[…] to Fintan O'Toole's piece in last week's Irish Times on becoming serfs to Anglo and the banks: Irish people no better off now than during Black Death, and other stories […]
Thank God we’re past the good ole days. Life now, even in the recession, is better for everybody than it was a century ago. Progress – things tend to improve.
Ciaran Daly
,
O’Toole and Browne are, in my opinion, out and out socialists whose views seem to be followed by a some of the middle class in south Dublin anyway. Their understanding of “equality” is bizarre and tantamount to socialism.
I agree with a lot of the positive sentiments of your piece above. What I would say though is that if the national debt cannot be kept below 80% of GDP, and the bank bailout doesn’t help, then we will surely go into a debt deflation trap.
As a matter of principle, surely having to pay off someone else’s debt is on the slippery road to serfdom, a far away place from real serfdom as you say, but in principle, working off a debt you don’t owe is immoral.
Hayek is always worth a read.
Jaded
,
Sure its not as bad as all that if you still have your job, mortgage rates stay low and the government remains able to fund essential services… Just how long do you think that’s likely to be though?
Very interesting version of NAMA too btw. Its the very convenient way of calculating the cost which fails to take into account any reality that I would recognize. Keep up the propaganda and soon you won’t be an independent economist. Hell, with this kind of spin you’ll be a certainty for some government, sorry I meant debt funded job…
bonjai
,
Good article as ever Ronan, just a quick question, does the 10% tax rate that the average citizen pays include the rate of VAT paid on each transaction? Agreed the lowest paid in Ireland pay virtually no tax but if someone earning 250K pays the same VAT on a can of beans as someone on social welfare then this surely represents a significant skew on figures and a very regressive taxation system? Surely this is a major problem with regard to the Irish taxation system, that the poor pay the same levy as the super-rich with regard to necessities in order to keep actual income tax low?
@Jaded
“Very interesting version of NAMA too btw. Its the very convenient way of calculating the cost which fails to take into account any reality that I would recognize.”
Two things:
(1) I’m probably one of the most vociferous critics of NAMA – have a look around this site for previous posts and see if you still think this is ‘propaganda’.
(2) How would you calculate the costs of NAMA? I’m interested in constructive criticism.
@bonjai
Including VAT for Ireland means you’d have to do the same for all OECD countries and Ireland’s rate is more or less in the middle of the OECD, so our huge ‘lead’ in direct taxation would not be altered by including indirect taxation.
Thanks for the comment, though – useful to have out in the open,
R
Mack
,
Hi Ronan,
Great article! The scale of recurring fiscal deficit appears to be much larger than the total bank bailout cost. So many newspaper articles seem to sloppily add the recap costs to the cost of purchasing the Nama loans and trumpet that as the total cost (ignore that there’ll be at least *some* return on the Nama investment – Constantin Gurdgiev estimated between around €2bn-22bn loss, I presume Alan Ahearne, Brian Lenihan feel it will make a profit).
Just a short comment on that – I think the recap costs including Anglo are estimated to come in at €33 bn rather than the €3bn on your graph. Still dwarfed by the fiscal deficit.
The software industry in Ireland definetely seems to have turned the corner. Many firms expanding now.
Hi Mack,
Thanks for the comment – as per Nat O’Connor’s original figures, I only included the “deadweight losses” figures for the various items in the graph (his methodology – or possibly even the Indo’s whence his idea came). Therefore, the costs for Anglo recapitalisation are purely the debt-servicing costs, not principal repayment, in the belief (as stated by the government) that the bank will actually be worth something (i.e. what we’ve paid for it) at the end of the process.
In truth, as you point out, the lost-and-never-to-reappear money will probably be somewhere between your figure and the one in the graph.
R
Notably asbsent from popular discussion is the reality that fiscal adjustment and Nama are two distinct processes.
I’m worried about delays (and potential barriers) to fiscal adjustment, given the historical lesson of how damaging it can be for the Irish Govt. to finance current expenditure through borrowing.
I think you and I (and many others) agree on many things, including the unfairness of Nama; but also the need for fiscal adjustment. For the former to over-shadow the latter is definitely a major disappointment.
The NAMA exchange as I understand it (you might clarify) is that the banks give (property-related) loans to NAMA. In return, NAMA gives the banks Irish government bonds. The ECB gives the banks cash in return for the Irish government bonds that the banks have newly acquired.
If the performance of the (property-related) loans held by NAMA does not provide enough finance to pay out to the ECB on the bonds that they hold, then the Irish taxpayer must cover the rest of the debt to the ECB.
What I am driving at is that this convolution is a hell of a lot different to the standard issuance of government bonds. To cut to the chase, the nuanced ECB involvement in NAMA is lost on those who persist with the idea that “NAMA money” could somehow be used to prevent cutbacks. NAMA money is not available for anything besides NAMA, so to speak.
Returning to my concern about delays (and potential barriers) to fiscal adjustment, what I particularly fear is a re-run of the late 1970’s and the 1980’s. The solution back then was the “Tallaght Strategy”. Unfortunately it was introduced years after it was needed; and years after unemployment (and migration) did serious damage.
In my view, there is not enough attention being focused on Ireland’s dead-end debt-trap during the 1980’s, when unemployment hit 17%, emigration was par for the course, and the IMF were about to step in. A great reference is “Catching Up With the Leaders: the Irish Hare” by Honohan and Walsh: http://homepage.eircom.net/~phonohan/Brookings.pdf
In my view we never recovered until World Cup ’94. The Tallaght Strategy in 1987 set us on a good path, and things were looking good during World Cup ’90. However, it took the devaluation of ’93 (and the subsequent float of the currency) to really set us off, IMO.
We don’t have a currency to worry about now, but there are two lessons from the 70’s/80’s: 1. Do not prop up an overvalued currency (think of sterling weakening in 1986). 2. Do not borrow to fund current spending. There is of course much concern about our property market. We would do well if we can break the obsession with property, and avoid propping up an overvalued (“long-term”) market.
Now of course, we need to get the macroeconomics of fiscal adjustment right; and if we don’t my fear is that we could push the unemployment rate closer to its earlier peak of 17.1%. In this regard, another useful reference is Philip Lane’s paper on fiscal strategy: http://www.esr.ie/Vol40_2/Vol%2040-2-Lane.pdf
It draws a useful distinction between what one would ideally do, and what one sometimes must do in order to be responsible. The fact is that in 2009 the Government realised it would need to borrow €11bn just to cover day-to-day spending. That €11bn was approximately one sixth of all spending that year, and roughly three times the size of loans that we were paying off. Uh-oh, now we were borrowing to make our loan re-payments; even worse than borrowing for current spending!
Furthermore, as the Bord Snip (Nua) report notes, there were fears that the enormous volume of planned sovereign debt issuance (on a global basis) could lead to higher long-term bond rates. As the Greek situation unfolds, that concern about higher costs of borrowing is certainly no fantasy. On the front page of the NYT today, there is a story about Bernanke saying that the U.S. deficit will have to be reigned in: http://www.nytimes.com/2010/04/15/business/economy/15fed.html?hp
In the Irish case, the projections (that I am aware of) indicate that the cost of paying off our loans will be €11bn in 2013. The overall Govt. deficit was projected to be €20bn for 2009; we now know that it was €25bn. To put that (€25bn) figure in context, it’s getting close to double the amount of money spent on public sector pay.
[…] into trying to protect the wealth of the oligarchs. Oh my, if that's what you think… …NAMA/pouring our wealth at the oligarchs is only the side show when it comes to our public sector bo…. Best case scenario with banking sector, we make a profit. Absolute worst case scenario by 2020, we […]
[…] into serfs". Great that Fintan's not short on anger, pity he's missed all perspective… Irish people no better off now than during Black Death, and other stories | Ronan Lyons […]
Reference Fintan O’Toole: The Irish Times wouldn’t habitually commission an economist or an accountant to write controversial articles on, say, theatre or art, where these are outside their sphere of competence. So why does it regularly publish economically illiterate articles on finance matters, written by a social and arts commentator, however brilliant he may be in those fields? http://puckstownlane.wordpress.com/2010/04/09/fintan-otoole-should-steer-clear-of-numbers/
Oh don’t worry, I’ve been reliably informed that it was humiliation rather than the economy which was the point of his article! Perhaps he’s qualified to talk about that?
[…] For those who want to delve deeper in to the reasons why we are no.1 for lack of Jobs Irish people no better off now than during Black Death, and other stories | Ronan Lyons I don't think Ronan agrees with you & he's helpfully linked on the FFers site . […]
yeah, the Irish nation is approx 2.5 trillion in debt. Nama experiment is a twisting of market place logic and interference with the market place to our long term detriment. Saving of Anglo is a raid upon taxpayers.”debt servicing costs for the bailout” according to Corrigan of NAMA speaking to the oireachtas yesterday are expanding as we speak.
I found your quote “You could be forgiven for going back to Maddison’s historical statistics and double-checking that, controlling roughly for changes in spending power, Irish people are about 30 times better off per capita than they were in 1820.” particularly amusing given that 1820 was not saddled with our debt obligations.
To argue we are rich while ignoring our borrowings is, frankly, rather sad.
Give me Fintan O Toole anyday over your myopic interpretation of a strictly 2 dimensional world of facts and figures. We live in a 3 dimensional world. Fact is NAMA and saving Anglo plus the balance of payments debt, sovereign debt response has been woeful for Ireland going forward into the future. This is a dynamic situation, the effects of these decisions impact the future and they will come back to haunt us in the future. Its this incremental damage you ignore.
Unfortunately, Colm, there’s no way of having a meaningful discussion as each is going to try and paint the other as not seeing the bigger picture. In the off chance I can reach you, or anyone else who’s reading the comments:
– your €2,500bn in debt is presumably a gross liabilities figure – what’s on the asset side? (Also, sure if we’re €2,500bn in debt another 1% or so on the banks is hardly a problem!)
– the 2010-1820 comparison was income not wealth, so it’s in fact probably the most important statistic if we have to pay back our borrowings (particularly as your method of calculation excludes current wealth!).
– on your point about the situation being dynamic, have a look at the latest figures – Ireland is moving into balance of payments surplus. It’s the government that is in debt.
Mack
,
@Colm –
Would be good to get more info on that.
According to the Central Bank Ireland has an external debt of €1.1 trillion of which of which the bulk is due to entities trading in the IFSC (€789.1 billion) most of whom are foreign and are not relying on Irish economic activity to pay back those loans.
E.g A foreign bank sets up a subsiduary in Dublin and (perhaps because of laxer regulatory standards) books some of its debt in Ireland. Whether the firm pays it’s loans back (which were possibly borrowed and spent outside this state) shouldn’t really affect us.
Ronan – “The bad scenario is where this doesn’t happen (sound likely?!) and the current deficit of about €19bn persists until 2014.”
What happens then?
How does this tie up with what Damien Kiberd was saying in the Sunday Times today? Are your figures and his in synch?
He’s saying we will have a gross national debt-to-GDP ratio of up to 120% in 2011 and I think he’s saying that based on the government cutting its deficit from 12 to 3% of GNP (though I presume that won’t actually happen until 2014 if it happens at all).
Cathal
,
Excellent article Ronan. You have written a great riposte to the jeremiads who have seized on our current woes to predict that all we have is going to be lost.
These people seem to have forgotten that countries have encountered much worse recessions than even ours. Why even now Ireland’s recession isn’t the worst – Estonia and Latvia have seen larger declines. Moreover, Ireland’s recession is merely one of a series which have occurred over time. Indeed Finland’s collapse after 1990 and the Asian crisis of 1998 were worse than what we are experiencing now. Those countries recovered and so will we.
Furthermore, you mention that it is government debt which is the problem, not the costs of NAMA, and I would agree with that given that, as you illustrate, the numbers are so much higher. However, at the same time the Irish government is piling on debt, Irish households and businesses are paying it down. Irish personal debt will fall by about 15% of GDP over the next 5 years as we de-leverage. This will balance out the rise in public debt and lead to us being a net lender to the world.
In finality, while Ireland is facing similar issues on the bond market to Portugal, Greece, Italy and Spain; we are unique amongst that group in our openness to the world economy. We are also unique in our productivity, our flexibility and our quality as workers and entrepreneurs. None of those countries have as favourable demographics as us. It is because of these distinguishing characteristics that we are far better placed to grow our way out of recession than these other countries.
How do you think we can pay back such tremendous sums?
I expect the msm to make great play over the next few years, of every EZ country’s weakness. It will help to devalue the Euro. The debt will be reduced by this process? Beggar thy neighbour is not attractive, but will it be effective?
In one sense the protaganist is correct as we are saddled with massive debt that will require generations to work off. NAMA, we agree is a waste of capital. I would love to beleive that so little will be lost to this venture, designed to enable us to enhance our ability to borrow more and more.
Was that not how this generational problem was contracted? How does debt free us?
Harry Rubin
,
This is a very well written article and shows a good grasp of the high level picture of the economy. Your Anglo estimates are too optimistic. At least 20bn is going down that hole.
I am very impressed with your analysis in general and I think you have a fine career ahead of you!
kevin denny
,
O Toole’s piece was obviously very rhetorical, I don’t think you should be too hard on him or take him too literally. It was expressing anger at the mess we’re in. As long as he is not emigrating himself he can’t think its that bad.
I share the concern about an Arts writer talking about economics matters but clearly neither Fintan nor the IT sees him in such a narrow role.
Which is the bigger worry - NAMA or budget deficit? ,
[…] to Fintan O'Toole's piece in last week's Irish Times on becoming serfs to Anglo and the banks: Irish people no better off now than during Black Death, and other stories […]
Shane ,
Lovely – I agree. Another two statistics to throw into the mix: life expectancy and infant mortality.
1906
Infant mortality: 93/1000
Life expectancy: 52 years
2006
Infant mortality: 4/1000
Life expectancy: 79
http://www.bit.ly/aWdFvb
Thank God we’re past the good ole days. Life now, even in the recession, is better for everybody than it was a century ago. Progress – things tend to improve.
Ciaran Daly ,
O’Toole and Browne are, in my opinion, out and out socialists whose views seem to be followed by a some of the middle class in south Dublin anyway. Their understanding of “equality” is bizarre and tantamount to socialism.
I agree with a lot of the positive sentiments of your piece above. What I would say though is that if the national debt cannot be kept below 80% of GDP, and the bank bailout doesn’t help, then we will surely go into a debt deflation trap.
As a matter of principle, surely having to pay off someone else’s debt is on the slippery road to serfdom, a far away place from real serfdom as you say, but in principle, working off a debt you don’t owe is immoral.
Hayek is always worth a read.
Jaded ,
Sure its not as bad as all that if you still have your job, mortgage rates stay low and the government remains able to fund essential services… Just how long do you think that’s likely to be though?
Very interesting version of NAMA too btw. Its the very convenient way of calculating the cost which fails to take into account any reality that I would recognize. Keep up the propaganda and soon you won’t be an independent economist. Hell, with this kind of spin you’ll be a certainty for some government, sorry I meant debt funded job…
bonjai ,
Good article as ever Ronan, just a quick question, does the 10% tax rate that the average citizen pays include the rate of VAT paid on each transaction? Agreed the lowest paid in Ireland pay virtually no tax but if someone earning 250K pays the same VAT on a can of beans as someone on social welfare then this surely represents a significant skew on figures and a very regressive taxation system? Surely this is a major problem with regard to the Irish taxation system, that the poor pay the same levy as the super-rich with regard to necessities in order to keep actual income tax low?
Broading out the bank bailout narrative « Ireland jailbreak Blog ,
[…] Irish people no better off now than during Black Death, and other stories | Ronan Lyons […]
Holbrook Fields ,
Great post, a really clear exposition of the bigger picture and a much needed riposte to the polemics of O’Toole.
Ronan Lyons ,
@Jaded
“Very interesting version of NAMA too btw. Its the very convenient way of calculating the cost which fails to take into account any reality that I would recognize.”
Two things:
(1) I’m probably one of the most vociferous critics of NAMA – have a look around this site for previous posts and see if you still think this is ‘propaganda’.
(2) How would you calculate the costs of NAMA? I’m interested in constructive criticism.
Ronan Lyons ,
@bonjai
Including VAT for Ireland means you’d have to do the same for all OECD countries and Ireland’s rate is more or less in the middle of the OECD, so our huge ‘lead’ in direct taxation would not be altered by including indirect taxation.
Thanks for the comment, though – useful to have out in the open,
R
Mack ,
Hi Ronan,
Great article! The scale of recurring fiscal deficit appears to be much larger than the total bank bailout cost. So many newspaper articles seem to sloppily add the recap costs to the cost of purchasing the Nama loans and trumpet that as the total cost (ignore that there’ll be at least *some* return on the Nama investment – Constantin Gurdgiev estimated between around €2bn-22bn loss, I presume Alan Ahearne, Brian Lenihan feel it will make a profit).
Just a short comment on that – I think the recap costs including Anglo are estimated to come in at €33 bn rather than the €3bn on your graph. Still dwarfed by the fiscal deficit.
The software industry in Ireland definetely seems to have turned the corner. Many firms expanding now.
Ronan Lyons ,
Hi Mack,
Thanks for the comment – as per Nat O’Connor’s original figures, I only included the “deadweight losses” figures for the various items in the graph (his methodology – or possibly even the Indo’s whence his idea came). Therefore, the costs for Anglo recapitalisation are purely the debt-servicing costs, not principal repayment, in the belief (as stated by the government) that the bank will actually be worth something (i.e. what we’ve paid for it) at the end of the process.
In truth, as you point out, the lost-and-never-to-reappear money will probably be somewhere between your figure and the one in the graph.
R
Martin Ryan ,
Ronan,
You raise some very important issues.
Notably asbsent from popular discussion is the reality that fiscal adjustment and Nama are two distinct processes.
I’m worried about delays (and potential barriers) to fiscal adjustment, given the historical lesson of how damaging it can be for the Irish Govt. to finance current expenditure through borrowing.
I think you and I (and many others) agree on many things, including the unfairness of Nama; but also the need for fiscal adjustment. For the former to over-shadow the latter is definitely a major disappointment.
The NAMA exchange as I understand it (you might clarify) is that the banks give (property-related) loans to NAMA. In return, NAMA gives the banks Irish government bonds. The ECB gives the banks cash in return for the Irish government bonds that the banks have newly acquired.
If the performance of the (property-related) loans held by NAMA does not provide enough finance to pay out to the ECB on the bonds that they hold, then the Irish taxpayer must cover the rest of the debt to the ECB.
What I am driving at is that this convolution is a hell of a lot different to the standard issuance of government bonds. To cut to the chase, the nuanced ECB involvement in NAMA is lost on those who persist with the idea that “NAMA money” could somehow be used to prevent cutbacks. NAMA money is not available for anything besides NAMA, so to speak.
Returning to my concern about delays (and potential barriers) to fiscal adjustment, what I particularly fear is a re-run of the late 1970’s and the 1980’s. The solution back then was the “Tallaght Strategy”. Unfortunately it was introduced years after it was needed; and years after unemployment (and migration) did serious damage.
In my view, there is not enough attention being focused on Ireland’s dead-end debt-trap during the 1980’s, when unemployment hit 17%, emigration was par for the course, and the IMF were about to step in. A great reference is “Catching Up With the Leaders: the Irish Hare” by Honohan and Walsh: http://homepage.eircom.net/~phonohan/Brookings.pdf
In my view we never recovered until World Cup ’94. The Tallaght Strategy in 1987 set us on a good path, and things were looking good during World Cup ’90. However, it took the devaluation of ’93 (and the subsequent float of the currency) to really set us off, IMO.
We don’t have a currency to worry about now, but there are two lessons from the 70’s/80’s: 1. Do not prop up an overvalued currency (think of sterling weakening in 1986). 2. Do not borrow to fund current spending. There is of course much concern about our property market. We would do well if we can break the obsession with property, and avoid propping up an overvalued (“long-term”) market.
Now of course, we need to get the macroeconomics of fiscal adjustment right; and if we don’t my fear is that we could push the unemployment rate closer to its earlier peak of 17.1%. In this regard, another useful reference is Philip Lane’s paper on fiscal strategy: http://www.esr.ie/Vol40_2/Vol%2040-2-Lane.pdf
It draws a useful distinction between what one would ideally do, and what one sometimes must do in order to be responsible. The fact is that in 2009 the Government realised it would need to borrow €11bn just to cover day-to-day spending. That €11bn was approximately one sixth of all spending that year, and roughly three times the size of loans that we were paying off. Uh-oh, now we were borrowing to make our loan re-payments; even worse than borrowing for current spending!
Furthermore, as the Bord Snip (Nua) report notes, there were fears that the enormous volume of planned sovereign debt issuance (on a global basis) could lead to higher long-term bond rates. As the Greek situation unfolds, that concern about higher costs of borrowing is certainly no fantasy. On the front page of the NYT today, there is a story about Bernanke saying that the U.S. deficit will have to be reigned in: http://www.nytimes.com/2010/04/15/business/economy/15fed.html?hp
In the Irish case, the projections (that I am aware of) indicate that the cost of paying off our loans will be €11bn in 2013. The overall Govt. deficit was projected to be €20bn for 2009; we now know that it was €25bn. To put that (€25bn) figure in context, it’s getting close to double the amount of money spent on public sector pay.
If we cannot tax the rich, how can we guarantee their deposits with extra debt? - Page 8 ,
[…] into trying to protect the wealth of the oligarchs. Oh my, if that's what you think… …NAMA/pouring our wealth at the oligarchs is only the side show when it comes to our public sector bo…. Best case scenario with banking sector, we make a profit. Absolute worst case scenario by 2020, we […]
For the next 10 years you will be working one day a week to pay for the Bank bailouts - Page 4 ,
[…] into serfs". Great that Fintan's not short on anger, pity he's missed all perspective… Irish people no better off now than during Black Death, and other stories | Ronan Lyons […]
M Collins ,
Reference Fintan O’Toole: The Irish Times wouldn’t habitually commission an economist or an accountant to write controversial articles on, say, theatre or art, where these are outside their sphere of competence. So why does it regularly publish economically illiterate articles on finance matters, written by a social and arts commentator, however brilliant he may be in those fields?
http://puckstownlane.wordpress.com/2010/04/09/fintan-otoole-should-steer-clear-of-numbers/
Ronan Lyons ,
Oh don’t worry, I’ve been reliably informed that it was humiliation rather than the economy which was the point of his article! Perhaps he’s qualified to talk about that?
Forbes.com rates Ireland as no. 1 in 'World's Worst Countries For Jobs.' - Page 2 ,
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Colm Brazel ,
yeah, the Irish nation is approx 2.5 trillion in debt. Nama experiment is a twisting of market place logic and interference with the market place to our long term detriment. Saving of Anglo is a raid upon taxpayers.”debt servicing costs for the bailout” according to Corrigan of NAMA speaking to the oireachtas yesterday are expanding as we speak.
I found your quote “You could be forgiven for going back to Maddison’s historical statistics and double-checking that, controlling roughly for changes in spending power, Irish people are about 30 times better off per capita than they were in 1820.” particularly amusing given that 1820 was not saddled with our debt obligations.
To argue we are rich while ignoring our borrowings is, frankly, rather sad.
Give me Fintan O Toole anyday over your myopic interpretation of a strictly 2 dimensional world of facts and figures. We live in a 3 dimensional world. Fact is NAMA and saving Anglo plus the balance of payments debt, sovereign debt response has been woeful for Ireland going forward into the future. This is a dynamic situation, the effects of these decisions impact the future and they will come back to haunt us in the future. Its this incremental damage you ignore.
Ronan Lyons ,
Unfortunately, Colm, there’s no way of having a meaningful discussion as each is going to try and paint the other as not seeing the bigger picture. In the off chance I can reach you, or anyone else who’s reading the comments:
– your €2,500bn in debt is presumably a gross liabilities figure – what’s on the asset side? (Also, sure if we’re €2,500bn in debt another 1% or so on the banks is hardly a problem!)
– the 2010-1820 comparison was income not wealth, so it’s in fact probably the most important statistic if we have to pay back our borrowings (particularly as your method of calculation excludes current wealth!).
– on your point about the situation being dynamic, have a look at the latest figures – Ireland is moving into balance of payments surplus. It’s the government that is in debt.
Mack ,
@Colm –
Would be good to get more info on that.
According to the Central Bank Ireland has an external debt of €1.1 trillion of which of which the bulk is due to entities trading in the IFSC (€789.1 billion) most of whom are foreign and are not relying on Irish economic activity to pay back those loans.
http://www.finfacts.ie/irishfinancenews/article_1019228.shtml
E.g A foreign bank sets up a subsiduary in Dublin and (perhaps because of laxer regulatory standards) books some of its debt in Ireland. Whether the firm pays it’s loans back (which were possibly borrowed and spent outside this state) shouldn’t really affect us.
This week I mostly loved… « Metro Chica ,
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Joseph ,
Ronan – “The bad scenario is where this doesn’t happen (sound likely?!) and the current deficit of about €19bn persists until 2014.”
What happens then?
How does this tie up with what Damien Kiberd was saying in the Sunday Times today? Are your figures and his in synch?
He’s saying we will have a gross national debt-to-GDP ratio of up to 120% in 2011 and I think he’s saying that based on the government cutting its deficit from 12 to 3% of GNP (though I presume that won’t actually happen until 2014 if it happens at all).
Cathal ,
Excellent article Ronan. You have written a great riposte to the jeremiads who have seized on our current woes to predict that all we have is going to be lost.
These people seem to have forgotten that countries have encountered much worse recessions than even ours. Why even now Ireland’s recession isn’t the worst – Estonia and Latvia have seen larger declines. Moreover, Ireland’s recession is merely one of a series which have occurred over time. Indeed Finland’s collapse after 1990 and the Asian crisis of 1998 were worse than what we are experiencing now. Those countries recovered and so will we.
Furthermore, you mention that it is government debt which is the problem, not the costs of NAMA, and I would agree with that given that, as you illustrate, the numbers are so much higher. However, at the same time the Irish government is piling on debt, Irish households and businesses are paying it down. Irish personal debt will fall by about 15% of GDP over the next 5 years as we de-leverage. This will balance out the rise in public debt and lead to us being a net lender to the world.
In finality, while Ireland is facing similar issues on the bond market to Portugal, Greece, Italy and Spain; we are unique amongst that group in our openness to the world economy. We are also unique in our productivity, our flexibility and our quality as workers and entrepreneurs. None of those countries have as favourable demographics as us. It is because of these distinguishing characteristics that we are far better placed to grow our way out of recession than these other countries.
Pat Donnelly ,
These figures , in the graph, frighten me!
How do you think we can pay back such tremendous sums?
I expect the msm to make great play over the next few years, of every EZ country’s weakness. It will help to devalue the Euro. The debt will be reduced by this process? Beggar thy neighbour is not attractive, but will it be effective?
In one sense the protaganist is correct as we are saddled with massive debt that will require generations to work off. NAMA, we agree is a waste of capital. I would love to beleive that so little will be lost to this venture, designed to enable us to enhance our ability to borrow more and more.
Was that not how this generational problem was contracted? How does debt free us?
Harry Rubin ,
This is a very well written article and shows a good grasp of the high level picture of the economy. Your Anglo estimates are too optimistic. At least 20bn is going down that hole.
I am very impressed with your analysis in general and I think you have a fine career ahead of you!
kevin denny ,
O Toole’s piece was obviously very rhetorical, I don’t think you should be too hard on him or take him too literally. It was expressing anger at the mess we’re in. As long as he is not emigrating himself he can’t think its that bad.
I share the concern about an Arts writer talking about economics matters but clearly neither Fintan nor the IT sees him in such a narrow role.
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john ,
well now really with all the facts we are not that bad of people really