As someone who has watched in frustration as both our Minister for Finance Michael Noonan and Department of Finance have consistently maintained that our debt:GDP % is “sustainable” on the basis that it will eventually come down, it came as a welcome, though surprising, relief last night to hear Brian Hayes, junior minister for finance at Brendan Howlin’s Department of Public Expenditure and Reform, say that the debt was “unsustainable”. Minister Hayes was speaking on RTE’s Prime Time current affairs programme and his statement was a bald “our debt is not sustainable” This contrasts with, for example, the view of the Department of Finance which in May 2012 produced a document “The Irish Economy in Perspective” from which the graph above is extracted, along with the official view that our debt was “sustainable”
To me, this was a “game changer” of “seismic” proportions, because up to now, the official line has been debt which will reach €190-200bn next year or about 120% debt:GDP is “sustainable” and indeed up to now, it was Minister Hayes himself who was the greatest cheerleader of the “sustainable” debt claim. “Remember the 1980s” he used say when our debt:GDP peaked at 118% in 1987 and it was subsequently whittled away over the following two decades so that by 2007, it was close to 25%.
Former school teacher, Minister Hayes hasn’t shown any independent streak in government which would suggest he was going on a solo-run yesterday, but unfortunately neither he nor his colleague on the Fine Gael backbenches, Paschal Donohoe who appeared on the Vincent Browne show later last night, was quizzed further over this apparent change of heart.
Because if our debt is not sustainable and that is the official line, then what happens if we do not get a debt deal in the EU which reduces the debt? On Twitter last night, Professor Karl Whelan of UCD referred to a former presidential advisor to US presidents in the 60s and 70s, Herb Stein who said “if something cannot go on forever, it will stop” or “if something is not sustainable, sooner or later it will stop”. So unless there is a debt deal, it seems the official line is that Ireland will default.
For once, the descriptions “seismic” and “game-changing” seem apt.
Meanwhile in Europe, there doesn’t seem to be a snowballs chance in Hell that there will be a deal to address Ireland’s bank debt by 30th October as committed to by economics commissioner Olli Rehn AND Enda Kenny.
NAMA Wine Lake 
Purely looking at your opinion here and perhaps you might not want to delve into the Public Sector Vs Private Sector debate here but:
What do you make of comments from the Association of Higher Civil and Public Servants in today’s Irish Times calling for a tax increases rather than cuts to public sector pay and increments?
Reblogged this on Brian M. Lucey and commented:
Is our debt unsustainable? One Irish minister for finance thinks so….
Rob
see http://www.banque-france.fr/fondation/gb/telechar/pdf/Consolidations-in-Currency-Unions-Spending-Cuts-Vs-Tax-Hikes.pdf
just saying like…
Can we expect an unconvincing “clarification” of what Brian Hayes really meant in the coming days, a la Joan Burton and her 15 billion Euro gaff a few weeks ago?
There is no shortage of nonsense going on at all levels.
Last month, 9th Sept on a Sunday morning show on News talk the minister for Children proclaimed that the worst is over, only 8 1/2 billion to go.
Obviously nobody told her that the magic growth fairy had missed the bus for years, and did not appear to be waiting at the stop for the 2013 bus
I hope the DOF + Central bank are investigated a mechanism which will allow legacy borrowings to be repaid in full by new future borrowings so as to get our legacy debt into the future. Circumvent this restriction which is coming from Europe on legacy debt. But I don’t think it will work.
We should be paying close attention to Greece. If Brussels is prepared to allow Greece to slide into anarchy, they will allow the same to happen to Ireland.
Reblogged this on Machholz's Blog and commented:
Our bad luck in Ireland is we are saddled with the likes of this Brian Hayes, (junior minister for finance) who is in effect is an example of a parish pump, self serving, and parity stroke politician who suddenly acquires a lifetimes experience in the financial world in the first week he entered the Dail and we are now to believe that he and his fellow Gombeens in government are all knowing and never could be wrong.! Austerity is the only way forward as long as everybody puts their shoulders to the wheel (that’s is except himself and his vested interests, who are protected within the coke park agreement
@brianmlucey
So, some evidence that a tax on labour may have less of a negative impact on then expenditure cuts if monetary policy cannot be used to offset the negative drag on demand.
Some observations (that given I’ve only glanced at the paper may or may not be particularly vaild):
1) The paper is incomplete (and perhaps the first off its kind on the subject?)
2) Does Ireland take a ‘special case’ position within the Eurozone? Due to the fact two of our larger export partners are the UK/US, so many US firms providing employment etc. I think the paper is focused on domestic demand rather than overall output so maybe not.
3) Does it take into effect the monetary policy benefits we have recieved since the onset of the crisis, interest rates have gone from 3.75% to 0.75% (particularly benefitting over half fo the mortgage holders in Ireland), the ECB buying some of our bonds in 2010 (even if we don’t know the extent), the LTROs etc. Obviously not trying to argue that an independent MP wouldn’t have been better.
Anyway, apologies for that NWL. Hijacking your post.
@brianmlucey
Also, I know you have been quite vocal on the subject of what cutting PS pay would do to domestic demand, that you’d only save a certain percentage due to the fact such wages are taxed etc.
However, it might be worthwhile sticking the issue in the media next time you wrtie for the IE. I think it has definitely entered the public mindset (unchallenged) that the spending cuts are a better option.
ahahahaha Brian Hayes said something and this is significant?
Remember this is the same man who said this on monday:
“All our futures are based on getting the property market going again. People need to act fast to avail of it [mortgage tax relief]”
After all that has happened, Brian Hayes still believes that restarting the property bubble is the country’s only hope.
http://www.independent.ie/business/personal-finance/property-mortgages/firsttime-home-buyers-told-to-take-5000-deal-of-a-lifetime-3258938.html
Ireland’s debt sustainability is a function of many variables including growth and public sector pay rates and welfare rates and inflation and troika subsidies. Should the debt become unrepayable, it will not be repaid. So what? If we follow the program and it doesn’t work then the troika will bail us out again to avoid a default.
Will teachers and cops see their avg 60 grand wages fall? I doubt it.
Starring down both barbells of a 6.2Billion PM pmt. in March may finally be focussing minds,perhaps a few sacred cows coming into the crosshairs of austerity,looks like the good doctors and teachers are hitting bone !
Servicing the current debt burden is unsubsanaible,specifically with no growth it’s a wonder yields are where they are,absent a deal on the PM’s yields could blow out and quickly.
Una McCaffrey in the IT this week re-reported a WSJ interview with the new Irish analyst from Fitch.Somehow one of his more important statements was lost in translation or perhaps she did not want to be the bearer of bad news!
IT-screaming headline,hold the front page..
“Fitch latest agency to say outlook for Ireland improving”
http://www.irishtimes.com/newspaper/finance/2012/1019/1224325455220.html
Psst Una you forget to mention this part…..Kiss said the outlook was weakening,mere semantics or more spin….
“There are a constellation of factors weighing on [Ireland’s economic recovery]–first from the wider euro-zone crisis and now the weakening U.S. and U.K. economies,” Mr. Kiss said.
He said the country’s outlook looks weaker than it did even a few months ago, as Ireland’s small open economy is buffeted by the euro-zone slowdown and demand at home is contracting.
“Driven by our forecasts on the wider euro-zone economy, we now expect flat Irish gross domestic growth this year, cut from about 0.5% growth, and we project only about 1% GDP growth next year, down from around 2% we forecast earlier,” he said.”
http://online.wsj.com/article/SB10000872396390444734804578064683474964350.html?KEYWORDS=Fitch+ireland
In fairness the Times did say “He added that the Irish outlook looked weaker than it did even a few months ago”.
@Rob S the dramatic opening from the IT,it all sounds very peachy to me…
“FITCH HAS become the second ratings agency within a week to signal an improved outlook for Ireland’s credit rating.
In an interview with the Wall Street Journal yesterday, Fitch analyst Gergely Kiss said the agency could be approaching a point where it would remove its “negative” outlook on Ireland’s BBB+ rating.”
The WSJ opening,apologies it’s behind a pay wall…..
“Ratings agency Fitch Ratings signaled Thursday that it may soon remove Ireland’s negative ratings outlook, but an upgrade could be some way off.
Lifting its current BBB-plus Fitch rating depends largely on the sort of deal Ireland can secure with the euro zone in its bid to lighten the huge debt burden it took on to save its banks, one of its senior analysts said Thursday.”
Must be me….”improved outlook” as opposed to an “an upgrade may be some way off” oh and it’s dependant on a debt deal too,we all know how that’s going.
The Irish media are clutching at straws the natives and the IMF are getting restless,the medicine is not working the patient is now in the ICU.
Walk of shame ahead for Enda,home soon begging bowl empty,but sure the fawning and supine Irish media will stay on message.
Great coverage by The Guardian……nice Freudian slip here ..there you have it NO DEAL.They must have missed Haye’s statement……….
“Merkel in interesting error says bank supervisor won’t be ready by beginning of 2030 – hastily corrects to 2013…”
http://www.guardian.co.uk/business/2012/oct/19/eurozone-crisis-eu-summit-banking-supervision#block-5081304158f96784ee290736
“The Eurogroup will draw up the exact operational criteria that will guide direct bank recapitalisations by the European Stability Mechanism (ESM), in full respect of the 29 June 2012 euro area Summit statement. It is imperative to break the vicious circle between banks and sovereigns. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision,have the possibility to recapitalize banks directly. ”
Click to access 133004.pdf
Ultimately I see only two end game scenarios for Ireland.
1) Stay in eurozone, balance the nations books, obtain a huge loan, say 80 to 100 billion euro either from European core, USA, or China at a very low rate with a term of perhaps 100 years.
Develop a growth strategy. However I don’t believe the senior civil service have the intellectual capacity to do this. Too much sub intellectual dysfunctional “yes minister” with its self serving spin.
2) Depart the eurozone, freefloat our own currency and prepare for a very rough ride.
The Germans are acting on a philosophy of “Tough Love”, but even parents have empathy, and will act to support their children even if they have transgressed gravely.
Does the European core / Germans have empathy? Lets see what happens with Greece. Chancellor Merkel should be cautious, not to push the European periphery too far, because if she does, there will be little point in countries like Ireland, Portugal & Greece staying in the eurozone.
What is the point in Greece remaining in the euro, but anarchy rules the streets? Will the same happen to Ireland? Quite possibly.
I find the bhaviour of the Irish gilt market quite interesting, given that informed observers generally are more convinced of the Irish state’s debt unsustainability than they were when gilt yields peaked.
It is either really dumb investing or correct view that the fundamentals just don’t matter – the market will be rigged to reward long positions regardless.
clip clop clip clop…giddy up…best performing bonds in euro in ’11…the thundering herd….actually temptelon not ML…. Hasenstab or hasn’t a clue!
Hes probably selling now as he actually appears quite smart,nice trade Mike sweet.There simply is NO yield out there…….
Of course the debt is unsustainable. To paraphrase Nguyen Chi Thien, Vietnam’s Solzhenitsyn in relation to Angela and the Germans,
Let the hacks with their prostituted pens
Comb her hair, pat her head, caress her arse!
To hell with her!
There’s one positive in all this, the banks will need to be recapitalized again once the mortgage arrears crisis gets going. To make sure though, why not have Nama sell all ‘assets’ back to the ‘core’ banks at original value? Nama makes 20 billion for the irish state, the ESM is forced to recap the ‘core’ banks in 2013 :)
Nice one!
Actually Hayes has drifted from this message before. Remember back when 2013 was widely, though not universally, hailed as the year when “orderly restructurings” of sovereign debt were going to take place under the auspices of the ESM? Well, about that time, and a little before Leo Varadkar made his comment that Ireland would be needing a second bailout, Brian Hayes went on Prime Time or something and demanded that the restructuring deadline be brought forward; in other words, that Ireland should have the option of an EU-supported sovereign default before 2013! This was a sight more radical than Leo Varadkar’s prediction, since Varadkar didn’t envisage our private-sector creditors getting soaked. So I was pretty puzzled when Varadkar’s comment provoked a two-week flap while Hayes’ was ignored. Was it because no-one pays attention to Brian Hayes? Or maybe because no-one pays attention to RTE? I don’t know.
And of course there are Pat Rabbitte’s trips off the reservation: see for example Irish Times, May 9: “Minister criticises economist’s ‘prescription’”
What’s new this has always been obvious, nothing has changed.