Sunday 17 December 2017

It's touch and go whether State can finance itself

Failings in Europe's response to the Irish fiscal crisis have only exacerbated it, writes Colm McCarthy

Ireland has a debt crisis as well as an Exchequer deficit crisis. Both the State and the banks are heavily borrowed and much of this borrowing is short term. It must be renewed on a continuing basis and this has proved so difficult that neither the State nor the guaranteed banks have been able to borrow in the markets.

The State deficits planned for the next three years, plus maturing long-term bonds that have to be repaid, total about €65bn, enough to absorb the lending promised from the IMF/EU bailout. The remaining amount (about €15bn) in the National Pension Reserve Fund is largely committed to the bank re-capitalisation, while the cash reserve will be required to replace short-term government borrowings which mature at early dates. It cannot safely be run down to low levels until the deficit itself has been cut back towards zero.

The amounts secured (conditionally) from the official lenders will be just about enough to keep the State afloat over this period, and there is very little uncommitted margin in liquid resources available. After the bank re-capitalisation to which the NPRF funds are committed, that particular cupboard will be almost bare, which has not prevented some politicians from spending the same money more than once. The use of these NPRF funds for bank re-capitalisation is a key component of the bailout deal and their use for any other purpose would effectively terminate that deal and cut off access to a far larger source of funds.

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