I must admit to being frustrated yesterday by our Minister for Finance’s clumsy handling of the key question of the quantum of any bailout. Plainly some unknowns remain and negotiations need to be concluded but the Minister could surely have done better than denying that it would be a “three-figure sum”, by which he meant €100bn (surely that’s a 12-figure sum – €100,000,000,000) and then saying during the same RTE interview with Richard Crowley that it wasn’t going to be “€60-70bn”. Sources in Europe seem to have been more forthright and last night David Buick of BGC Partners in an interview on BBC News 24 said at one point that he thought it would be in the region of €80bn and a few moments later stated with what seemed like confidence that it would be €85bn. Just a few moments later in Dublin, the two Brians commenced their press conference during which Brian Lenihan was asked how much would be required and his response was that “we could work it out” and he repeated that the funding requirements of the State were €19bn per annum. This entry tries to produce some workings.
(1) NAMA – €5bn. NAMA appears to have been frozen out debt markets and although it has been putting in place programmes to access State-guaranteed debt of up to €5bn as allowed by the NAMA Act, it has not executed the programmes. The betting must be that NAMA’s €5bn will be provided by the bailout.
(2) Deficit funding for 2011-2014 will be €43.25bn, being €16bn in 2011, €12bn in 2012, €9.75bn in 2013 and €5.5bn in 2014. This is from the NTMA in November 2010 after the Department of Finance announced the €15bn fiscal adjustment upto 2014 and the €6bn adjustment in 2011.
(3) Promissory Note funding for the banks. Although the Department of Finance claimed this would be €3.1bn per annum from 2011 onwards, the truth is that it may be frontloaded. €31bn may be needed immediately.
(4) Repayment of national debt debt (bonds, treasury bills). The workings of the NTMA above don’t appear accurate and in particular seem to exclude the repayment of treasury bills. Elsewhere on the NTMA website they show a graph of redemptions which indicate the following up to and including 2014 (total of €38bn)
(a) €12bn in 2011
(b) €6bn in 2012
(c) €7bn in 2013
(d) €13bn in 2014
(5) Replacement of ECB emergency liquidity assistance. The ECB has already signalled that it intends to cease its emergency assistance programme. As we know at the end of October 2010, the six State guaranteed banks had borrowed €90-100bn from the ECB. This may have increased in the past three weeks. But if the ECB is withdrawing the assistance and no-one else is lending then presumably the State will need pony up this funding. So that would be €90bn ++
So by working it out myself like Brian Lenihan suggested, I come to €207bn approximately for the period up to the end of 2014 (perhaps I should be looking at a shorter period?). Of course we have some €10bn of funding already (the “fully funded to the middle of next year” funds) and we have €14bn or so available from the National Pension Reserve Fund (€25bn less commitments to AIB/BoI). The promissory notes may not need immediate upfront funding. On the other hand we will have substantial interest payments on borrowings not previously accounted for. And of course there may be further nasties lurking in the banks and it seems that the substitute ECB funding will be considerably more than €90bn. But regardless I can’t see how the bailout can be less than a 12-figure sum and likely to be in the €200bn zone. So Brian, are my workings wrong?
UPDATE: 22nd November, 2010. Video of the press conference last night in which Minister Lenihan said we could work it out ourselves is now available – in the clip below the relevant question and answer is from 5.25 and the transcript is “You asked another question, a breakdown of the two I can’t give you that [a ratio breakdown – how much of the bailout is for the banks and how much is for the country] but you can work it out for yourselves because you know what the gap in terms of public expenditure is at present – it’s €19bn this year for example. So clearly as with the banks, so with the State itself the arrangement will be designed to show the firepower available to Ireland”
UPDATE: 23rd November, 2010. Minister of State at the Department of Health and Children (one of 15 ministers outside the cabinet which itself has 14 ministers plus the Taoiseach) John Moloney was on the under-rated Vincent Browne show last night when the following exchange took place (from about the 37th minute)
From 37:00 minutes on –
MINISTER JOHN MOLONEY: Let’s take the worst scenario that it might transpire, of course it’s a huge concern a huge worry as we go forward .The clear implication of all of this is that unless we secure support from the ECB, the alternative is worse
VINCENT BROWNE: Do you ever think in your head, in your mind “how could we have screwed it up so badly that we have forfeited the future of this society for years and years and years to come” You ‘re going to leave a debt of the order of €150-160bn?
JM: I wouldn’t make light of that at all, nor would I play politics with it, of course it’s down to poor regulation-
VB: Sorry it’s going to be €200bn
JM: In fact it will even be in excess of that, if it’s drawn down of course but I’m thinking of the worst possible scenario. Of course there’s huge implications. The reality has been and we’ve acknowledged this.
Our national debt today is €90bn according to the NTMA. If the bailout is say, €90bn, then how do we get to a national debt of “in excess of ” €200bn? I think the answer must be that part of the bailout will be earmarked and certain whilst the rest will be contingent. Contingent on what? The ECB not withdrawing emergency liquidity assistance totally as planned in January 2011, the ability of Ireland to return to the debt markets over the course of the next three years, the promissory notes that the State is using to capitalise the banks not being called in in the short term. But there you have it, a Minister of State conceding that the national debt may be in excess of €200bn and given the likely exit from power of this present government by the end of January 2010, I think the betting would have to be that the bailout now in prospect is €100bn+ at least.
NAMA Wine Lake 
You can probably add into the spoof promissory notes the 5 bn bond that INBS issued to itself. I imagine this is more of the absolute junk the ECB wants off its balance sheet.
Then there is 34.5 bn at the Irish Central Bank.
Shure why don’t we call it 250 bn and have done with it…
Actually, there’s a bit of double counting here. I presume the INBS 5 bn note and the promissory notes are already out on repo at the ECB, so that would reduce by 35 bn the 250 bn figure. Down to 215 bn then…
On the other hand, not all the NAMA bonds are issued…
One question….will the interest and capital repayments on all this not drag us down further and be impossible to cover?
It’s a good question – I think we have arrived at the point where we need consider if the burdens we are facing are “manageable”. Clearly at some point the costs won’t be manageable and when we get to that point, if not before, we need consider default. Once we take the bailout from the EFSF/EFSM and inject most into the banks then we explicitly make this a sovereign debt issue – yes, you could argue that the bank guarantee puts us in that position anyway, but I would still argue we can undo the bank guarantee.
But yes, the debt and interest will be crippling but whether it is still manageable is another question.
A €90 bn loan would only worsen Ireland’s position as the principal could amount to about two-thirds of our GDP and the interest burden could equate to about half of all income tax receipts. This, on top of everything else, is unsustainable.
There is no prospect of such a bale out being accepted by the electorate as the Government with which the IMF is negotiating has absolutely no credibility or mandate. If a bale out is forced on us, an even bigger rescue job will be needed to straighten out the devastation and contagion that it will create.
This huge bale out should be rejected. Instead, we should accept responsibility for the deficit and sort it out via the 4-year plan with IMF assistance limited to supervision and a standby fund. It will be painful but possible.
In return, the IMF should sit down with the ECB and structure a bale out for the major banks etc. which foolishly bought Irish bank bonds – they should have known better. We should hand over our banks to those institutions as part of the deal.
Nice work Nama wine lake.
I’ve linked to your blog on the Guardian blog.
http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2010/nov/22/ireland
Lisa
Interesting research NWL. Well done!
The big question though is how much of this is investment funding that can be recovered relatively quickly?
For instance, in my opinion, I would include the NAMA €5 billion and the investment in NAMA. I believe that the IMF will try to speed up the disposal process in order to recover the NAMA “expenditure” – but maybe that is wishful thinking.
Also, much of the emergency liquidity assistance should be replaced with new deposits when the banks are restructured.
In reality the only way that the bailout can be brought below €100bn is if the ECB extend emergency measures beyond their present planned termination in January 2011.
I agree with you that other elements of the bailout will be for short terms and may be recoupable, like the NAMA €5bn of development funding – that said NAMA has a 7-10 year lifespan so 100% recoupment mightn’t be in the next 4 years.
I also agree with you that the Europeans in particular won’t be so concerned about sell-offs that impact the Irish and British markets and I think more pressure may be brought to bear on NAMA to dispose sooner rather than later.
[…] be North of 200 billion excellent piece here which explains […]
[…] who’s been following the toxic loan mess for a long time, very carefully, takes up Brian Lenihan’s abject shoulder-shrug of a challenge and produces the horror estimate of around EUR200Bn-EUR250Bn. His commenters disagree about how to […]
Just go bust.
Introduce a law, replacing all Euro deposits and Euro Loans with the new Punt, including government borrowing.
Impose a tax on Irish residents on any FX profits.
You might not even default on government debt as a result. (It’s now paid in Punts).
As well if you want, go the Argentine/Russian route and outright default
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