Mini Budget 2012 - Leak suggests it may be required

Sully

According to reports on TodayFM, some breaking news, Ireland will need a Mini Budget according to leaked documents seen by German (I think) politicians. The budget will be required if growth doesn't improve.

EDIT: Article from TheJournal below.

A LEAKED DOCUMENT has suggested that Ireland could require a mini-budget this year to implement further cuts.

A document leaked to the German parliament and reported by Bloomberg today has suggested the need for further fiscal tightening later this year if there is “further deterioration of the macroeconomic backdrop”.

The Department of Finance declined to comment on the document when contacted by TheJournal.ie this evening but confirmed its authenticity as a draft document that would be published by the European Commission tomorrow.

“The Commission staff report is being considered by Senior Officials from European Finance Ministries today and is due to be published tomorrow,” a statement said.

“The key programme documents including the Letter of Intent and the accompanying documents associated with the 5th review of the Irish Programme were published on the Department of Finance website on the 14th of February.”

Last November, documents leaked to the German parliament revealed the extent of the budget adjustments that were to be made the following month with the rise in VAT confirmed in Germany before it was disclosed in Ireland.

Sinn Féin TD Pearse Doherty has said it is “deeply troubling” that news of a possible mini-budget has been leaked to the finance committee of the German parliament before it was disclosed here.

“It is deeply troubling that yet again German Parliamentarians know more about the details of the Troika’s austerity programme in Ireland that elected Irish politicians.

He called on the Taoiseach to explain why the German parliament is discussing this document “before we have been given the chance to discuss it, and to state what he knows about the commission’s views on a mini budget.”
The government still anticipates that the €3.8 billion adjustment announced in last December’s budget will be sufficient to meet the targets laid down by the Troika that the budget shortfall be narrowed to 8.6 per cent of gross domestic product (GDP) in 2012.

Source: http://www.thejournal.ie/leaked-documents-suggest-ireland-may-need-further-budget-cuts-in-2012-369839-Feb2012/

Idbatterim

how about we start tightening the reins on the German and French etc bailout? the ones where not only do their banks and bondholders not take their rightful hit, they actually makes billions profit in the process. I am referring only to the Anglo sham by the way. Germany and France are only 2 of 17 eurozone members, isnt it about time the rest of them joined together to start pushing their agenda?

meglome

Idbatterim wrote: »

how about we start tightening the reins on the German and French etc bailout? the ones where not only do their banks and bondholders not take their rightful hit, they actually makes billions profit in the process. I am referring only to the Anglo sham by the way. Germany and France are only 2 of 17 eurozone members, isnt it about time the rest of them joined together to start pushing their agenda?

And your proof the money goes back to German and French banks is?

woodoo

The government don't really care about the Irish public's upset or outrage. There is no consequence for them. Nobody protests.

Its very careless of them if this is true but they don't fear these leaks enough to do all they can to prevent them.

Idbatterim

And your proof the money goes back to German and French banks is?

ofcourse it wasnt only german and french banks and pension funds etc. But their governments are the ones shouting loudest. See you could argue about this all day and night. If we didnt have the anglo debt around our neck, think how much lower our borrowing costs would be, we could probably already go back to the markets, wouldnt be paying back god knows how many billions to people who to be honest can probably cope alot better without it than the sick, elderly, unemployed! imagine what we could do with that money, stimulate the economy, cut vat, increase capital expenditure bla bla bla. but no were keeping our head down, taking the beating and ensuring that this whole bloody act is a self fulfilling prophecy. Im am speculating obviously that the Troika havent already conclude a debt write down deal with government once the main s**t has blown over...

hmmm

There is nothing new about this, the agreement we signed with the Troika means that we may have to make adjustments if we didn't meet our targets. We've met the targets to date.

Why RTE decided to make this "news" is baffling. Are they deliberately hyping a non-story or are they genuinely clueless?

touts

The Reichstag has the right to review documents about how German money is being spent. Fair play to their MPs for exercising that right. If it was not for them we wouldn't have had a clue what's going on behind the scenes. Our TDs are worthless when it comes to demanding the fine detail of how this country is run. Instead they just vote how they are told and race off to chase a few coffins.

antoobrien

Idbatterim wrote: »

how about we start tightening the reins on the German and French etc bailout? the ones where not only do their banks and bondholders not take their rightful hit, they actually makes billions profit in the process. I am referring only to the Anglo sham by the way. Germany and France are only 2 of 17 eurozone members, isnt it about time the rest of them joined together to start pushing their agenda?

It was interesting listening to the German ambassador on the last word last week pouring scorn on the idea that this is a bailout of German banks via the back door. He said it'd be much cheaper and easier to put the money into the banks directly if that's what they wanted to do.

Godge

On the other hand, if we get some deal on the amount of interest on the promissory notes and there appears to be a good chance of that, we will be making a saving this year so that might counter-balance the lack of growth issue and no mini-budget will be required.

All of the speculation is based on predictions. We haven't even seen the Exchequer figures for February to see if we are on track or not.

Dirk Gently

If growth doesn't improve we may need to cut more and take more money out of the economy. You have to love it. we'll be grand. :pac:

BeeDI

Dirk Gently wrote: »

If growth doesn't improve we may need to cut more and take more money out of the economy. You have to love it. we'll be grand. :pac:

Cant we cut more turf, and sell it to the Germans:cool:

Oh, I forgot, the Germans in the euro parliment, already decided we can't cut a bit of turf in our own bogs anymore

RichardAnd

There is also the issue of petrol costs which I think any budget would do well to address in a manner not aimed at gleaning more tax from the plebs. If prices continue to climb, where will they be by June or July? 1.70 at least, I would wager, perhaps higher. That will be a telling factor in any sort economic stabilisation.

Idbatterim

It was interesting listening to the German ambassador on the last word last week pouring scorn on the idea that this is a bailout of German banks via the back door. He said it'd be much cheaper and easier to put the money into the banks directly if that's what they wanted to do.

that may be true, but would they be making billions in profit on the interest that way? take a look at the below!!! Also say we were to burn the bondholders in part or total on the anglo debt, there banks would be so much bigger than here, would they even have to be bailed out or just take a serious dent in profits, maybe sell off assets or other arms of the business? I wonder how the German taxpayers would react at having to pay for their banks mistakes as opposed to us Irish! I am half german by the way...

The €31bn in promissory notes issued to cover the cost of winding up Anglo Irish Bank should be restructured, she told the Financial Times in an interview.

Another €3.1bn instalment is due to be paid on March 31.

Under the current arrangements Ireland must pay €31bn over 10 years to cover the cost of the promissory notes issued to meet the cost of winding up Anglo and Irish Nationwide. With interest that cost will rise to €47bn.

Scofflaw

Idbatterim wrote: »

that may be true, but would they be making billions in profit on the interest that way? take a look at the below!!! Also say we were to burn the bondholders in part or total on the anglo debt, there banks would be so much bigger than here, would they even have to be bailed out or just take a serious dent in profits, maybe sell off assets or other arms of the business? I wonder how the German taxpayers would react at having to pay for their banks mistakes as opposed to us Irish! I am half german by the way...

Nobody makes any profit on the promissory notes, though. They're not bonds, the interest is not being paid to bondholders, Germans, or even the ECB - it's being paid by the government to the IBRC (what used to be Anglo and IL&P), who, because IBRC is 100% government-owned and a resolution vehicle, give it straight back to the government.

Why is the interest there? Because:

For capital adequacy purposes the Promissory Notes must be valued at par in the institutions’ accounts. Accordingly, interest must accrue on any amount due until it is paid.

That is, for the notes to be usable in the IBRC's books as capital at their face value - part of their purpose - interest has to be added to ensure that the value of the note when it's paid into IBRC matches the current face value, taking into account inflation, depreciation, etc.

But to reiterate the point, the promissory notes are not being provided by Germany, or anyone at all. They're a way of creating money out of thin air (which is also why they have to disappear again).

cordially,
Scofflaw

Idbatterim

Scofflaw you should run for minister of finance! if we are not paying interest why is there interest mentioned in the below statement?

Under the current arrangements Ireland must pay €31bn over 10 years to cover the cost of the promissory notes issued to meet the cost of winding up Anglo and Irish Nationwide. With interest that cost will rise to €47bn.

additionally the fact that we have honoured this anglo debt, this will have to drive up the cost of borrowing for all other debt when we return to the markets surely?

Scofflaw

Idbatterim wrote: »

Scofflaw you should run for minister of finance! if we are not paying interest why is there interest mentioned in the below statement?

Because there is interest - it's just being paid from the government to the IBRC, from where it goes back to the government.

Journalists, by and large, don't grasp that. They just see the headline figure and write it up without understanding what's happening - to be fair, people like Karl Whelan have to keep repeating the point over and over even to relatively expert audiences, because it makes people's heads spin a bit.

The government doesn't help, of course, because they don't make it very clear - after all, renegotiating the interest rate, because it's completely meaningless, might be an easy win for them at some stage.

Idbatterim wrote: »

additionally the fact that we have honoured this anglo debt, this will have to drive up the cost of borrowing for all other debt when we return to the markets surely?

The theory is the reverse, in fact. Cost of borrowing is related to the perceived risk to the lender of not getting their money back. So the fact that Ireland has honoured even the Anglo debt - against frequent public outcry - should persuade lenders that Ireland is a safe bet.

cordially,
Scofflaw

goalscoringhero

Idbatterim wrote: »

I wonder how the German taxpayers would react at having to pay for their banks mistakes as opposed to us Irish! I am half german by the way...

They already do. HRE alone has been bailed out with an amount of EUR >140bn [1] . This is just the most spectacular case, there is other bank bail outs in Germany on a lower scale.

Blame the Irish Banks and the Irish Government for their share of this mess. The German taxpayer is as screwed as any taxpayer elsewhere.

[1] http://www.bloomberg.com/news/2010-09-10/hypo-real-estate-will-get-further-50-7-billion-of-guarantees-from-germany.html

Sand

That is, for the notes to be usable in the IBRC's books as capital at their face value - part of their purpose - interest has to be added to ensure that the value of the note when it's paid into IBRC matches the current face value, taking into account inflation, depreciation, etc.

But to reiterate the point, the promissory notes are not being provided by Germany, or anyone at all. They're a way of creating money out of thin air (which is also why they have to disappear again).

No, theyre a way of creating debt out of thin air. Promissory notes might be an accountancy trick on paper, but because exactly because they have to disappear again they have to be made "real" by extracting wealth from the Irish economy to back them. There is nothing imaginary about the tax hikes and cut backs that are being levied to pay for this money apparently created out of thin air.

Nobody makes any profit on the promissory notes, though. They're not bonds, the interest is not being paid to bondholders, Germans, or even the ECB - it's being paid by the government to the IBRC (what used to be Anglo and IL&P), who, because IBRC is 100% government-owned and a resolution vehicle, give it straight back to the government.

Nope - the government only gets back whatever is left after the IRBC is wound up. If anything at all, given the governments inability to realistically acknowledge potential losses.

The theory is the reverse, in fact. Cost of borrowing is related to the perceived risk to the lender of not getting their money back. So the fact that Ireland has honoured even the Anglo debt - against frequent public outcry - should persuade lenders that Ireland is a safe bet.

And yet Ireland lost sovereign acess to the debt markets *after* the unlimited bank guarantee was granted. Lenders were not persuaded Ireland was a safe bet by Ireland honouring all bank debts - quite the opposite. Ireland is not Anglo - what Ireland is doing is telling anyone who buys their sovereign debt that their interests will be weighed against the interests of Anglo bondholders. That might please Anglo bondholders, but it wont please Irish bondholders.

New lenders have no interest in if existing lenders will get their money back - new lenders are only interest in if *they* will get their money back.

As noted by this contribution to irisheconomy.ie Ireland has expended huge amounts of economic resources on throwing good money after bad.

There is a historical precedent for massive wastage of taxpayer funds in analogous situations. Bulow and Rogoff call it the “buyback boondoggle.” The buyback boondoggle refers to the tendency of fiscally-distressed states to demonstrate their newfound fiscal discipline by handing over large quantities of taxpayer funds to outstanding bondholders, even when there is no fiscal benefit in doing so. In reality, the payment of funds to existing bondholders by states in fiscal distress can actually lower rather than raise the future borrowing prospects of the state (see the paper above and this related paper).

Basically everyone acknowledges that the economic and fiscal policies pursued by Ireland and the Irish banking sector were wrong, stupid and unsustainable. Except for the DoF - which is desperately refusing to acknowledge there was anything wrong, stupid or unsustainable about Irish banking policy and is trying to prove it by paying out on every dumb decision made throughout the period, whatever the cost to the country.

Scofflaw

Sand wrote: »

No, theyre a way of creating debt out of thin air. Promissory notes might be an accountancy trick on paper, but because exactly because they have to disappear again they have to be made "real" by extracting wealth from the Irish economy to back them. There is nothing imaginary about the tax hikes and cut backs that are being levied to pay for this money apparently created out of thin air.

No, what was created was the money, not debt. That the money has to be eliminated from the system again creates what you're calling debt.

Sand wrote: »

Nope - the government only gets back whatever is left after the IRBC is wound up. If anything at all, given the governments inability to realistically acknowledge potential losses.

That's actually irrelevant, since whatever the government gets back, at whatever point, is larger by the interest in question.

Sand wrote: »

And yet Ireland lost sovereign acess to the debt markets *after* the unlimited bank guarantee was granted. Lenders were not persuaded Ireland was a safe bet by Ireland honouring all bank debts - quite the opposite. Ireland is not Anglo - what Ireland is doing is telling anyone who buys their sovereign debt that their interests will be weighed against the interests of Anglo bondholders. That might please Anglo bondholders, but it wont please Irish bondholders.

Eh, Ireland wasn't "honouring" bank debts by creating the guarantee - it was acquiring them. The English language will only bend so far.

Sand wrote: »

New lenders have no interest in if existing lenders will get their money back - new lenders are only interest in if *they* will get their money back.

Gosh, is that so? I wonder how they work out the likelihood that they'll get their money back without paying any attention to the lendee's previous repayment record?

Sand wrote: »

As noted by this contribution to irisheconomy.ie Ireland has expended huge amounts of economic resources on throwing good money after bad.

Basically everyone acknowledges that the economic and fiscal policies pursued by Ireland and the Irish banking sector were wrong, stupid and unsustainable. Except for the DoF - which is desperately refusing to acknowledge there was anything wrong, stupid or unsustainable about Irish banking policy and is trying to prove it by paying out on every dumb decision made throughout the period, whatever the cost to the country.

Unfortunately, while I'd agree with this:

After a period of fiscal profligacy, politicians realize that it is important for the government to signal to capital markets that it will practice fiscal discipline in the future. What politicians can miss is that it is wasteful to throw away good money pretending that the state had such discipline in the past. In many cases the cost-efficient strategy is to fully default on existing claims, and start over. International investors are not stupid, and will in general act in their own interest, not that of existing bondholders.

It's not some kind of general absolution. "In many cases" is not all - and while one can argue that it may have been the better strategy here, it's not the open and shut case you're portraying, because it may also not have been.

cordially,
Scofflaw

Skopzz

Replacing the promissory notes with IOUs is Not an acceptable answer - they must be written off by the government. Since a mini budget will soon be required, the time has come for the FG / LAB to stop breaking their mandate and deliver.

There is little doubt among economists that Iceland chose the wiser path. Iceland, which had its investment-grade rating restored in February by Fitch Ratings, has stabilized net debt at 65% of gross domestic product and returned to financial markets. As for Ireland, we have another 4 years of austerity cuts impending. You would be silly to pay the household charge.

Sand

@Scofflaw

No, what was created was the money, not debt. That the money has to be eliminated from the system again creates what you're calling debt.

What wonderfully torturous semantic hoops you jump through to avoid admitting that money wasnt created out of thin air. Of course, reality doesnt need you to acknowledge it. The history of Irish policy responses since the crisis began is evidence enough of that.

That's actually irrelevant, since whatever the government gets back, at whatever point, is larger by the interest in question.

Thats a bit of a decline from your original position that the IRBC was giving the interest straight back to the government - another little shell trick apparently. Now at least your acknowledging that the government only gets whatevers left after all IRBC debts and losses have been cleared. Not very much at all if anything. Progress though.

Of course, given the interest is being paid to maintain the value of capital...what exactly is paid to maintain the value of the interest itself? Whatever amount of money is returned to the government later is going to be worth less than it would be now.

Gosh, is that so? I wonder how they work out the likelihood that they'll get their money back without paying any attention to the lendee's previous repayment record?

Is that a serious question? Firstly, a simple reading of prior events does not form any reliable guide to future events - look at Anglo Irish stock prices.

Investors do not presume that someone who has defaulted will never ever repay anyone ever again anymore than they presume that someone who has always repaid in the past will always do so in the future. So investors tend to carry out their own research and analysis. Thats why Ireland is locked out of the sovereign debt markets despite never defaulting on its debt. Thats why Goldman Sachs is Goldman Sachs and why Lehman brothers is dead in the water. This is why Iceland is able to re-enter the debt markets despite doing everything wrong - apparently.

It's not some kind of general absolution. "In many cases" is not all - and while one can argue that it may have been the better strategy here, it's not the open and shut case you're portraying, because it may also not have been.

Well the problem is your claim that Irelands honouring of the anglo debt has persuaded investors that Ireland is a safe bet flies in the face of the academic research and the empircal evidence. Sure, it might not be applied all cases - but it certainly applied to the Irish case as the decision to step in and cover all the Irish banking debts strangled the ability of the Irish sovereign to issue its own debt.

This must have truly puzzled and perplexed the policymakers who shared your groundless assertion that investors would be impressed by Irelands boneheaded payout of the debt of dead banks.

Farmer Pudsey

I see that the chances of a mini budget are increaseing revenue from car fuel has not increased as expected and household charge only expected to bring in 20 million by end of march not 160 million expected. Car sales have begun to slow and VAT and duty below projection.

Climber

@Scofflaw

We should agree to pay back the Promissory note, over 80 years.
Eventually the issued money will get extinguished thus satisfying Germanic anti-inflationary fiscal policy.

In the mean time the promissory note will be viewed as "off balance sheet", thereby reducing the national debt and giving us some room to maneover in creating conditions for economic growth.

None of this will be done however:mad: as our TD's are gombeen parish pumpers.