Sunday 18 February 2018

Colm McCarthy: Budget overshoot is on cards as is a dreaded second bailout

Deficit target for 2013, and our return to the markets, is based on unrealistic growth and expenditure control

Colm McCarthy

Colm McCarthy

Reactions to budgets, and to other newsworthy developments, need to be placed in the correct medium-term context. The EU/IMF rescue funds being loaned to Ireland run out at the end of 2013, after which point the Government will have to borrow whatever it needs under its own steam on the open market.

It will need to borrow very large amounts. The budget deficits will remain sizeable (almost six per cent of GDP is the planned figure for 2014) and there will be big roll-overs, maturing bonds that have to be re-financed with new issues. Eventually the official lenders will have to be re-paid, again through new issues on the open market.

A large portion of these new borrowings will have to be at long maturities of 10 and 20-year bonds. Governments find it easy to borrow short-term money, say one or three-month treasury bills. But if the entire debt, or a large portion of it, becomes concentrated in short-term debt, there will be a continuing re-financing crisis with a mountain of new borrowing every month. This is not a sustainable course.

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