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Plugging the black hole

WITH so many billions flying in all directions, it is almost impossible for the ordinary person to get any sense of how much trouble the country is really in. This uncertainty creates fear, and also despair. Both are the enemy of action, which is why the uncertainty must be dispelled as soon as possible.

The figures produced by the National Treasury Management Agency yesterday certainly look frightening. The interest payments on the burgeoning national debt reached almost €5bn last year.

This figure -- the amount which taxpayers must find -- is a better measure of the burden than the €93bn actual debt. That sounds an impossible amount, but solvent countries do not have to repay their debts. If they can comfortably pay the interest, they can replace old loans with new ones.

In fact, neither figure is particularly large. At €5bn, or 4pc of national income, the 2010 interest cost is more than manageable. Exchequer debt, at 60pc of GDP, was still within EU rules. The problem is the future.

In a speech delivered yesterday, Central Bank governor Patrick Honohan calculated that the fateful combination of budget deficits, bank losses and shrinking economic output will see the total debt more than double as a share of national income over the next 18 months. That may be more than is manageable, certainly as far as financial markets are concerned.

And this is the most optimistic figure. It assumes no further bank losses, and that the four-year plan is implemented. The two are linked. To have any chance of political success with the plan, the running sore of the banks must be stanched.

Finally, this is now being tackled with some urgency. Dr Honohan is quite clear that the business of the Irish banks will have to be sold to foreign institutions -- which probably means large European ones. It is another humiliation, but it seems the only way to restore the confidence of depositors, who withdrew €70bn last year, and provide credit to sound customers.

The taxpayer will be left with the rest. The important thing is to have a believable figure for the costs of that. Only then has any government a chance to persuade people to accept the sacrifices required to fund the public services that we have been enjoying, however unknowingly, on borrowed money.

Of every euro borrowed since the crisis struck, only 12c has been for the banks. This is the big black hole -- the mismatch between tax revenues and public spending. There is no currency to devalue, or bondholder to burn, to get out of that one. Pretending otherwise can only make matters worse.

Irish Independent