Why has public debt not fallen under the troika programme?

Our deficit has indeed come down. It was always planned as a gradual thing though, never the intention to bring it zero in a few years.

We have a huge debt which we need to pay off. A big portion of it is because of the bankers. Something like 120 billion (not 100% on the amount though).

So that's like our fixed problem. Big debt.

Then there is our year problem. What we earn.

This is why we have been cutting 3-5 billion from the country budget each year. We were spending something like 20billion but only earning 10billion (again, not exactly sure of the figures but you get the idea) that meant we were adding to the 120 fixed problem.

So, with each cutting budget, we get closer to no longer being adding to our big debt. Like this:
Year 1: 20 - 10 = 10 adding to big debt
Year 2: Budget Cut of 3 so 17 - 10 = 7 adding to big debt
Year 3: Budget Cut of 3 so 14 - 10 = 3 adding to big debt
Year 4: Budget Cut of 3 so 11 - 10 = 1 adding to big debt
Year 5: Budget Cut of 3 so 9 - 10 = 1 being taken off the big debt

If we get the bank debt moved over to one of the euro things ESM or EFSF or ECB or whatever, then our big debt will come down but maybe to 40-60 billion. Either way though, we still have the big debt.

This is why the politicians want to go back to the "markets" :rolleyes:. If we can do that, we can "roll over" the big debt. We pay off some of the old big debt we our earnings but we can borrow new big debt from the markets and spend that now.

As you can imagine, that would mean no more tax hikes or social welfare cuts. Politicians love that because they would then get votes because they'd be spending money on the country again.

It'd kinda be funny if we completely cleared all our debts and balanced our books. The markets would probably offer shed loads of cash. You can only imagine how giddy the politicians would probably get in a situation like that. Completely not gonna happen though because buying votes today is more important than anything to politicians

mariaalice wrote: »

If we are sticking to what the Troica wants how come out public debt has not come down.

One contributor (in no small part) is the punitive rate of interest being charged as part of our program

Heads the ball wrote: »

One contributor (in no small part) is the punitive rate of interest being charged as part of our program

No, the rates are very far from punitive - they are roughly (at comparable maturities):

EFSM 2.97%
EFSF 3.06%
IMF 4.79%
UK 4.83%

Source: http://debates.oireachtas.ie/dail/2011/11/17/00058.asp

The high rates you refer to were dropped a short time after the start of the programme, and were never charged.

cordially,
Scofflaw

Scofflaw wrote: »

No, the rates are very far from punitive - they are roughly (at comparable maturities):

EFSM 2.97%
EFSF 3.06%
IMF 4.79%
UK 4.83%

Source: http://debates.oireachtas.ie/dail/2011/11/17/00058.asp

The high rates you refer to were dropped a short time after the start of the programme, and were never charged.

cordially,
Scofflaw

This is wrong for the following reason.

When compared to the euribor rate that the ecb lends to banks (and lets face it we really only needed the bailout as propping up the banks pushed us over the edge), that rate is less than 1pc so in comparison it is punitive.

Scofflaw wrote: »

Heads the ball wrote: »

This is wrong for the following reason.

When compared to the euribor rate that the ecb lends to banks (and lets face it we really only needed the bailout as propping up the banks pushed us over the edge), that rate is less than 1pc so in comparison it is punitive.

Whether the banks "pushed us over the edge" or not, the money that is being supplied through the bailout facility is primarily for the government deficit - indeed, none of the bailout money made available to the banks has actually been used for the banks at all. And were the bailout not available the government would not be borrowing on euribor either to meet the deficit or to put money into banks.

So comparing the bailout rate to euribor is entirely spurious.

cordially,
Scofflaw

Its far from spurious,its apt as government debt is tied to the banks capital requirements. While the government could not borrow at euribor, the banks would typically borrow at euribor.

To artificially separate government and bank debt here is incorrect

Heads the ball wrote: »

Its far from spurious,its apt as government debt is tied to the banks capital requirements. While the government could not borrow at euribor, the banks would typically borrow at euribor.

To artificially separate government and bank debt here is incorrect

Banks cannot borrow capital, which is what the government put into the banks. To claim that the two are really the same suggests an almost complete misunderstanding of everything about the crisis.

cordially,
Scofflaw

Heads the ball wrote: »

This post is way wide of th mark and ignores the basic fact the the cost of funds in europe is less than 1pc and our interest rate is far in excess of that. Thats a basic undenial fact and it cant be argued otherwise

It can't be denied that one number is bigger than the other, but it's meaningless because apples and oranges are being compared.

cordially,
Scofflaw

Sponge Bob wrote: »

Like the fiction that we only used 'our' money to 'invest' in the banks on behalf of the state.

I know - we've discussed that one at length, and it is strictly an accounting fiction. Nevertheless, it's an important accounting fiction both in terms of ownership of the banks (and thus responsibility for their debts), and in terms of the costs and mechanisms of raising the money in question.

If the government puts capital into the banks from "Exchequer cash", that capital is in fact borrowed money - but it is money borrowed by the government, not by the banks, making euribor or ECB rates to banks irrelevant. When it is put into place in the banks as capital, it is not, from the perspective of the banks, borrowed money, because they are not borrowing it.

The Irish banks have, of course, borrowed far extensively than the government since the start of the crisis, through the ECB and Central Bank ELA programmes, and that borrowing has been done at the low ECB rates Heads The Ball wants to compare governmental borrowing rates to - but the banks cannot borrow capital.

Sponge Bob wrote: »

The Troika is a stabilisation and sanitation programme. It is not a net debt reduction programme. It aims to apply a brake over a period of years ending around 2014 or 2015.

That reduction programme would be the post 2015 era where we are straitjacketed by the ESM. I would point out that we never reduced the debt we accrued up to 1987 and then accounting for 100% of GDP/GNP. We 'inflated' it out of meaning instead.

Well, inflated it on the one hand and grew the economy on the other - but, yes, we didn't pay it down in absolute terms. Nor are we expecting to pay down the current debts either.

cordially,
Scofflaw

Sponge Bob wrote: »

If we repeat what we did between 1987 and 2007 we will freeze the debt at a HIGH level and progressively reduce the cost of servicing it but without ever paying it off.

If the troika scheme works we will be left with a stable €130-€140bn of Government debt which will continue to exist as long as we live. We inherited €30bn of that from the 1987 debt which was rolled over and over for the following 20 years...but at progressively lower servicing costs ( from 10% interest down to 2% over the years) . The 'other' €100-110bn of debt will have been incurred from 2008 to 2014.

Our chances of inflating the enhanced load out of significance are much lower than our chances were in the early 1990s. The economy will simply not grow as fast as it did in the 1990s.

That's likely the case - which means we're unlikely to see the debt/GDP ratio reduced from 95% to 35% over 7 years, as we did in 1994-2001. On the other hand, that's an extraordinary rate of reduction, and even a third of such a rate would diminish our debt/GDP ratio within 20 years.

So while we would be handing on the full debt to our children, it would proportionally be a very much smaller burden to them than to us.

cordially,
Scofflaw

Sponge Bob wrote: »

Yes but the 1987 era public debt reduced to 65% of GDP within 11 years ( 1998) and shot below the key 60% ESM Constraint Ratio by around early 1999. So it took 12 years to get into what we accept is the comfort zone. It progressively dropped to 25% of GDP in 2007. All the while it remained constant at around €30bn. We also reduced €1.3bn of quasi public eircom debt to €0 in that period up to 1998.

One other iimportant fact that people seem not to notice is that 100% of GDP in 1987 was around 110% of GNP. Debt service Payments come out of GNP more than GDP which is largely an accounting fiction in this country. Our legacy 1987 debt reached 60% of GNP in perhaps 2000. I never worked out the exact figures and, instructively, neither has anyone else.

In 2015 100% of GDP will equal around 130% of GNP or more seeing as GNP is still dropping while GDP shows signs of stabilising.

We are already, relatively, as indebted as we were in 1987 by the GNP measure, probably since 2011 in fact, and this situation will dismprove further over the next 2-3 years.

It will take at least 25 years ( from 2015) to get to that 60% level again once adjusted for GNP.

And that is aside from the necessary rework of the Tracker mortgage loan books into some class of SPV in order to get our banking turds into self financing mode.

There's a couple of different points in there. Debt/GDP is the statistic people look at, because all of GDP is potentially taxable. In Ireland the gap between GDP and GNP is taxed through corporation tax, which has of course become a sacred cow in Irish public debate - however, one cannot simply wave away the money in the gap between GDP and GNP as if it wasn't part of Ireland's tax base, because it is not only a potential part of that tax base, but an actual part of it.

cordially,
Scofflaw

Scofflaw wrote: »

Heads the ball wrote: »

Look im not going to have another one of these arguments with you. I have made my points above and your response doesnt address them. Im not going to have a "black is white" argument.

Back on point, the punitive interest rate has been a factor in our debt problems.

You can't avoid having a "black is white" argument, because you're the one claiming it. Your claim that the troika rates are "punitive" is based on comparing them to completely irrelevant rates.

The only other source for the money that went into the banks is the markets, and their rates are higher than the troika rates, not lower. The euribor rate is not relevant, because it is not the banks that are borrowing to provide the capital the government has put into them, nor could they do so.

And yes, every time you make the claim you'll get challenged on it, because it's utter rubbish.

regards,
Scofflaw

I'll try this once more and then im leaving it.

The ECB issues money to banks at 1%. Given that a lot of the governments needs was directly for the banks ilt is only fair to look at the destination for the cash and apply the relevant rate.

Sometines its important to look beyond the pure legal form of the transaction (the government is the borrower) and look at the substance of the transaction (that the money is meerley going "through" the government. This principle of substance over form is widely used and accepted in financial and accounting worlds).

What you are doing (repeatedly saying the government is the borrower*) is fine but its just an unsophisticated mantra that adds no value and neglects the substance of the transaction. In fact what you are doing is similar to what happened with the US mortgage crises: poor quality mortgages were wrapped into vehicles and stamped as "triple A". But they could never be triple A as they were junk in substance.

S* for the record i dont dispute it

If you dont agree with my analysis thats fine but please dont refer to it as rubbish when all you have is "the government borrowed it"

and for the record the cost of funds in europe is not an irrelant figure.