with very low income tax. This we can do lots about. I am not sure how you define working class, but, 43% of people in this country pay no income tax. I presume most of these would be defined as "working class". They will have to pay more. Our current deficit this year will be about €10,000 per worker in this country. We need much higher cuts (either pay or staff) in public service as well major tax increases for everyone.

There are more than two problems facing us. We also have a massive banking crisis, a property market in a shambles, a loss of competitiveness, a huge level of personal debt (much, but not all, because of the property bubble), loss of consumer and business confidence... I don't wish to add to the general sense of gloom: I am moderately optimistic that we will find our way out of our difficulties, but it will take more than a few months.

You mention low income tax as an issue. I think one should take a slightly broader view, and consider the whole tax mix. It's not just a matter of low taxes on income: it's a matter of generally low tax rates and dependence on taxes of particularly uncertain yield. But I do recognise that taxes on income are a great deal lower than in most other economies in the developed world, and certainly lower than people can bear (some of us used to consider that a good thing!).

The vast majority of people in this country benefited from the Celtic Tiger and therefore will have to pay.

Whenever any body makes a remark like that (with which I broadly agree) we get a queue of people lining up to tell us how they didn't benefit from the Celtic Tiger.

nesf

DJDC wrote: »

Eh..no. When the Irish government placed a guarantee on all the toxic property debt held by the Irish banks, they increased the sovereign debt per person hugely. Does anyone have access to the exact figure?

Ok, to put it in perspective for you:

Total Icelandic bank losses now owed by the Icelandic people: $100 billion
Icelandic GDP in the good times (2007): $12 billion
Debt as a percentage of GDP: 850%

The $300,000 figure is before taking into account any sovereign debt issued by the country.

I've seen estimates for the Irish national debt reaching something like 60% of GDP in a few years assuming budget conditions stay around the same and taking into account banking losses (though this forecast was probably a bit optimistic I imagine).


We're nowhere close to 850% of GDP in debt though, which was the madness I was talking about.


Edit: Also the Government didn't guarantee the toxic property debt of the banks, only their deposits and some forms of bonds issued by them and similar (there's a big difference). Economiste Monetaire gave a link to the exact details in a recent thread.

FlutterinBantam

How did that small economy lose €100 billion?

thebman

FlutterinBantam wrote: »

How did that small economy lose €100 billion?

International banking market. When it was falling apart, the fallout that hit British investments was actually scary.

I really feel for the people of both nations TBH (and our own obviously :P). I guess it had to come falling down around them when they were exposed to those levels but to the level they are at is almost unrecoverable from IMO.

We should just be thankful we are not that exposed and take the hit it is going to take to get us out of this mess.

nesf

FlutterinBantam wrote: »

How did that small economy lose €100 billion?

Basically their banks started operating in the EU as internet banks and amassed enormous amounts of deposits this way (far in excess of the size of their home economy). The country for all intents and purposes became one big hedge fund with enormous foreign exchange exposure.

dragonkin

nesf wrote: »

Ok, to put it in perspective for you:

Total Icelandic bank losses now owed by the Icelandic people: $100 billion
Icelandic GDP in the good times (2007): $12 billion
Debt as a percentage of GDP: 850%

The $300,000 figure is before taking into account any sovereign debt issued by the country.

I've seen estimates for the Irish national debt reaching something like 60% of GDP in a few years assuming budget conditions stay around the same and taking into account banking losses (though this forecast was probably a bit optimistic I imagine).


We're nowhere close to 850% of GDP in debt though, which was the madness I was talking about.

Well we have an total external debt of €1.67trillion and a rapidly decreasing GDP in 2008 of €187.4 billion. So external debt/GDP ratio is 8.9 or 890%. Iceland doesn't look so bad now...

nesf

dragonkin wrote: »

Well we have an total external debt of €1.67trillion and a rapidly decreasing GDP in 2008 of €187.4 billion. So external debt/GDP ratio is 8.9 or 890%. Iceland doesn't look so bad now...

That's gross external debt which is a very different thing to net external debt.

dragonkin

nesf wrote: »

That's gross external debt which is a very different thing to net external debt.

True well we'll have to hope the assets it's offset against weren't irish banking shares, commercial property, loans to the service industry, overpriced commodities, massively leveraged hedge fund plays etc. Does anyone have any statistics on our net external debt?

nesf

dragonkin wrote: »

True well we'll have to hope the assets it's offset against weren't irish banking shares, commercial property, loans to the service industry, overpriced commodities etc. Does anyone have any statics on our net external debt?

The gross figure is offset by foreign assets held, so Irish banking shares etc wouldn't be part of it. The vast majority of our external debt is made of up of short terms loans and deposits to Irish Financial institutions and long term loans/bonds made to the non-financial Irish sectors. The net debt would then be calculated by totalling all loans made to and bonds held of foreign securities (be they Government or private entities).



Another important factor is how much of Ireland's external debt is denominated in Euro. Part of what caused Iceland's meltdown was its currency crisis which meant that all those debts denominated in Euro and Sterling suddenly got a lot bigger in terms of krona.

Saruman

€1.67trillion? I thought that was a typo at first!
I always thought we were only a few billion in debt as we paid a lot of it off in the good times.
Thats an eye opener.

dragonkin

nesf wrote: »

The gross figure is offset by foreign assets held, so Irish banking shares etc wouldn't be part of it. The vast majority of our external debt is made of up of short terms loans and deposits to Irish Financial institutions and long term loans/bonds made to the non-financial Irish sectors. The net debt would then be calculated by totalling all loans made to and bonds held of foreign securities (be they Government or private entities).



Another important factor is how much of Ireland's external debt is denominated in Euro. Part of what caused Iceland's meltdown was its currency crisis which meant that all those debts denominated in Euro and Sterling suddenly got a lot bigger in terms of krona.

Are mortgages included in the gross external debt figure? As they are a transfer from an Irish banking institution to an Irish resident? Assuming the bank is in compliance with regulations and has the minimum deposit ratio needed to give loans, would it need to get external finance to fund the mortgages?

P. Breathnach

dragonkin wrote: »

Are mortgages included in the gross external debt figure? As they are a transfer from an Irish banking institution to an Irish resident? Assuming the bank is in compliance with regulations and has the minimum deposit ratio needed to give loans, would it need to get external finance to fund the mortgages?

Banks borrow where they can get their funding on the most favourable terms. A good portion of the funding for mortgage loans made here came from outside Ireland. Joe Citizen might owe €230k to an Irish bank on foot of his mortgage, but the Irish bank might owe the same amount to a German bank.

nesf

Saruman wrote: »

€1.67trillion? I thought that was a typo at first!
I always thought we were only a few billion in debt as we paid a lot of it off in the good times.
Thats an eye opener.

Government debt as of Sept 08 was 52 billion. That's the figure you were probably thinking of. As a percentage of GDP our Government debt is low by EU standards. We paid down out debt during the good times as well as the increase in our GDP making the debt a smaller percentage of our national income.

dragonkin wrote: »

Are mortgages included in the gross external debt figure? As they are a transfer from an Irish banking institution to an Irish resident? Assuming the bank is in compliance with regulations and has the minimum deposit ratio needed to give loans, would it need to get external finance to fund the mortgages?

No. Any money borrowed from abroad to give out mortgages (or any other kind of loan) would be included here. Banks derive their funding for loans from two major sources deposits and short term loans. So any money lent to Irish banks from investors abroad would count as external debt. This is standard stuff for banking, the core idea is that countries with excess money lend it to countries with a shortage of money. Some countries are net debtors some are net creditors, part of the macro-economic reasons for the factors underlying the credit crunch were that some countries lent enormous amounts of money to other countries which provided the credit needed to blow the bubbles up to the levels they reached.

Conversely any foreign assets held by Irish banks, Irish pension funds, private individuals etc would count against the above loans when calculating net external debt. So an Irish bank might borrow money from abroad and then invest it abroad for instance which would net out the original loan amount.

Saruman

nesf wrote: »

Government debt as of Sept 08 was 52 billion. That's the figure you were probably thinking of. As a percentage of GDP our Government debt is low by EU standards. We paid down out debt during the good times as well as the increase in our GDP making the debt a smaller percentage of our national income.

Ah yes thats what I was thinking of. Low debt means we are ok to borrow more and we would have a proven track record of paying it back... so as long as the money is available for us to borrow I can not see the country going backrupt.... though perhaps a lot of people and businesses will.

jdivision

There's a very real danger we will. To the people who think our debt is low, within two years ours will be at the percentage level of France without any of the services they have. Secondly, the market already views us as a basketcase. When we try to raise cash by issuing bonds it costs the second most in the eurozone after Greece to do so and that's a basketcase too. Retailers like Next are viewed as less likely to go bust and given the state of the retail sector that should sound a lot of alarm bells. The reality is that a lot of people have heads in the sand.

nesf

jdivision wrote: »

To the people who think our debt is low, within two years ours will be at the percentage level of France without any of the services they have.

The thing is our debt right now is low. The problem is the budget deficit is so enormous. If we don't correct our budget deficit we'll soon find ourselves back at 1980s' debt levels.

daveirl

This post has been deleted.

heyjude

The issue isn't really whether Ireland is going to go bankrupt, the s*** will hit the fan a long time before that. Things will come to a head when other countries(overseas investors etc) refuse to lend us any more money. It doesn't matter whether out national debt is higher than Iceland, Latvia or any other country, what does matter is whether anyone will continue to lend to us and if so, at what price(interest rate).

The government is currently borrowing over €55m+ a day to keep the country running and if for any reason we could no longer borrow that, then they would immediately need to find over €1700m a month or else they wouldn't have enough cash to pay all the public sector wages, social welfare and other commitments. The pension levy wouldn't produce this much in a year, so imagine the measures that would be needed to account for that sum EVERY month. The problem is that most tax raising/ cost cutting measures take time to implement and at that stage, we'd have run out of time.

nesf

daveirl wrote: »

This post has been deleted.

We're lucky really, the bond market is going to force our Government to start getting its act together before it gets us up to Italy style 100%+ of GDP debt levels. Given our track history I wouldn't trust them to do it on their own steam.

daveirl

This post has been deleted.

nesf

daveirl wrote: »

This post has been deleted.

Just look at what a lack of market signals has done to the US.

10000maniacs

Ireland were lucky in that we had the breathing space to attempt to put it right. And we were slap in the middle of the European single currency. Iceland wern't so lucky. And now they will have to sell a lot of haddock to get out of that mess. €300,000 per head of capita is insurmountable by any set of calculations. Lets hope their Nordic friends aren't fair weather.
I'm surprised nobody in Iceland saw their banking pyramid scheme for what it was.

nesf

10000maniacs wrote: »

I'm surprised nobody in Iceland saw their banking pyramid scheme for what it was.

I remember Iceland being referred to as one giant hedge fund long before this happens. Normally in contrast to the UK which looked similar but at nothing close to the same scale.

Run_to_da_hills

Watching Telifis Eireann News to night, The Dole fund is rapidly drying up.

Shiny

Saw that also. She didn't look too concerned about it either.

thebman

No her logic was its always been like that except recently. Right so going backwards isn't a problem then :P

declanx

A number of questions to the economic people:1) Are there defined stages to a ression?2) What stage are we at?3) What should we do at each stage?Also will we get a repeat of CJ's 1987 banjaxed speech by our leader?

nesf

declanx wrote: »

A number of questions to the economic people:1) Are there defined stages to a ression?2) What stage are we at?3) What should we do at each stage?Also will we get a repeat of CJ's 1987 banjaxed speech by our leader?

http://en.wikipedia.org/wiki/Recession

It's a pretty accessible overview. There aren't really stages to a recession, it's more that you're in one or you aren't.

What to do is something that's very much up for debate. Keynesians would recommend a big Government stimulus package like Obama is doing, those of a more "supply side" bent would recommend tax cuts as a form of stimulus. You've then got monetary theories on increasing the money supply and cutting interest rates in an attempt to avoid deflation/encourage mild inflation.


In our situation we can neither do a big stimulus nor cut taxes because we're facing an enormous budget deficit that needs to be closed (we won't be loaned 20 billion a year when taxes only bring in 40 billion right now). So the Government will be forced to take deflationary actions like raising taxes and cutting spending which while painful are unfortunately necessary. We need to sort out the fiscal situation before we can recover from the recession.

10000maniacs

declanx wrote: »

Also will we get a repeat of CJ's 1987 banjaxed speech by our leader?

You mean the January 9, 1980 speech in which we were ordered to tighten our belts by CJH in his £2000 shirt paid for by the taxpayer?:D

"we will just have to reorganise government spending so that we can only undertake those things we can afford" CJH 09/01/80

jimbojones123

Interesting post. My view is that fiscal stimulus is small pickings when we have no monetary policy to lift us out of the situation. We are the sickboys of Europe at the moment and we can't devalue our currency to reflect this.

I just wrote an article related to this. If you could take the time to read and comment that would be wonderful.

[modedit] Do not pimp your blog on here, add it to your signature[/modedit]

Cheers

SkepticOne

jimbojones123 wrote: »

Interesting post. My view is that fiscal stimulus is small pickings when we have no monetary policy to lift us out of the situation.

Except of course we're not doing fiscal stimulus since we can't raise the money to do that.

jimbojones123

Yes so we lose on both sides. No monetary and no fiscal. Just tax cuts so ease the bleeding.

Useless as a long term policy on its own.

SkepticOne

jimbojones123 wrote: »

Just tax cuts so ease the bleeding.

The plan is to raise taxes not cut them.

BostonB

I think we're in trouble because the Govt is still only paying lip service to the issue. They are still on massive salaries and still flying around on trips for Paddys. If they were serious they'd be cutting back on everything trying to balance the books. Its almost like they are expecting a sudden upsurge to remove the need to make serious cuts.

jimbojones123

SkepticOne wrote: »

The plan is to raise taxes not cut them.

Apologies, thats what I meant....