Where is the money to pay back the bailout supposed to come from?

cc-offe

I just don't get this.

If we were already borrowing money each year to keep the economy going and part of this bailout fund is supposed to go towards bridging the shortfall for the next 4 years then where is the money supposed to come from when we are due to pay back the money and the interest?

Now I'm of the opinion that we will default at some stage but let's say we don't default, won't we just have to borrow more money from someone else to pay it back because our taxtake doesn't even cover the governments daily requirements.

Can anyone explain?

Dub.

Well according to Lenihan the economy has turned the corner and we should see significant growth over the next few years.

Cavehill Red

It'll be coming from your pocket and the pocket of all the other suckers who roll over and accept this bailout.
You know where the money for the Icelandic bank bailout came from? Nowhere. Because they surrounded their parliament, demanded a general election and a referendum on the bailout, then rejected it with a 98% vote.
We could do that, if we had any backbone.

Scofflaw

cc-offe wrote: »

I just don't get this.

If we were already borrowing money each year to keep the economy going and part of this bailout fund is supposed to go towards bridging the shortfall for the next 4 years then where is the money supposed to come from when we are due to pay back the money and the interest?

Now I'm of the opinion that we will default at some stage but let's say we don't default, won't we just have to borrow more money from someone else to pay it back because our taxtake doesn't even cover the governments daily requirements.

Can anyone explain?

Same place it came from between 1990 and 2000 - same place it would have to come from without the bailout. Harder work, lower incomes, fewer services. A reduction in the government's requirements, an increase, as Cavehill Red points out, in the tax take, economic growth if we're lucky. And yes, borrowing, too, to keep the debt rolling over. Probably a bit of debt 'restructuring' as well, although Heaven forfend that we call it default.

cordially,
Scofflaw

danielmoran

Ireland Doesn't Have to use this money. its just there to calm the markets and in case of shortage of funds.

if we were to use the €85Billion they wouldn't be expecting us to pay it back they'll just bail us out again so europe deosn't fail.

ISAW

cc-offe wrote: »

I just don't get this.

If we were already borrowing money each year to keep the economy going and part of this bailout fund is supposed to go towards bridging the shortfall for the next 4 years...

Wrong! There are TWO things here

1. The year on year spending of a government - current spending
2. The structural once off problems e.g. roads BANKs etc.

The bailout money is for 2 It can't be spent on 1. just as a government under EU law can't bail out an Airline or a football club. and we cant have a debt which is over 60 % of GDP.

So the bank system gets say 100 billion and we are back in business.

But we are still spending more on current spending than we are taking in on taxes so that has to be put right. By the way that is also covered by EU law ( Maastricht treaty 6% of GDP) It is currently close to 200% of GDP

let's say we don't default, won't we just have to borrow more money from someone else to pay it back because our taxtake doesn't even cover the governments daily requirements.

Can anyone explain?

It will cover it! http://www.finfacts.ie/irishfinancenews/article_1021202.shtml
In the absence of any budgetary changes the EBR would have risen to €22.5bn, and the Government announced a €6bn fiscal package to bring the deficit down to under €18bn.

But you can see that current expenditure is 61billion in 2009 when it was 26 billion in 2000 and Pay has gone from under 9 billion to over 20 billion! i think it quite simply shows we are overpaying the public sector.

And we are not tackling this! The budget involved a €1bn tax package, largely centered on income tax, a €300m increase in PRSI and €3.9bn in spending cuts, including €2.1bn in current spending with the balance on the capital side

so 1 billion cut this year in pay for EVERYONE when the increase over ten years is more than a billion PER YEAR for the public sector ALONE!

whatawaster

Debt tends to be rolled over year after year, and eventually inflation will make it less of a burden.

But since our interest payments are so high I doubt that will work for us

Scofflaw

ISAW wrote: »

Wrong! There are TWO things here

1. The year on year spending of a government - current spending
2. The structural once off problems e.g. roads BANKs etc.

The bailout money is for 2 It can't be spent on 1. just as a government under EU law can't bail out an Airline or a football club. and we cant have a debt which is over 60 % of GDP.

So the bank system gets say 100 billion and we are back in business.

But we are still spending more on current spending than we are taking in on taxes so that has to be put right. By the way that is also covered by EU law ( Maastricht treaty 6% of GDP) It is currently close to 200% of GDP

That's a really quite extraordinary set of completely wrong 'corrections'!

First, €50bn of the bailout facility is quite explicitly for the day to day spending of the government - that is, 1 in your list - not the banks. A further €35bn of the agreed spending under the programme is for the banks, but Ireland is providing half of that money itself.

Second, the Maastricht limit of 6% deficit has been replaced by 3% under the Growth and Stability Pact.

Third, the 3% limit covers total government annual deficit, which includes any spending on the banks at this stage.

Fourth, that deficit is 32% of GDP this year, not 200%. That includes the spending on the banks - it would otherwise be around 14.4%.

ISAW wrote: »

It will cover it! http://www.finfacts.ie/irishfinancenews/article_1021202.shtml
In the absence of any budgetary changes the EBR would have risen to €22.5bn, and the Government announced a €6bn fiscal package to bring the deficit down to under €18bn.

But you can see that current expenditure is 61billion in 2009 when it was 26 billion in 2000 and Pay has gone from under 9 billion to over 20 billion! i think it quite simply shows we are overpaying the public sector.

And we are not tackling this! The budget involved a €1bn tax package, largely centered on income tax, a €300m increase in PRSI and €3.9bn in spending cuts, including €2.1bn in current spending with the balance on the capital side

so 1 billion cut this year in pay for EVERYONE when the increase over ten years is more than a billion PER YEAR for the public sector ALONE!

I think what you're saying there is that government spending could be cut to fit the tax take, which is something that obviously needs to happen, and is supposed to happen over the next 4-5 years. However, I think you're claiming it could all be done in one fell swoop if only the government 'had the backbone', in which case you're presumably unaware of the knock-on effects of such a cut. The current programme of cuts is already a source of some concern in respect of the feedback effects it will have on the economy - foreshortening the timescale of those cuts into a single budget would cause a massive shock to the economy.

cordially,
Scofflaw

bmarley

danielmoran wrote: »

Ireland Doesn't Have to use this money. its just there to calm the markets and in case of shortage of funds.

if we were to use the €85Billion they wouldn't be expecting us to pay it back they'll just bail us out again so europe deosn't fail.

If we keep our current government in, there is not doubt that Ireland will use all this money - looking after themselves, colleagues and friends.

How does one think third world economies became the way they are?

silverharp

Scofflaw wrote: »

Same place it came from between 1990 and 2000 - same place it would have to come from without the bailout. Harder work, lower incomes, fewer services. A reduction in the government's requirements, an increase, as Cavehill Red points out, in the tax take, economic growth if we're lucky. And yes, borrowing, too, to keep the debt rolling over. Probably a bit of debt 'restructuring' as well, although Heaven forfend that we call it default.

cordially,
Scofflaw

I'm not arguing the point but I note that the FF muppets refer to how Ireland got out of the 80's mess. Its not comparable though as the general public had low debt levels, there hadnt been a bubble preceding it except excessive gov. spending and asset prices / salaries were cheap compared to Europe. Then we had the global growth of the 90's to take advantage of. Just about everything is opposite now, there will be a stagnant international economy and a private and public debt situation here which will be bleeding out due to a mismatch of debt attached to assets with little or no value.
It is hard to see how Ireland will not be a zombie economy for the next decade.

kuntboy

What's the ultimate source of the income to pay it? Exports? Local savings? Money created out of thin air?

Liam Byrne

Dub. wrote: »

Well according to Lenihan the economy has turned the corner and we should see significant growth over the next few years.

Any credible sources that have made similar claims ?

Scofflaw

silverharp wrote: »

I'm not arguing the point but I note that the FF muppets refer to how Ireland got out of the 80's mess. Its not comparable though as the general public had low debt levels, there hadnt been a bubble preceding it except excessive gov. spending and asset prices / salaries were cheap compared to Europe. Then we had the global growth of the 90's to take advantage of. Just about everything is opposite now, there will be a stagnant international economy and a private and public debt situation here which will be bleeding out due to a mismatch of debt attached to assets with little or no value.
It is hard to see how Ireland will not be a zombie economy for the next decade.

I meant to add at the end of the post "and ten years of low-grade misery". While I think that we can probably get through this without significant default, and while I think significant default isn't a better option, I don't think this will be fun in any sense, and I don't really expect significant improvement of the situation for the next decade or so.

cordially,
Scofflaw

ei.sdraob

The growth and stability pack compromised of 2 parts

*a) DEFICIT / GDP ratio

*b) TOTAL DEBT / GDP ratio

Our government and EU are continuing to ignore b) and focusing on a) which in the best case scenario would mean that we are still taking on more debt :rolleyes: its incredible, no lessons have been learned


speaking of misery

silverharp

ei.sdraob wrote: »

The growth and stability pack compromised of 2 parts

*a) DEFICIT / GDP ratio

*b) TOTAL DEBT / GDP ratio

Our government and EU are continuing to ignore b) and focusing on a) which in the best case scenario would mean that we are still taking on more debt :rolleyes: its incredible, no lessons have been learned

Indeed and the near certain risk is rising interest rates. I cant remember the exact ratio but a 1% rise in interest rates translates into ~10% drop in certain asset values , property for example. Icarus had better odds then what the EU is facing.

Permabear

This post has been deleted.

maninasia

silverharp wrote: »

I'm not arguing the point but I note that the FF muppets refer to how Ireland got out of the 80's mess. Its not comparable though as the general public had low debt levels, there hadnt been a bubble preceding it except excessive gov. spending and asset prices / salaries were cheap compared to Europe. Then we had the global growth of the 90's to take advantage of. Just about everything is opposite now, there will be a stagnant international economy and a private and public debt situation here which will be bleeding out due to a mismatch of debt attached to assets with little or no value.
It is hard to see how Ireland will not be a zombie economy for the next decade.

There is no stagnant international economy, many many countries worldwide are doing better than ever. Really.

It's the US, Ireland, UK and the PGS that are buggered due to heavy debt loading and loss of manufacturing jobs. Ireland is doubly in the ****s as we are too tied to the US but not enough business with the fastest growing and biggest market in the world, Asia. For instance how come Germany is doing so well even though the US and many European countries are not showing much growth right now...sales into Asia is the main reason.

ricman

We get x billion to stabilise the banks , government reduces spending ,increases taxes then we get back to a real economy ,based on exports, smes ,tourism ,industry .
ie a REAL economy, not a bubble economy based on rising house prices,building houses,speculating on property, hotels we dont need.
Perhaps we could say any civil servant ,minister, taoiseach your max pension is 90k,your max salary is 100k ,ie live in the real world.
NO more 3 million pension pots for ministers ,presidents ,its obscene, when a blind person loses 8 euro per week.
OF course theres no punishment for stupid banks who lent foolishly ,german or irish ,they,ll be paid back by our children.
Look at the minister s pension 3 million, if he dies his wife gets half his pension,god forbid a woman would have to live on less than 100k per year in ireland.That would be a shame.
All civil servants over 35k salary should have to be benchmarked against private pension,
ie if you want a 60k pension you,ll have to put x amount per week into a fund ,like some clerk working in irish life a private company,ie move their
pensions into the real world.

silverharp

maninasia wrote: »

There is no stagnant international economy, many many countries worldwide are doing better than ever. Really.

give it time, if you are depending on the chinese bubble , or the US stimulus and funny money policies then the wheels will come off the cart again. No major western economy has reformed and are still borrowing like drunken sailors, the problems have just been swept under the proverbial carpet.

cc-offe

So basically if everything goes well and we have a thriving exports based economy, low unemployment and high tax take, none of that will really be able to be used in the places where it is needed, none of the extra money will be used to improve our hospitals, schools etc, It will all be going on interest for the loan and noone here in this country will benefit from these measures.

later12

silverharp wrote: »

No major western economy has reformed and are still borrowing like drunken sailors, the problems have just been swept under the proverbial carpet.

Hmmm. Ok here's one. France.

Gurgle

Eventually there will be another economic boom, the state will sell its shares in the banks and repay some of the borrowed money. Likewise the property which will eventually be claimed by Nama in lieu of unpaid debts.

In the meantime those of us who work pay the interest.

silverharp

later10 wrote: »

Hmmm. Ok here's one. France.

Really? so their Banks arent up to their eyes in piggy debt , and their pension and heathcare liabilities are funded going forward and their Debt to GNP is below 60% and falling?

eoinbn

To answer the question- we will borrow it, or that is the plan. The government will go to the market and try to raise the money that it owes the IMF/EU so it's basically just re-financing the loan. This is the very reason that Portugal, Spain and Italy are in trouble right now. They have reasonable small deficits(4%-5%) but they all need to re-finance old bonds due to a high level of public debt. I believe that Italy has a deficit of ~€80bn this year but needs to raise something like €300bn on the bond markets.

later12

silverharp wrote: »

Really? so their Banks arent up to their eyes in piggy debt

You spoke economic reform - not private banks. As a matter of fact, french exposure to PIGS bonds or Irish banking bonds (which would be protected) is not a major issue here. At all.

and their pension and heathcare liabilities are funded going forward and their Debt to GNP is below 60% and falling?

I'm talking about economic recovery and core reform - not a Utopia. No economy was a Utopia before the crisis; the French have recovered, yes.

Permabear

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ardmacha

We will have to grow our export economy, selling more goods and services into recovering markets in Europe and the USA. We will have to expand employment by becoming a more competitive place for investors to locate, which means that the cost of wages, commercial rents, energy costs, labor market regulation, and the like, will all have to be addressed.

We can do this. It is not as if there is not room for improvement!

Our populist government is significantly beholden to trade unions, welfare dependents, and retirees, none of whom really care all that much about what the country will look like in 20 years' time—as long as they get theirs now.

These people will always be with us. But the rest of the people have to want the right thing too. Parents have to want their children to be educated, not just to have them given high grades to make them feel worth it. Parents have to want their children to have useful careers, not be estate agents or people using pull to develop overpriced houses.

No major western economy has reformed and are still borrowing like drunken sailors

Places like Canada that had problems before have been much more moderate this time around.

later12

donegalfella wrote: »

This post has been deleted.

Ugh. In answering which country had reformed since the crash, I am answering that France has. France has economic problems - here's the thing, every economy in the world will has, had and shall have problems, especially in the midst of an external debt crisis. But France has fundamentally recovered and continues to grow. Unemployment is falling. GDP is rising. Inflation is rising, and slowly.

Would I call that a positive turnaround, a reform of the economic situation since the crash?
Yes. Very much so. So would most people