IT - Irish bailout cheapest in world, says Lenihan

Yes Brian. Other countries are not pouring billions and billions of taxpayers’ money into bankrupt property developers using State backed subprime loans.

Well Done Brian!!!

… unfortunately you get what you pay for … Things are going to get much worse

Article says:

Note … 07658.html

How did they calculate the bail out cost to the NTMA of €500 mil per year when there is so much uncertainty in government bond markets?

As Morgan Kelly states in his Irish Times article entitled “Things are going to get much worse”: … 15931.html

The Irish banks have all missed the boat in terms of recapitalising via a rights issue.

I wonder if the government will also miss the boat in terms of bond issuance.

You betcha. It’s already too late.

One important thing they quietly sidestep is the increased risk premium Irish taxpayers need to fork out for public debt. The spread over Germen boands has widened by around 50 basis points. That implies a cost. How much? Well, on the current stock of gross debt for this year, which will be around €70bn we can work out the mark to market cost roughly as being

= change in spread x duration x stock of debt

= 0.005 x 10 (years) x €70
= €3.5bn

So the guarrantee instantly cost €3.5bn. But more realistically, this is going to apply to at least €100bn, so we really are talking about €5bn.

That would be comparable to a cost of €75bn for the UK. Of course, the UK government isn’t guaranteeing all the liabilities of the banking system (despite what Ask Stupid About Money claims) so they aren’t paying an increased premium on government debt.

And remember taxpayers don’t get anything back for this. In the UK, taxpayers get interest payments where the government has taken preference shares and own a share of the companies where they have taken equity stakes.

SO to claim Ireland’s approach was the “cheapest” is just more cute hooring. It was/is very expensive (as all these bail outs are), but offers no rpotential cost recovery (where all the other schemes typically do).

An Open Letter to Irish Journalists.


As pointed out above the claim that Ireland bailout is the cheapest is a flat out lie. Not a mistake, not a fudge, not a half truth. It’s a lie. In fact it’s a couple of lies, because any one of the various ways that this costs us money would on it’s own make it very expensive.

Geckko points out the direct and immediate cost of our higher risk.

xman points out the cost of pumping money into housing schemes.
A kind off balance sheet support for banks in that it’s aimed at allowing their biggest debtors to clear unwanted stock, without the banks having to lend to the Negative Equity graduating class of 2009.
The cost of this could be up to 6.5 billion by some accounts.

With all of that money spent getting little or nothing in return, we’re on the hook for potentially billions in bank losses.

And as if all that weren’t bad enough, there’s still a chance that having done all that we’ll still have to pump money into the banks, except we’ll probably wait until it’s too late to help, just so we can maximise the cost to the tax payer.

A couple of posters on a forum can’t keep figuring this stuff out for you forever. It took two years too long for some of you to grasp that the cost of houses was out of kilter with what they could earn in rent. Many of you still don’t understand that simple point.

Get with the program and start doing your jobs.


By Brian O’Mahony, Chief Business Correspondent
THE Government’s bailout of the banks will add €184 million to next year’s borrowing costs, the equivalent of €87 for each person currently employed.

A report says Ireland will pay up to 25% more in servicing the €18.4bn it is due to borrow in 2009, because it is seen as a higher risk than Germany and other EU states.

Ireland is not alone in suffering this increase in borrowing costs, said Laurence Daly, director of planning at McEvoy & Associates.

Countries facing similar property and banking difficulties such as Spain, Portugal, Greece and Italy have also suffered a similar increase in bond spreads which in effect means it costs those countries more to borrow, he said. These spreads are now at their highest levels since the euro was set up.

For Ireland the increase came when the Government gave the banks a blanket guarantee on deposits and borrowings. This guarantee represents a potential blank cheque two to three times the size of its gross domestic product, and has made lenders to the Irish state more wary of the risks involved, forcing the state to pay more for its borrowing, he said.

“If called upon this guarantee could lead to a huge increase in borrowing by the Irish Government at a time when the debt burden is set to increase significantly as a result of recession,” he said.

Ireland’s outstanding national debt at the end of October was €48.4 billion and according to the National Treasury Management Agency we will have to raise €18.4bn next year. That consists of borrowings of €13.4bn, based on October’s budget and an additional €5bn of debt.

Assuming an increased borrowing cost of 1% as illustrated by the recent increase in the yield of Irish Government bonds over German bonds, this would amount to an extra cost of €184m on 2009’s projected borrowings of €18.4bn. That equates to €87 per annum for every person in employment in Ireland based on the most recent CSO workforce estimate of 2.185m people, said Mr Daly.

In the event of a bank failure in Ireland, pressure would pile on the Government, Mr Daly warned.

“If this happens Ireland’s funding costs will soar, leaving the hapless Irish taxpayer to foot the bill through a combination of higher taxes and higher bank interest rates,” he said.