Sinéad Pentony: The dust has hardly settled from the Troika’s departure when we are facing the repayment of €1.25 billion in unsecured bonds that are not covered by the bank guarantee to Anglo bondholders today.
Last week the Troika asserted that the “front loaded fiscal consolidation is on track, with the 2011 deficit significantly below the programme target”. Recent growth has been on the back of a strong performing export sector, but as forecasts for global growth are reduced, this channel for growth will diminish and it is going to become increasingly difficult to achieve the deficit reduction targets set out in the EU/IMF Programme of Financial Support for Ireland.
The deficit stood at 10.1 per cent (€16 billion) in 2011 and Budget 2012 is intended to reduce this to 8.6 per cent (€13.5 billion). In an attempt to reduce the deficit by €2.5 billion, cuts of €3.8 billion are being imposed. In the absence of strong growth domestically and globally, the government will have to face the prospect of having to cut more to achieve a smaller reduction in the deficit.
This is before we factor in the servicing/repayments of (sovereign and banking) debts, which includes today’s repayment of €1.25 billion in unsecured bonds and a further €3.1 billion in Anglo promissory notes at the end of March. Given the current state of our finances, these repayments will have to be financed through borrowing, which adds a further cost – interest.
The Anglo–Not Our Debt campaign which TASC is supporting has been raising awareness and generating much-needed debate on the issue. These debts are strangling our economy and we cannot begin the process of recovery until they are re-negotiated and re-structured.
We are borrowing to pay/service debts and we are borrowing to run the country, but repayments all come from the same source – government revenue (mostly taxes and charges). If we continue down this road we will see an ever-increasing proportion of taxation revenue being diverted to service/repay debt. This will result in further reductions in the revenue used to maintain and upgrade our infrastructure, finance health services and provide schools and housing – unless of course taxes and charges are increased.
Increasing tax revenue can only be achieved if the economy is growing and more people are working, but we are missing one essential ingredient - investment. The Troika identified “subdued” domestic demand and lower GDP growth projections of 0.5 per cent as the major challenges facing Ireland in 2012, both of which can be solved through significant investment in physical infrastructure and human capital. The question that is always asked is ‘where will the money come from?’.
There have been lots of creative proposals and suggestions put forward on where finance could be found. A quick look at the 2010 European Investment Bank (EIB) Activity and Financial Reports show that EIB lending reached €72 billion in 2010 and it made a net profit of over €2 billion in 2010. The EIB is a triple A-rated bank and can therefore borrow at very low rates of interest.
Member states are required to provide matching funding averaging 50 per cent. But given the scale of the crisis, it would make sense to reduce the level of matching funds required. This would facilitate increased lending and much great leveraging of EU resources, particularly by the countries utilising the EFSF (Ireland, Greece and Portugal): while our scope for investment is much more limited, such investment is essential for recovery. However, this will require the agreement of member states.
The latest report from the International Labour Organisation (ILO) on Global Employment Trends 2012 should provide all political leaders with much needed motivation to start coming up with policy responses that will put struggling economies on a sustainable path to recovery.
The ILO report is called “Preventing a Deeper Jobs Crisis” and it states that the world faces the “urgent challenge of creating 600 million productive jobs over the next decade in order to generate sustainable growth and maintain social cohesion.”
The report also calls for fiscal consolidation efforts to be carried out in a socially responsible manner, with growth and employment prospects as guiding principles. Budget 2012 and the decision to repay unsecured bondholders today, provide ample evidence that these guiding principles are not being applied in Ireland.
Showing posts with label debt reduction. Show all posts
Showing posts with label debt reduction. Show all posts
Wednesday, 25 January 2012
Tuesday, 1 February 2011
Cometh the hour...
Slí Eile: If the experience of the past 30 months has shown us anything it is how unstable, unpredictable and volatile the domestic economy is and, along with it, domestic politics. The range in GDP or GNP forecasts is one such indicator. It is easy (and convenient for some) to forget about 'turning the corner' and 'green shoots' around this time 12 months ago. Times move on. In terms of GNP the latest forecasts from the IMF indicate continuing contaction all the way up to early 2012 where they forecast an extremely modest growth of 0.8%. The Central Bank is more upbeat projecting 1.5% growth in GNP in 2012 following more contraction this year. Behind this headline figure are three significant underliers:
* Falling consumer demand up to the end of 2011 followed by scarcely any volume growth in 2012 (+0.2%).
* According to the Central Bank investment (Gross Fixed Capital Formation) will slump in 2011 and decline modestly in 2012 and
* government consumption will continue to decline in 2011 and 2012. All of this is according to the Great Four Year Plan.
You have guessed where the leap comes from - exports. They are set to grow by around 5-6% per annum this year and next following a big spurt in 2010 at 8%. This is very much driven by a recovery in world trade - at least for now.
Economic policy has become a one-hand-clapping strategy = WAGE CUTS = COMPETITIVENESS = EXPORTS = ECONOMIC RECOVERY. That's the message plain and simple. Sorry about unemployment, poverty and emigration. There is no alternative. And silly any politician who tries to negotiate on the overall size of the deflationary strategy (as distinct from the composition and timing of this) - the received wisdom is that beggars cannot be choosers and we have no cards left to play. We just have to take it on the chin and keep driving wages and public spending down until market confidence is restored. But, you can fool some of the markets all the time and all the markets some of the time. But, you can't fool all the markets all of the time. Hello Eurozone crisis II.
If the IMF and Central Bank (and ESRI) happen to be right then the prospects for employment and consumer spending and infrastructual investment look very bleak indeed - and these along with exports are vital to recovery and debt-reduction in the long-run. In political terms the authorities have chosen to 'default' on the home labour market with high numbers out of work and emigrating rather than 'default' on private debt now transferred to citizens' debt.
To argue, as some do, that deposits and bonds are on an equal footing in Irish law is outrageous, If this stands up in any court then change the law. People as in children, the sick, the young unemployed as well as everyone else come before man-made laws.
In relation to forecasts, it would be more accurate to describe these as technical working scenarios based on a particular set of assumptions (which are not always spelt out in public). In other words, the foreseen future is based on past relationships and future extrapolations based on particular chosen assumptions. Nothing fundamentally wrong with that - but lets not imagine that anything in this world quite behaves and reacts like the way macro-economic forecasting says it must. Markets, Governments (and the weather!) have a mind of their own. And so do voters later this month.
What is so desperately needed now, today is a coherent set of agreed policies on a wide range of key issues that can command a progressive consensus. Such a consensus needs to spell out the 'non-negotiables' - the red line issues beyond which no party to the agreement will go into Government or support a Taoiseach. One may not transform Ireland in four years and achieve well-being, prosperity and fairness all at once - but it is the direction of movement that matters and the soundness of any strategy to address the twin scourges of unemployment and debt (all types of debt and not just governmental and corporate-banking).
* Falling consumer demand up to the end of 2011 followed by scarcely any volume growth in 2012 (+0.2%).
* According to the Central Bank investment (Gross Fixed Capital Formation) will slump in 2011 and decline modestly in 2012 and
* government consumption will continue to decline in 2011 and 2012. All of this is according to the Great Four Year Plan.
You have guessed where the leap comes from - exports. They are set to grow by around 5-6% per annum this year and next following a big spurt in 2010 at 8%. This is very much driven by a recovery in world trade - at least for now.
Economic policy has become a one-hand-clapping strategy = WAGE CUTS = COMPETITIVENESS = EXPORTS = ECONOMIC RECOVERY. That's the message plain and simple. Sorry about unemployment, poverty and emigration. There is no alternative. And silly any politician who tries to negotiate on the overall size of the deflationary strategy (as distinct from the composition and timing of this) - the received wisdom is that beggars cannot be choosers and we have no cards left to play. We just have to take it on the chin and keep driving wages and public spending down until market confidence is restored. But, you can fool some of the markets all the time and all the markets some of the time. But, you can't fool all the markets all of the time. Hello Eurozone crisis II.
If the IMF and Central Bank (and ESRI) happen to be right then the prospects for employment and consumer spending and infrastructual investment look very bleak indeed - and these along with exports are vital to recovery and debt-reduction in the long-run. In political terms the authorities have chosen to 'default' on the home labour market with high numbers out of work and emigrating rather than 'default' on private debt now transferred to citizens' debt.
To argue, as some do, that deposits and bonds are on an equal footing in Irish law is outrageous, If this stands up in any court then change the law. People as in children, the sick, the young unemployed as well as everyone else come before man-made laws.
In relation to forecasts, it would be more accurate to describe these as technical working scenarios based on a particular set of assumptions (which are not always spelt out in public). In other words, the foreseen future is based on past relationships and future extrapolations based on particular chosen assumptions. Nothing fundamentally wrong with that - but lets not imagine that anything in this world quite behaves and reacts like the way macro-economic forecasting says it must. Markets, Governments (and the weather!) have a mind of their own. And so do voters later this month.
What is so desperately needed now, today is a coherent set of agreed policies on a wide range of key issues that can command a progressive consensus. Such a consensus needs to spell out the 'non-negotiables' - the red line issues beyond which no party to the agreement will go into Government or support a Taoiseach. One may not transform Ireland in four years and achieve well-being, prosperity and fairness all at once - but it is the direction of movement that matters and the soundness of any strategy to address the twin scourges of unemployment and debt (all types of debt and not just governmental and corporate-banking).
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