The National Debt


#421

The country owes 206,000 million Euros but the media focus on the 14 million interest charge.

If they want to talk about the interest costs they should say how incredibly little we pay. It’s like someone on a 206K. Mortgage with repayments of 433 Euro a month. Our economic future depends on this but 99.9% of voters are oblivious.

And we borrowed 5,000 million more last year although the economy is overheating. That’s three Children’s Hospitals, if you believe the latest figures :sunglasses:


#422

The self same amount of debt cost near €8bn a year to service in 2013 and the same amount of debt will cost less than €5bn a year to service from 2019 onwards. The article is remarkably unresearched even by Irish Times standards. :frowning:

This is from here table 10

https://cso.ie/en/releasesandpublications/er/gfsa/governmentfinancestatisticsapril2019/

2013 7,738 (€7.7bn)
2014 7,574
2015 6,833
2016 6,158
2017 5,797
2018 5,225

The government has €2.5bn a year, cash, it did not have in 2013 based off the same level of borrowing as 2013. This virtous cycle of swapping expensive debt for cheap debt comes to an end in 2020 and the debt servicing figure will settle down in the €4.5-4,7bn range from then on (infinitely)

It is unlikely to ever go below €4bn unless we (shock horror) pay some of the €200bn off.

Can we fund the exceptionally high redemptions in 2019 and 2020 , why yes, of course we can. Easily.

After October 2020 we will lower our cash holdings (to pay off the following years debt) so the net debt figure will rise but not the gross debt. It is probable that we will get the gross debt below €200bn by 2022 mainly because windfalls will conveniently be at hand between 2020 and 2022 such as Apple and more AIB sales and we will not need to borrow the full amount for the following years during that period.


#423

This virtous cycle of swapping expensive debt for cheap debt comes to an end in 2020 and the debt servicing figure will settle down in the €4.5-4,7bn range from then on (infinitely)

Although it is very rational, I can’t see virtue in swapping “expensive” debt for “almost free” debt and our debt servicing figure will not settle down “infinitely” at any given level. After we joined the Euro, it looked like we could borrow infinitely at 4 - 5 % until one day we couldn’t borrow at double that level. I have no idea how long the ECB will support ZIRP but the day will come and no amount of NTMA debt profiling will save us if we owe more than 200,000,000,000 Euros.


#424

There is no sign of any end to ZIRP so it is infinite out to at least 2023 or 2024 from what I can see

There is plenty of virtue in retiring loans from the end of the 2000s with 4.5-5.5% coupons and replacing them with 1% ten year paper instead, however there is very little of that sort of big coupon paper left after 2020 and very little opportunity for big savings in interest payments from one year to the next save if we actually pay off some debt on occasion.

The UK bilateral is next up for retirement around 2020 and 2021, again replaced by cheaper sovereign paper.

Finally, and before ZIRP ends, some of the ESM/EFSF paper on which we pay 2% to 2.5% interest will surely be replaced too in the early 2020s but IF ZIRP ends and sovereign issuance costs more than rolling over ESM/EFSF loans we will roll those over instead as we are entitled to do as I understand it.

The pig in the manger aytin the lipstick was Brexit but we will probably be fully funded for the high 2020 redemptions by end October so I am not worried about that one any more.

The really big change in recent years is our decoupling from PIGS and the narrowing of the spread between our issuances and the bund. That is worth a saving of €400-500m a year from now on as long as we don’t do anything pure daft like electing an Anti Everything Party and Sinn Féin coalition.


#425

The virtuous policy would be to pay down some of our debt, say 10,000,000,000, or maybe 20,000,000,000 which would look like a serious effort to plan the rainy day. By all means, switch to lower rates for the rest whenever possible.

It may sound crazy now when they’re throwing billions at us but call me old-fashioned, I just think you shouldn’t be borrowing in a fiscal boom. 2023 is not so far away if you’re a nervous bondholder but it is practically infinity if you’re a T.D. (the election after next).

Our bond spreads haven’t decoupled from the PIGS, even the Greeks have record low yields now. Under 3.3 % for the greatest defaulters of all time, That’s market discipline for ya! :money_mouth_face:


#426

Are we simply missing some old fashioned inflation / GDP-GNI growth as the fix for this, a decade compounded @3% would make this much smaller?


#427

inflation is exactly what the ECB has been trying to generate (without success) so that it could return to normal monetary instruments i.e. raise interest rates.

inflation is a debtors’ friend but zero interest is his guardian angel. Asking for both is plain robbery.


#428

Did you ever think about why that might be in simple global central banking terms?


#429

Yes I did


#430

Good to hear the pundits discussing the national debt and the options for the future.

…coffers had been boosted by as much as €7 billion over the last four years thanks to increased tax receipts and reduced interest rates.

The letter considers whether it is better to spend these windfalls each year to give a shot in the arm to the economy, or whether saving the money in the expectation of a rainy day would be a more prudent choice.

Well Ivan spoke with Danny McCoy, the CEO of IBEC, and Eddie Hobbs, author and financial advisor to get their take on it?

Mr. Hobbs suggested that the state should consider supplementing its meager 5T GLD reserves.
(This suggestion wasn’t well received by the host or the other guest. )


#431

:icon_eek: How dare he suggest we sully our nations fortune with such a Barbarous relic! Boooo!! Hissss!!!


#432

The NTMA is gonna shelve their normal few billion of 10 year issuing this week and will chance a 30 year instead. I’ll hazard that conditions may allow a €2bn issue as low as 1.5% coupon right now, or they would not be chancing this at short notice. :slight_smile:

Blockquote 7 May 2019 - The National Treasury Management Agency (NTMA) announces plans to launch a new benchmark bond maturing in 2050 by syndication. Barclays, BNP Paribas, Cantor Fitzgerald Ireland Ltd, Danske Bank, Deutsche Bank and Goldman Sachs have been appointed as joint lead managers for a benchmark transaction. It is expected to be launched and priced in the near future subject to market conditions. In light of the decision to proceed with a syndicated transaction the NTMA announces the cancellation of the bond auction scheduled for Thursday 9 May 2019.


#433

Does anyone know if that Apple money washed through or has it already been provided for ?


#434

No, that Apple money is frozen in escrow till 2021 earliest.


#435

Good.


#436

A country that was locked out of the markets a few years ago can now borrow 3 billion Euro for 30 years at (it seems) just over 1%.

The Berlin Wall fell 30 years ago. What will the world be like in 2049? Political change is inevitable but no-one could have imagined the weird world of finance we are living in. Where did the profitable investment opportunities go?

https://www.irishtimes.com/business/economy/ntma-to-sell-3bn-that-will-mature-in-2050-bonds-1.3883352


#437

God Know Lefournier, our lot is merely to make out as best as we can, which is rather well these days to be honest.

Remember we used to pay 4% interest on our 5 year paper when we were highly solvent in the mid 00s and we would now issue anything up to 5 year bonds at negative rates with the next 10 year issue looking like it will get off at around 0.5% interest or thereabouts, probably in June,

We have some Eurozone Bailout loans due in the next decade that we can probably refinance from 2020 onwards with our own paper, we will not save much (swapping a loan costing around 1% for one costing a tad less than 1% it looks like now) but we should also get our own loans to the EFSF back ,in part, as we do so. That would be a turnup for the books. :slight_smile:


#438

Thanks for the updates 2pack.
I’m quite shocked that Ireland has turned the situation around considering the imf were in town.
Granted, the debt appears back stopped by the ecb. I wonder if this 1 team 1 dream will eventually bite us if we end up paying for a different bunch of piigs.


#439

Were still not making any serious inroads to paying back the capital. If the Apple money was released to us, what are the chances it would be used towards this? Would it be the best use of it, if not that? A tunnel to France? High speed rail between major cities?


#440

More than likely the Apple Money and AIB sale and NAMA liquidations will be used to get debt below €200bn.

As for PIIGS, Spain pays 1% on 10 year now and Portugal 1.1%, the only pigs left are Italy and Greece. The threat of the ECB recycling their €2tr of QE (starting soon) is enough to keep speculators at bay for the moment because the ECB can stay solvent longer than they can,