The National Debt


Was in town today. Apart from Brown Thomas (I wasn’t inside), I don’t think it was particularly busy.

I was in one particular UK/Ireland chain today and I overheard the staff saying they “thought it would be much busier”. Perhaps it’s all online now… Don’t know how Dublin City Council will be able to continue to justify their rates given what I saw today.

I was also in town on Saturday evening - the H&M shop on College Green/Dame Street was open very late. I reckon it was just before 10pm when I was walking by - the place looked stark. Perhaps they were expecting loads of pre-Xmas customers?


Euro area crisis timing: a problem of definition - Constantin Gurdgiev -> … em-of.html


So far the public finances have run at a full surplus up to end November and a supplementary budget including €0.6Bn to the HSE will blow a hole in that in December to leave the year negative…but not very negative by our standards. … 282%29.pdf

… (2014) 2015
Exchequer Surplus / (Deficit) € (5,758,690) 343,323


Did we ever think we’d see the day. Any chance the arsehole politicians in merrion st. will start to pay down the debt they so kindly landed us with now they had their little budget giveaway sugar rush.


The Exchequer Balance is not the Deficit!


They would be crazy to pay down the debt too quickly. We can borrow at less than 1%. Paying off a couple of percent of GDP per year would reduce economic output by more than we would save in interest payments.


At this moment in time we are in 2 EU manadtory debt reduction categories. … dex_en.htm

  1. The Excessive Deficit procedure. We come out that in a month. We are no longer borrowing over 3% of GDP a year and had to get under that amount by end 2015. We borrowed nothing ( net) so far but will probably borrow €1.5bn net by year end and maybe €2bn. We shall shortly see the supplementary budgets in full. Today the HSE got €0.67bn and our accumulated surplus to end November was half that.

  2. The Excessive Debt procedure. This is where we are obliged to reduce Debt to no more than 60% of GDP. I think we may come out of that by end 2016 or latest early 2017. Let me explain.

The excessive debt procedure allows a state that is making itself compliant to exit the more onerous procedural/monitoring requirement based on a historic reduction in the excessive debt by 1//20th a year over 3 years. Irelands final GDP growth for 2013 2014 and 2015 (together) is so high that we complied with the 1/20th rule simply because we grew so fast even while running an excessive deficit. Yje NTMA ran down part of its cash pile over that period too so we did not ‘borrow’ all the states borrowings in 2014 and 2015 as the NTMA had it borrowed already. . In theory we could ask to be released when final Q4 GDP comes out in April or so. We could ask now to be honest and have the dot crossing and t dotting in April.

Our debt/gdp ratio is now around 100% and the gap is therefore 40% today. We must remove 1/20th of that a year averaged over a rolling 3 years. A country growing at around 1.8% a year constant ( and perfectly balancing their books annually) would comply I reckon. If you grew 2 years out of three at 3% and shrank the other you might even still comply. It would be wise for the NTMA to keep around 4% of GDP in hand as liquid cash which they do, comfortably.

Ireland is likely to grow by 4% next year and to have an end year budget surplus of some sort, perhaps 0.5% of GDP . That will do nicely.

We are still obliged to carry on ourselves to an amount below 60% max (and as our GDP is a crazy number that means less than 50% in reality) but we would not be subject to the more onerous monitoring after exiting the procedure…which takes time to kick off again. This is called ‘abrogating’ the procedure. If we grow at 3% average for 10 years we are below 60% and sooner if some AIB selloff cash is used for retiring debt like the UK bilateral …early.

We should probably wait until we sell off AIB and clear some hard debt ( the 3 bilaterals would be a good start) as well as inject some of the proceeds BACK into the NPRF. So late 2016 or early 2017 and we should exit all procedures by then. Subject to our not going into recession/deficit we will be let get on with it.

Some more reading



Not quite. Debt ratio will remain the same if the following two conditions are met:

  1. primary balance=0 (Primary balance = Revenue-non-interest expenditure)
  2. nominal growth rate = average interest rate on stock of debt

Very few people understand that if 2) holds then 1) means that you can run deficits and still keep the debt ratio stable, once all of your deficit is accounted for by debt interest. You don’t have to necessarily run surpluses or even balances.

  1. means that even with pretty puny nominal growth (2% to 3%) you can reduce your debt ratio in a very low interest rate environment.

The long version is here.


I don’t consider a Primary Balance to be a surplus of any sort in my numbers above. A surplus has to be a net income/expenditure balance including the primary balance and our debt servicing costs (which were around €7bn last year and €6.5bn this year with most of the IMF debts swapped out for something cheaper to service).

Ireland covered both its expenditure and debt servicing costs from income up to end November. 2016 is kinda the last year where we can retire expensive debt and issue cheaper debt in its place, any gain in debt servicing costs from 2016 on will be from absolute debt reduction not from repaying a 5% bond with a 2% bond, there just ain’t really any 4-5% scrips left out there any more.

Managing the story from now will probably reduce the spread over Bunds for our scrip but you are talking 20bp here and there, nothing in the big scheme of things. The 3 Sovereigns should be next up for early redemption ( DK SE and UK) as they need the money now ( bar DK) and there is a currency risk element. Thereafter all our debt is € denominated.


I also don’t agree with this thesis. Many economists have been plugging this - provided the deficit is less than or equal to GDP growth there is no requirement to cut as leverage remains constant.

The problem with pro-cyclical fiscal policy is that no one wants to do it when GDP is negative. And no one has a track record of doing it when GDP is negative. Ireland’s “austerity” was still massively pro-cyclical.


It also means that we have to build in that 6% of GDP NTMA float to manage 2 bad years…at least for the next 5 years if not 10. Thereafter we can prudently reduce the cash at hand in the NTMA but it is much too early for that now. Just before the IMF redemtions the NTMA cash pile was many times larger than the government financing deficit in 2014. At least 3x larger.

It has lowered over the course of the year thankfully. We still have this repayment profile. (NTMA) … programme/

Graphically shown below. We really don’t need one of those spikes during a normal recession either. I’d say one or two of the next 5 years will be a bog standard recession and 2019 and 2020 look like bad years to have a recession.

Maturity Profile of Ireland’s Long-Term Marketable and Official Debt as at End October 2015 [*from NTMA * (

Currently Ireland ( between the NTMA and the Exchequer) has around 10% of GDP in cash. It would be imprudent to reduce that below 7% for the next 5 years so the years of ‘free borrowing’ where the NTMA ran down its overall cash pile at the rate the government ran a deficit ( 2014 and 2015 mainly) are over. … r-balance/


FWIW Howlin was on radio this morning and I think he said he expected Ireland’s debt to be at EU average next year (but may have misheard). He also said that some EU countries debt ratio is worsening.



2020 looks like a tough year for the NTMA. You’d expect they would be able to refinance the debt through 2019 in an orderly manner, but if the economy isn’t growing in early 2019 they might have a problem refinancing all of 2020. They should probably be targeting that hump now.


I can see them refinancing large chunks of the 2016-2020 batches in the next 24 months or so. Never a better time really with current rates


True, pricing is ideal right now and with the ECB expected to stimulate more (more than what they did today) things could go well for us - provided we do it before the eurozone starts improving (more an “if” question rather than a “when”).


The 2019/2020 ‘spike’ is to an extent the UK Bilateral which is why I suggested early redemption of that and the other pair from DK and Sweden. All the rest is € denominated AFAIK so it mitigates currency risk too.

It is worthwhile to look at the last time debt was so high relative to GDP, around 1989 when it was last 100% and falling relative to GDP.

In 1989 interest payments on the national debt absorbed some 70 per cent of all income tax revenue and accounted for some 25 per cent of net Government current expenditure.

In 2015 interest payments on the national debt (€7bn paid by year end) absorbed some 39% per cent of all income tax revenue (€c.18bn at year end) and accounted for some 14 per cent of net Government current expenditure. (€50bn by year end)

I know GNP is more relevant but someone else can rebase off that. The numbers look less benign as a % of GNP and income tax is a function of GNP not of our GDP really. That plus the GNP/GDP gap is higher than 1989. :smiley:


It is not my thesis, it is just arithmetic :smiley: Nothing to do with whether fiscal policy is pro-cyclical or not either.

My point is that running a deficit does not *necessarily *mean growth in the debt-GDP ratio. You would be surprised how many people who really should understand this do not.


I like the idea of targeting humps early, chocolates, flowers… :-GC

Anyway, I reckon if growth is good early next year, we’re out of excessive deficit, deflation is still ‘strong’, then we should be looking to do some superlong issues, park a chunk of it way out…


Macroeconomics is all bollocks. The economy is composed of lots of parts all moving in different directions. What does “counter-cyclical” mean anyway? Should we stop building schools because Apple is making more profit? What does our 18% unemployment say about labour slack and the natural rate of interest? Fuck all. Bollocks, I tell you.


It means doing the right thing, depending.

It is not for this thread though, take it somewhere Coles could help you. :smiley: