The National Debt


#530

@2Pack Can you make a stab at the third factor which goes to Debt/GDP i.e. government revenue?

Private sector income will be devastated for the next few months and VAT returns (outside retail) will collapse. ~€20 Bn. extra spending and ~€15 Bn. loss of revenue would add ~€35 Bn. to our national debt.

Will our bond yields revert to zero by year-end? If not, that extra debt will sting!


#531

yes sorry, see point 2 again, edited


#532

Initial ESRI estimates are that GDP will take a 7.1% hit from the virus.

Lets say 10% and run some numbers based on that.

Base Economy GDP = €340bn at end Q4 2019 and Debt/GDP 60%.or €204b.

Less €34bn (10%) hit to economy. = €306bn GDP at end 2020
Plus €45bn in excess government spending during 2020 (explained above), and less a rainy day fund and NAMA windfall of €5bn added to that €204bn = €244bn. €40bn in excess debt.

Crude estimate therefore is that we end 2020 with

Economy €306bn
Debt €244bn

We get A Debt/GDP ratio of 79.7% at end 2020. based on those numbers. This will pale in comparison to the UK/France/Spain which will all be north of 110%, if not 120% :kissing_smiling_eyes::kissing_smiling_eyes: and Italy “Wahhhhhhhhhhhh” and Germany and the Netherlands will end up same as us or thereabouts.

Bond interest will largely depend on two things.

  1. Fiscal Track record, which is good. I don’t see Germany/Netherlands/Ireland being penalised.
  2. Whether we are run by Shinners with expansive debt accrual schemes or by a ‘national’ coalition with a 2 year mandate to stabilise the economy post coronavirus.

Our ability to grow rapidly out of the end 2020 situation will be far more constrained. It will take a lot longer to get from 80% to 60% Debt/GDP than it did the last time round in the late 2010s.

As for the housing crisis, banning Airbnb outright might be all that we need to do. in the next 2-3 years. Not sure how this is going to play out exactly but Airbnb demand will be much reduced in Dublin from now on.

Nor am I saying the economy will grow or stabilise in 2021 or that the government will not run a deficit in 2021.


#533

Again, more interested in Debt payment cover from Revenues, than Debt/GDP ratio.

Revenues will collapse, and emergency budget already being flagged up.


#534

NTMA says

we are well positioned to meet the borrowing requirements and challenges presented by this economic crisis

True enough but it doesn’t attempt to quantify the scale of our Exchequer borrowing requirement or the impact on GDP

https://www.ntma.ie/news/ntma-statement-on-anticipated-borrowing-requirements

SuperMario rescued Italy (and us) in2012. If the Eurozone breaks up over this, we’ll be on our own in shark-infested waters.

https://www.bloomberg.com/amp/news/articles/2020-03-26/how-italy-and-others-can-use-the-ecb-s-most-powerful-tool


#535

The NTMA will never do that, it is up to Finance, within ‘a’ budget, to quantify funding requirements and the NTMA goes out and gets the cash in and manages bond recycling on a predictable basis.

As for the Eurozone ‘breaking up’, specifically over the lack of agreement on Coronabonds today, that is unlikely. Italy has threatened to leave a number of times in recent years …repudiating debt…and quite simply it didn’t.

That recent threat from Italy has not been forgotten and was probably the main reason why Coronabonds were not acceptable to the Netherlands and Germany.

Coronabonds may come back though, specifically and only for purchasing of large scale Europe wide medical supplies and not for fiscal support which is what Italy (always) wants.

There is always the ESM > https://www.bruegel.org/2020/03/esm-credit-lines-corona-bonds-euro-area-treasury-one-off-joint-expenditures-what-are-the-options-for-the-eu-council/


#536

I didn’t expect NTMA to decide on the deficit but their statement implies they have received no indication from D/Finance of the scale of borrowing required, which is no surprise as our government has resigned. We are spending without limits which may be necessary now but will have painful consequences.

Talk of a Eurozone breakup is not just crying wolf. The failure of the European Council last night leaves a chasm that can’t be papered over. 2012 showed the political resilience of the Single Currency but this crisis will test its limits even further. Is Christine Lagarde capable of squaring the circle?

Consider this example of EU conflict - extraordinary times

https://www.portugalresident.com/repugnant-pm-costa-launches-extraordinary-attack-on-dutch-finance-minister/


#537

Yes, but as Merkel said there is the ESM which was not there in 2008-2010 . Anyhoo, this time we here don’t need special bonds, thank fuck. :frowning:


#538

Special bonds is exactly what Italy & Spain want/need (+ France, Portugal, Greece).

Call them whatever (Eurobonds, Coronabonds), if there is no collective Euroarea bond, we will be back to the weakest link in the chain (Italy).


#539

Eurea bonds? :wink:


#540

Euroarea - the correct word for the “Eurozone”.


#541

Oh, by way, Ireland is backing the 1.5 Trillion Euro Coronabond proposal supported by France, Italy, Spain etc. and opposed by the Dutch/Finns (and Germans?).

We didn’t back Eurobonds even at the height of our financial crisis because of “moral hazard”. Now a government which has resigned signs us up to this because “we’re all in this together”.

At least that’s what Helen McEntee told Cormac Ó hEadhra yesterday (45 minutes in)
http://rte.ie/r.html?rii=9_21742126_26960_28-03-2020

Did the Dail discuss this? Are the Irish people ready to guarantee Italy’s borrowings?


#542

My attempt at humour failed Lefournier!


#543

Nice one, bury it in the middle of a Saturday lunchtime news show or the week in politics and assume it is of only of interest to the political nerds.

Given the capture of the mainstream press and TV the citizenry need to be extra vigilante of what strokes may be pulled these days.


#544

Like I said earlier.

The Italians would have to control their deficits if they tapped the ESM, they don’t like that idea at all but there is no choice now.

Portugal are used to the regime, they would be fine with an ESM tap.


#545

Sorry for my pedantry. My Spellchecker gives me Uranus bonds!


#546

So how much of the national debt and general European business and other national and ECB debts are owed china a d what happens if or when it is refused to be paid back


#547

NTMA is going back to the markets but no indication how much ( “billions of Euro”).

Its previous objective of only raising between €10 billion and €14 billion has been abandoned.

I assume this means the NTMA now plans to borrow much more than €14 Bn. this year and it is starting ASAP.

Is COVID-19 a Black Swan?

[https://www.irishtimes.com/business/economy/ntma-to-raise-billions-of-euro-for-state-in-bond-sale-amid-covid-19-1.4217691]


#548

I thought it was more of a cross between a bat and a pangolin. Not sure what colour.


#549

They are not saying how much they plan to borrow which is a statement in itself however they have said that borrowing would be on going in the coming years (North Korea Application of unknown fact) based on Americas TARP in % of 700 billion dollars and the new 2 trillion quantitative easing programme this will make the Bank bail out look like a penny.
As of now the NTMA is not answering any questions of importance.