NCB have a report out on whether Ireland is solvent:
ncbresearch.com/fixed_income … turing.pdf
There’s a discussion about it and opinion pieces by John McHale (yes) and Constantin Gurdgiev (no) on IrishEconomy:
irisheconomy.ie/index.php/20 … number-up/
My initial reading of the NCB report:
The NCB report that Mr. McHale alludes to sees GNP growth from 2011 as:
As they see GDP growth being greater than this, they see an increase in the gap between GDP and GNP increasing (currently the gap in 19%).
Including NAMA, they see a peak debt:GDP of 134.2% (in 2012) with a figure at end of 2014 of 130.6%
(All from Appendix 1)
p.7 “If the real interest rate on debt is higher than real output growth, then the debt/GDP ratio increases, even if a government manages to match its primary expenditure with revenue. In this case, new debt needs to be issued simply to cover the interest payments on the outstanding stock of debt. As new debt is added, interest payments will increase even
further, thus leading to the issuance of ever greater amounts of debt. roughly speaking, when a government “indefinitely” issues new debt to pay interest on the stock of debt (and any additional non‐funded
expenditure), it is said to be running a Ponzi scheme, and its debt is set to grow without limit.”
“Table 1 below is our baseline scenario for the debt outlook in 2014. This scenario assumes that the fiscal consolidation is seen through in full, that there are no further capital transfers to the banks from the exchequer and that spreads over Germany normalise towards 200bps over the coming years (whether that is done domestically or with EFSF help).”
“Under the NCB scenario, Ireland would need more growth than our assumed rate or to initiate further fiscal consolidation measures to stabilise debt in 2015.”
I don’t see much to be cheery about in this report. NCB are saying:
- growth will be insufficient to avoid a poverty trap.
- there will be a jobless recovery (evidenced by the low rate of GNP growth)
In addition, they make no mention, that I can see of future eurozone interest rates. These have to be the elephant in the room. If the main part of the european economy recovers this will continue to help our exports, at least from the MNC sector. The corollary of this is that inflation expectations will increase if unemployment continues to fall in the larger economies. If the pressure to expand domestic consumption in Germany bears fruit, while it may increase our exports more, it will also lead to further inflationary pressures.
The summary of the NCB report is:
“Is Ireland solvent? Under our baseline scenario – fiscal consolidation seen through in full, normalisation of the spread over Germany, no further bank transfers from exchequer – Ireland is solvent.”
I believe all three factors are untenable; that all three are required is made clear elsewhere in the document. I can come to no other conclusion that Mr. Kelly’s - we are reliant on the kindness of strangers to:
- enforce fiscal consolidation
- normalise the spread through the use of EFSF
- resolve our banks without further cost to us