The National Debt


#361

I think this is probably the only way to get more people on the street than the water charges protests.


#362

Indeed. Although with current talk of full employment there must surely be a place for basic economics in the discussion. The closest I’ve heard to a discussion of tightening is talk of a rainy day fund which is depressingly stupid.


#363

Again people are overcooking the reality. Debt issued as recently as last week at 0.8% interest. The hump of debt repayments due in 2019 and 2020 will be fully financed in 18 months, latest. We (oddly) pay nothing off in 2021 as things stand. We are rid of the remainder of our more expensive debt in 2020.

This more expensive debt, it is all sovereign debt, costs us c.5% interest per annum and amounts to around €30bn of the total €200bn right now. In other words that €30bn that we will retire very soon costs as much to service as €100bn of the Draghi era paper, every single year.

Again let me restate the long term reality (we issue mainly 10 year paper nowadays, due 2028 in other words). This is the ANNUAL position comparing 2007 to 2020 onwards below.

It is, of course, possible that we will pay higher interest on sovereign issues after 2020 when the Dragi effect wears off. But as we only refi around €10bn a year in the 2020s that potential impact is limited. Of our €200bn overall debt, in 2020, we then refi c. half by 2030 and half after 2030.

By and large we will then spend the 2020s paying off a mix of c.2% rated EU bailout funds and c.1% Irish sovereigns. We should not have to pay more than 2% interest on the new sovereign debt we raise even then…leaving us net same as at the end of the 2020s or a tad worse off.

Even if interest rates are 3% on all our sovereign issues after 2020 we are only a billion and a half a year worse off at the end of the decade in 2030 than we are in 2021 and which annual amount is around what we pay now, in 2018.

There is no fucking cliff lads. A steady slow upramp at most. The way things look right now …not even that. :slight_smile:


#364

The ECB has been helicoptering money for over 3 years now and the great wash of money into Eurozone sovereign debt ends in 3 months with fully €2Tr spent on it by the ECB. They bought another €500bn of corporate debt etc too.

To recap the programme.

March 9 2015 (decision to purchase €60 bn of assets per month until Sept. 2016),
December 3 2015 (decision to extend the QE @ €60bn a month until March 2017),
March 10 2016 (decision to further increase monthly purchases from €60 bn to €80 bn from April 2016)
December 8 2016 (decision to then extend the QE until December 2017 at a reduced monthly pace of €60bn).
October 26 2017 (decision to further extend the QE until September 2018 at a reduced monthly rate of €30bn)
June 10 2018 (decision to extend the QE for 3 months until December 2018 at a further reduced monthly rate of €15bn)
24 December 2018. END

At peak it was almost all sovereign, the corporate bonds were mainly purchased in 2017/8 and sovereign purchases declined somewhat as a % of the total.

There has been no significant change to Irish bond yields since the steady reduction from €80bn of monthly purchases to €30bn (now) started almost 2 years ago. Ireland accounts for 1.5% or so of the purchases to date, €29bn of €2Tr. We will end up with the ECB itself holding around €30bn of the €200bn national debt in December when the whole process stops. Maturity is around 9 years average.

It will be interesting to compare todays 8 10 and 12 year rates with those obtaining in January 2019 mainly because Brexit will be that bit nearer and no less messy than today but I think there will be no substantial changes unless there is a fiscal shock to Ireland in H2 2019 which is when the first move upwards to the base rate (and tracker mortgage rates) will be contemplated for the first time.

Normalisation, a base rate of 2-3%, is many years away, think mid 2020s.


#365

The NTMA is finally moving into raising funds for infrastructure. They are calling these greeen bonds and the following infrastructure is to be targeted.

ntma.ie/wp-content/uploads/2 … mework.pdf

I would guesstimate they will need €10bn out to 2025 and the first debt raising is due in December…by syndication. Irish Water will be the beneficiary of the initial syndication which will be in the order €2-3bn …IW can easily service such a loan out of their cashflow. :slight_smile:

There are fuzzier greeny looking investment targets where cashflow will simply not be forthcoming but the NTMA don’t want to frighten anyone until they get a benchmark issue off first. :smiley:


#366

@2Pack
The quality of our debt profile has improved, we’ve been fortunate in that regard.
How do you suppose we deal with the quantity?


#367

Sloooowly I fear.

We only have 2 possible large windfalls.

€10bn if we sell AIB
€10bn if we ‘have to’ keep the Apple Money.

and

€5bn from NAMA windup.

Otherwise any reductions will be incremental and weighed against needed capital spending and IRRs on that.

AGAINST all of that we pay much less for our new debt than we paid when we were highly solvent and our next task is to maintain the present relative link with Bunds right through Brexit. Next year will be squiffy bottom time and we do not want to pay a risk premium thanks to the utter insanity of the Tories and the DUP.


#368

I imagine keeping the economy ticking along is a bit of a plate balancing act, but IMHO we should take action sooner rather than later. Later is often too late.

Right now, some of the indicators are not good…
Happy new year for TDs - who wake up to a €3,600 pay hike
independent.ie/irish-news/p … 48456.html

(I don’t mean to be cribbin’ and moaning but actually it’s reminiscent of Bertie bonus year’s)
Pay increase to push TD salaries over €100,000 [news from 2008]
irishtimes.com/news/pay-inc … 0-1.935502

We should hope for the best, but have some plans for the alternative outcomes. (eg Italy)

‘Europe now less able to fight off a crisis than a decade ago’
independent.ie/irish-news/e … 75186.html

The prescription (from my pov) should be chip away, sovereign investment fund & other methods. (A solid plan which engenders a bit of Comradery.)


#369

Well 2 things.

  1. We were relatively more indebted from 1985 to 1995 than we are now and as we had an independent currency we paid interest north of 10% at times on that debt. Yet we inflated it into insignificance by 2005 as the economy grew.

  2. If you have a big ticket item like €4bn of Metrolink vs paying off €4bn of debt then it boils down to analysing thusly.

Will the rate of return on the asset, to Dublin, be greater than the cost of the €4bn of debt over 40 years. We will pay (prudently) €4bn in interest on €4bn of debt @ 2.5% over 40 years. But will the economy benefit by MORE than €8bn ( €4bn debt and €4bn interest) over 40 years by having Metrolink up and running.

Metrolink only has to contribute €80m a year of net benefit to the Dublin economy to balance that equation. That could simply be one bank relocating and then employing 1500 high paid staff who pay €50k a year each in tax and prsi to make those numbers work. Just one such employer saying…lets go to Dublin guys.

It proved too hard to pay off any of Garrett and Charlies 1980s debt pile and that was only €40bn…like we suddenly found we ‘needed’ a c.€15bn motorway network instead …so why would it be different this time. ??? How much does the motorway network contribute every year???

Our target should be a net debt of 50% of GNI* over time, 40% of GDP. Gross Debt less rainy day and strategic investments that are pretty liquidish (not Irish Water FFS :frowning: )

as for the naysayers on infrastructure, Frank McDonald, James Nix, Colm McCarthy and that Barrett cretin :frowning: Remember this one from 2002.

irishtimes.com/opinion/when … -1.1110102

That stretch of road has a traffic counter nowadays, link here.

nratrafficdata.ie/c2/calend … 0000020083

That VERY stretch of road mentioned carried 16000 vehicles a day on average last week.

nratrafficdata.ie/c2/tfweek … 2018-09-30

over 500% more than James Nix predicted in 2002.


#370

Well if limited borrowing was spent on real infrastructure projects there may be few complaints. It’s the perpetual borrowing for current expenditure throughout the cycle that has caused the bankruptcies of the past.

Re: the €15bn motorway network. I always thought Europe ‘gave’ us that. The value we have got from that few quid spent compared to the splurge post 2008 that brought us from 50bn to 200bn. Oops wrong thread. :wink:


#371

No. We built most of it from 2006 to 2010 and we only got some EU money for around 1/4 of the overall motorway network…all skewed to the older cheaper sections near Dublin. 20% of it is PPP sections but we had to buy the land there first.


#372

Have public-private partnerships gone out of fashion?
rte.ie/eile/brainstorm/2018 … f-fashion/

Dodgy business it would seem.

  • the indirect taxation via tolls.

#373

PPPs are a mixture of semi recourse and non recourse and revenue shares.

  1. The toll in Kilcock makes more than contracted profit and the state gets a share of revenue same in Dundalk I think.
  2. The toll in Limerick on the tunnel makes less and we cover losses annually.
  3. The toll in Ballinasloe makes losses and we are not on the hook for them BUT the NRA gave ex gratia payments in the past and the traffic has bounced up in recent years so they may now be running a small profit.
  4. I don’t think we pony up for shortfalls in the other Munster PPPs.

Very hard to calculate what to capitalise onto the national debt out of that lot, really. Such a mixed bag of liabilities. :slight_smile:


#374

2pack any idea if the Waterford motorway is still a vastly over specced white elephant? My mate drove north on a Tuesday evening a while back and was expecting to meet tumbleweed it was so quiet… Thanks Martin Cullen


#375

Yes, it carries much less traffic than any other toll section in the country and that is a problem for some Spanish Bank, not the Irish Taxpayer.


#376

Well, that bridge isn’t on the motorway but is the N25 1km beyond the motorway end, forming part of the ring road, (so misses a good bit of Waterford City traffic) The motorway itself was surely State funded? My engineer mate was always adamant that a dual carriageway was more appropriate.


#377

Not a national debt issue. You mate is saying a lesser standard road could have sufficed and would have saved the Spanish bank some wedge. I agree with the engineering analysis. There is a longer and pertinent analysis here, albeit one with the benefit of hindsight attached.

I do not want any more road PPPs if that is what you want to hear. :slight_smile:

Nor do I think there should be many more motorway grade schemes, bar bits near Cork Limerick and Galway cities, Cork-Limerick and Mullingar-Longford and the Dublin Outer Orbital in 10 years time. Dual Carriageway standard will be enough elsewhere but most of what we need will be decent single carriageway.

I’d say another c.250km tops and we have 1000km, or so, of motorway today. This will cost the exchequer €2.5bn or so to finish and near half of it would be in County Cork alone.


#378

The Spanish built the bypass not the overspecced motorway
From your link

.

Once you get on the motorway there’s no toll all the way to Dublin


#379

We only came up with a dual carriageway standard in 2007 *LINK, the contractors were onsite building the M9 by then.


#380

But does nt everything fall apart very quickly if the ECB stop buying sovereign debt and interest rates return to the historical 5% to 7%?

Given that Draghi only turned on the spigots for purely political reasons in 2012 and the Germans only went along with it because they got to keep for the interim their deeply discounted export currency once the Germans no longer think their are getting anything from the status quo they will stop the money merry-go-round in short order. One thing about their self congratulatory “plain-speaking” and “bluntness” is that the Germans in their domestic media have been quiet upfront and unapologetic in stating that the only reasons for not pulling the plug in 2012 was a discounted currency enabled them to run up and keep their huge export surplus. No other.

Whenever the subject of the lazy feckless cheating Greeks, Spanish etc freeloading of the hardworking Germans comes up in the German media, regular as clockwork, the righteous indignation soon abates when someone invariably mentions, soto voice, that the alternative is to back to the DM, an immediate currency appreciation, and the end of the German “export miracle”. So they mutter into their beer and then are distracted by the latest Deutsche Bank or german car industry scandal.

But someday the ECB money printing will end. CB money printing always does. And soon after a few countries sovereign debt will hit a brick wall. The upside for Ireland is that there at least five other countries in the Eurozone that have a far more catastrophic sovereign debt situation. So by the time the crisis becomes acute in Ireland the shape of the bail out will already have been worked out. But its most likely going to be more South America 1980’s than Eurozone post 2012. Very painful.

So best to build as much economically useful stuff as possible before the party ends.