Ireland’s debt

The Irish state is borrowing so much that default is on the horizon. This reality is shown by the cost of bond insurance for Ireland. Ireland’s government debt is 12.2 to 12.5% of GDP in 2009 and will be about 11.3 to 14.7% in 2010-11. The ESRI states that the natural growth rate of the country is about 3% of GDP per annum. This means that we have a structural deficit (not related to economic cycles) of 8-9% of GDP about €14 billion. The cyclical part of the deficit is about €7 billion.

To get to solvency- we need to cut €8 billion in 2010 and a further €3 -€4 billion in 2011 and 2012. Looking at the money this implies a cut of 15 to 20% of the total pay bill of the public sector. We will also have to cut welfare payments by 10% but I suggest not state pensions which should be frozen or child allowance for those on low average incomes. If we took out €8 billion in deficit borrowing this year out of the economy – we will reduce our interest payments by €3 to €5 billion over the next 5 years. But no chance, because the whole political and union is in denial.

To June 2009, the average private sector wage fell by 6.8% whereas public sector wages increased by 3.2%.

Take a look at Hungary, Latvia, Estonia, Spain or Iceland and you will find that public spending has been cut by more than 10% in each. The International Monetary fund forced this on them. This has caused huge misery but the alternative was no money.

National Treasury Management Agency says that the national debt is €73 billion. Irish private sector debt is €378 billions and NAMA debt is €54 billion = total €505 billion. Interest rates at 5% mean that we will have to repay €25.1 billion per year. This is a little high because some of the loans will be at less than 5% but you can see that this is not sustainable.

(ref David McWilliams – Sunday Business Post 29th November 09)