Rob Kitchin writes Ireland after NAMA The National Management Asset Agency, which buys troubled assets to ease the financial crisis. This is an extract, which in one short paragraph explains why Ireland’s economic plight is the worst bar none within the eurozone.
A year’s tax receipts at present is €33bn.
The €29.3bn that’s gone into Anglo has disappeared into a black hole never to be seen again. Another €15.4bn has been pumped into the other banks (Bank of Ireland, AIB, Irish Nationwide, EBS), which hopefully will be recovered over the long term. The €40bn or so going into NAMA may or may not pay back depending on the nature of the assets transferred in and whether the Irish property market recovers sufficiently over the next 10-15 years.
The government are presently borrowing €20bn per annum to bridge the gap between tax receipts and the cost of running the country. Since the bank guarantee two years ago, the Irish state has borrowed a fantastic amount of money, so much so that the Guardian reports that government debt now exceeds GDP, with the deficit 32% of GDP (easily the highest in Europe).
If there is a reason that overseas investors are nervous, this is it. Our economy has shrunk markedly, our unemployment and welfare bill grown significantly, our austerity measures do not seem to have worked, the banks have been financial blackholes, and we owe a fortune. Yet we are committed to reducing the deficit to 3% of GDP by 2014, committed to the bank guarantee, and to paying back our debts in full.
Another statistic not mentioned by Kitchin is that Irish banking liabilities are five times Irish GDP. In economic terms this a high wire act. It would be in Ireland’s best interests to default. The austerity will otherwise last a decade. But the EU can’t contemplate any Euro member doing that. Without political direction, the proEU Irish political elites will play Brussels’ tune. Ordinary Irish will pay a heavy price. As Kitchin says, there will no doubt be more Black Days to come, which could send the crisis out of everyone’s control. Let’s hope the plans for an orderly default are being prepared.
If Anglo fails, there will be nothing else in line to stop Ireland defaulting apart from EU money, backed up by money from the US. The bill for rescuing Ireland and her banks could yet top hundreds of billions of Euros. And that would merely be the cost of saving just one tiny eurozone economy. The mind boggles at what the cost of saving the whole eurozone could yet become. If the ECB issues the money, what IOUs can Ireland offer as collateral that would be worth much? Do the world’s central banks want to be hung up with junk? It will be cheaper in the long run to permit default, and get Ireland’s economy rolling again.
On Wednesday Standard & Poor’s, the credit rating agency, downgraded Anglo Irish’s subordinated debt by three notches to triple C and warned there was a “clear and present risk” of a restructuring of the bonds. Earlier this week, Moody’s Investors Service similarly downgraded the bank’s sub bonds, but also downgraded Anglo Irish’s senior bonds by three notches because of the “greater marginal risk” that the government would not support those creditors.