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.
“I don’t expect that hospitals will have to close or schools will have to close, but I do expect a fundamental reappraisal of the public sector will have to take place in which we secure absolute value for money in the delivery of services,” Mr Lenihan said. (economics minister)
The rescue costs for this one bank represent a staggering 21 per cent of Irish GDP, more than the entire bill for sorting the Japanese banking crisis of 1997 and almost twice the cost of the Finnish crisis in the early 1990s.
Investors warned that Ireland may still be forced to turn to the eurozone bail-out fund, the European Financial Stability Facility, even if it succeeds in delaying such a move until the middle of next year at the earliest. Some investors are also sceptical over how Ireland will pay for its financial clean-up, although officials stress the country’s pension fund has assets of €24bn, most of which is liquid assets or cash that it can use to help its banks.
Irish Finance Minister Brian Lenihan said yesterday that "there will be a significant increase in [Ireland's] public deficit due to the financial support we are providing to our banks, which amounts to around 20% of GDP". After the bank bailout - which may be worth up to €50 billion - Ireland's public deficit will therefore attain a record 32% of GDP, while government debt is expected to reach 100% of GDP by the end of the year, Le Monde reports. However, both Eurogroup Chairman Jean-Claude Juncker and IMF Chief Dominique Strauss-Kahn have said that they do not expect Ireland to tap the €440 billion European Financial Stability Facility (EFSF).
An article in the Economist notes: "There is speculation that, if bond yields rise further, Ireland and Portugal might soon be forced to borrow from the EFSF [...] That is unlikely [...] But if Ireland were eventually forced to borrow from the EFSF, the fund might find it hard to impose conditions harsher than the ones it has volunteered for already. You cannot ask a non-smoker to give up cigarettes".
In City AM, Allister Heath argues: "There is one aspect of the Irish crisis that everybody appears to have forgotten about. Yet it goes a long way towards explaining Ireland's problems. It is, quite simply, its membership of the dysfunctional single currency, an institution which it should never have joined".
In the Telegraph, Jeremy Warner argues: "Stuck with a monetary policy which is essentially set to suit German needs, Ireland could be condemned to a semi-permanent deflationary funk".
In the Independent, Hamish McRae argues: "The [eurozone's] 'one-size-fits-all' interest rate caused huge problems during the boom years, for had Ireland and Spain been in control of their own interest rates they might have slowed the expansion of their property bubbles".
RTBF reports that Portugal has announced 5% cuts in public sector salaries and a 2% VAT increase after the European Commission urged the government to speed up the consolidation of its public finances. Les Echos reports that Portugal will also try to raise between €7 billion and €9 billion through new government bonds auctions by the end of the year.
The FT notes that the Greek parliament has pushed through legislation granting in effect a tax amnesty to millions of citizens, in a move that goes against advice from the EU, the ECB and the IMF.