€220bn sovereign burden too big to carry Constantin Gurdgiev
Last week's events have finally brought to national and international attention the true extent of the solvency crisis we face. With the government estimates gradually approaching the true figure of expected banks losses and the forecasts for bank recapitalisation costs provided by the independent analysts, it is now clear that by the end of 2014 Ireland's sovereign and quasi-sovereign debt will be in excess of €210bn-€220bn.
Whether financed through the IMF/ECB facility or via borrowing in the markets or both, this debt will exert an unbearable burden on Irish taxpayers -- corporates and households -- who are already carrying substantial amounts of debt of their own. Using official figures and market estimates, the total interest rate bill for the government debt will be in the region of €13bn-€15.4bn a year. In effect, this makes the entire exercise with deficit cuts under the latest plan for recovery 2011-2014 an academic exercise.
In fact, the IMF/ECB deal will simply lead to an increased level of public indebtedness without addressing the underlying crisis.