Tuesday 27 June 2017

Eurostat timebomb keeps ticking

THE decision of the Greek government to ask the EU to activate the €45bn bailout package quickly banished Eurostat's decision to force our Government to restate last year's budget figures.

However, by demanding that the Government include the €4bn cost of recapitalising Anglo under the capital spending heading, the EU's statistical agency has placed a ticking timebomb under the public finances.

Until this Thursday, we were assured that last year's budget deficit was "only" 11.2 per cent of GDP. Following this week's "adjustment", this rises to 14.3 per cent of GDP, the highest in the EU. The Government was quick to play down the significance of the adjustment, pointing out that it was a "technical" item and didn't impact on the underlying cash situation.

If last year's adjustment were a once-off item that would certainly be true, but is it?

Last month, the Government announced plans to pump up to a further €18.3bn of fresh capital into Anglo. After what happened this week, it must be odds on that Eurostat will insist that this amount also be treated as capital spending -- likewise the €2.6bn that has been earmarked for the Irish Nationwide.

It could get even worse. Nama is purchasing bad loans with a book value of €36bn from Anglo and €9bn from Nationwide. Even at the 50 per cent discount Nama is applying to Anglo loans and 58 per cent to those from the Nationwide, that works out at a further €22bn. Will this money also have to be categorised as spending?

Having insisted that all or part of the money used to recapitalise Anglo be included under the spending heading, what are the odds that Eurostat also demands that our national debt figures also be revised upwards?

With Anglo set to require up to €22.3bn of fresh capital, Nationwide €2.6bn and NAMA set to spend up to €22bn on their bad loans, that works out at a grand total of €46bn. If this full amount were added, then the national debt would balloon from the current figure of about €80bn to almost €130bn.

Sunday Independent

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