Why hasnt Irelands debt reduced?

Drumpot

I don't get it. . .

NAMA has made billions over the last few years selling off assets. Granted at a knockdown value, but where has the money gone ? I believe we paid €31.8billion for these assets (http://www.nama.ie/about-our-work/key-figures/), I know they've gotten back at least some of that, but its difficult to find any figures clarifying it.

Also, there are rumours that Ireland will make a profit on the eventual sale of shares in AIB. There was also levys/charges on banks that got bailouts. .

To keep the discussion simple, if its the case that Ireland has gotten billions from the sale of assets from NAMA and is going to make a profit on AIB shares, why exactly isn't the national debt reducing?

Let me make it even simpler. If I get a loan of €70billion and I pay interest annually and can payback even half that after 6 years. Then my debt should reduce by €35bil. These are general figures used as an example.

ardmacha

NAMA are not part of government debt, they are off balance sheet.

Drumpot

ardmacha wrote: »

NAMA are not part of government debt, they are off balance sheet.

Ok, so the €31billion used to bailout the banks was not on the balance sheet? If that's the case, once NAMA has sold all its assets, whatever is left over to pay out of the 31billion will pass onto the Irish government ? On top of that, is there no official source at least detailing what it currently stands at?

Lastly, has Ireland received anything from other banks (BOI, PTSB etc) like levys or payback for the money pumped into them ? If so, is there anywhere where this money is accounted for publically ? I am not suggesting anything dodge has happened, I am just curious how money is held and used.

srsly78

Countries don't often reduce their debt at all, rather they reduce their debt-to-gdp ratio by growing the economy. Even if the debt stays the same inflation will nibble away at it.

During our boom the government did not pay off any of the debt, they just rolled it over (this means they raise new bonds to pay the old ones that come due).

ardmacha

Drumpot wrote: »

Ok, so the €31billion used to bailout the banks was not on the balance sheet? If that's the case, once NAMA has sold all its assets, whatever is left over to pay out of the 31billion will pass onto the Irish government ? On top of that, is there no official source at least detailing what it currently stands at?

NAMA has its own bonds, when these are paid off if there is a profit the government will get it. With property prices rising they will probably make a profit.
http://www.finance.gov.ie/news-centre/press-releases/section-227-review-concludes-nama-meeting-its-strategic-objectives

Drumpot wrote: »

Lastly, has Ireland received anything from other banks (BOI, PTSB etc) like levys or payback for the money pumped into them ? If so, is there anywhere where this money is accounted for publically ? I am not suggesting anything dodge has happened, I am just curious how money is held and used.

Yes, Banks paid for the guarantee and Bank of Ireland reducedthe government holding to reduce outgoings.

everdead.ie

Debt to GDP ratio has actually fallen I believe or at least is projected to this year however we are still running a deficit so we can't reduce the debt.

If you look at what they are doing however is replacing high yield bonds early with really low yield bonds to save us hundreds of millions a year in debt servicing costs.

The other thing about Nama is it will probably return a surplus which will go back to the government but a lot of the debt before it was sold/bought to/by Nama had to be written down and put on the national debt before Nama bought it.

So while the 31B Nama has is not on the balance sheet the write down that occurred before hand is.

Drumpot

everdead.ie wrote: »

Debt to GDP ratio has actually fallen I believe or at least is projected to this year however we are still running a deficit so we can't reduce the debt.

If you look at what they are doing however is replacing high yield bonds early with really low yield bonds to save us hundreds of millions a year in debt servicing costs.

The other thing about Nama is it will probably return a surplus which will go back to the government but a lot of the debt before it was sold/bought to/by Nama had to be written down and put on the national debt before Nama bought it.

So while the 31B Nama has is not on the balance sheet the write down that occurred before hand is.

Thanks, I am still trying to get my head around this so please bear with me. I am trying to give an example in terms I understand. .

Lets say I have my own personal loans and a director loan.

My company gets into trouble and needs 31bil injection to survive. A bank gives me a loan that will only go on the balance sheet of the company. The company has stock that can be sold to cover the loan. The value of this stock will be sold over the coming years to payoff the loan.

As the years go by, the stock is sold off at different times, but the loan remains the same. On the company balance sheet it says "31bil" in the liability column. So where is the funds that were made by the sale of stock?

Why would I get more loans, granted at a cheaper rate, to cover the original loans when I have money that was made from the sold stock, sitting somewhere else?

For this to be clear, I am trying to work out exactly how much, directly (not indirectly) the actual bank bailout is likely to cost. I understand the knockon effects in the economy and the budget deficit etc (job losses, property tax revenue lost etc), but I am wondering exactly how much the banking bailout really cost . . This includes the extra billions ( http://www.independent.ie/business/irish/merrill-lynch-got-irish-bank-bailout-cost-wrong-by-48bn-30112305.html ) that were subsequently pumped directly into the banks after the initial bailout . . Seems to be up around €70bil!

Geuze

You seem to suggest that the company earns an annual profit out of which it slowly repays its debt.


Note that the Irish Govt has run continuous deficits, so obviously the debt won't reduce.

Geuze

Here is a good breakdown of the cost of the banking crisis:

Geuze

So the State has injected 64-65 into several banks, this is the gross costs.

Much of this was borrowed, though some was funded by selling off the assets of the NPRF.

Either way, the State's balance sheet worsened to the tune of 65bn.

In return, the State acquired several banks:

Anglo / Irish Nationwide = IBRC - worth very little in the end, so massive loss to the State

AIB / EBS - 99.8% owned by the State - may be worth more in the future

BoI - small stake remaining, after the State sold some of its stake

Geuze

Drumpot wrote: »

Lastly, has Ireland received anything from other banks (BOI, PTSB etc) like levys or payback for the money pumped into them ? If so, is there anywhere where this money is accounted for publically ? I am not suggesting anything dodge has happened, I am just curious how money is held and used.

Yes, there has been some return on the holdings of AIB and BoI.

However, as these banks haven't been in the position to pay cash divs, the return has been in the form of more shares, i.e. we ended up owning more of the bank.

We did get some return from selling a stake in BoI.

We may get more in the future.

However, we will still be running deficits, as the returns might be 1bn pa, while we borrow 4bn pa for day-to-day spending.

Rightwing

Geuze wrote: »

Yes, there has been some return on the holdings of AIB and BoI.

However, as these banks haven't been in the position to pay cash divs, the return has been in the form of more shares, i.e. we ended up owning more of the bank.

We did get some return from selling a stake in BoI.

We may get more in the future.

However, we will still be running deficits, as the returns might be 1bn pa, while we borrow 4bn pa for day-to-day spending.

We've made a healthy profit on Bank of Irl. Got over €1bln from sale of Ir Life.

I don't buy the debt to GDP arguments. I like to see the actual debt being paid down.

Godge

Rightwing wrote: »

We've made a healthy profit on Bank of Irl. Got over €1bln from sale of Ir Life.

I don't buy the debt to GDP arguments. I like to see the actual debt being paid down.

Why? We went higher that where we are now in the late 1980s and still managed to get down to 24% by 2007. Who is to say that can't happen again?

Rightwing

Godge wrote: »

Why? We went higher that where we are now in the late 1980s and still managed to get down to 24% by 2007. Who is to say that can't happen again?

That was from a fairly low base. It would require incredible growth for that to happen now.

AlmightyCushion

Godge wrote: »

Why? We went higher that where we are now in the late 1980s and still managed to get down to 24% by 2007. Who is to say that can't happen again?

I'm with rightwing here. It's nice to see the debt to GDP ratio decreasing but I'd still like to see the actual debt value decreasing and the debt to GDP ratio decreasing at a quicker rate. We went into this crisis with very low debt and debt to GDP. If we had entered it with debt levels anywhere near what we had now, we'd have been properly screwed.

By reducing the debt and our debt to GDP quicker then we currently are gives us the ability to better weather potential issues in the future that may cause a big increase on expenditure, the yield on our debt or a big decrease in tax take. The same with running a balanced or surplus budget as opposed to borrowing €10b or so like we currently are.

Rightwing

AlmightyCushion wrote: »

I'm with rightwing here. It's nice to see the debt to GDP ratio decreasing but I'd still like to see the actual debt value decreasing and the debt to GDP ratio decreasing at a quicker rate. We went into this crisis with very low debt and debt to GDP. If we had entered it with debt levels anywhere near what we had now, we'd have been properly screwed.

By reducing the debt and our debt to GDP quicker then we currently are gives us the ability to better weather potential issues in the future that may cause a big increase on expenditure, the yield on our debt or a big decrease in tax take. The same with running a balanced or surplus budget as opposed to borrowing €10b or so like we currently are.

That's it in a nutshell. As Moodys noted, we should have paid down debt instead of giving out christmas bonuses, no one knows when the world economy will take a turn for the worse.

realitykeeper

Drumpot wrote: »

Also, there are rumours that Ireland will make a profit on the eventual sale of shares in AIB. There was also levys/charges on banks that got bailouts. .

The banks were in trouble and the government bailed them out. There will be no profit.

Geuze

To those calling for debt reductions, you are therefore suggesting running budget surpluses asap.

The current plan is to reach the 3% of GDP deficit target by 2015. That's about a 5bn deficit.

Just to be clear, those calling for debt reductions are asking for further, sharp fiscal austerity of 5bn+ in a short space of time.

I don't disagree with you, but just pointing out that trying to raise 500m from the water charges nearly caused the Govt to fall,

So a 5bn adjustment seems politically impossible.

AlmightyCushion

Geuze wrote: »

To those calling for debt reductions, you are therefore suggesting running budget surpluses asap.

The current plan is to reach the 3% of GDP deficit target by 2015. That's about a 5bn deficit.

Just to be clear, those calling for debt reductions are asking for further, sharp fiscal austerity of 5bn+ in a short space of time.

I don't disagree with you, but just pointing out that trying to raise 500m from the water charges nearly caused the Govt to fall,

So a 5bn adjustment seems politically impossible.

Well, even increasing our national debt slower than we did and are would be an improvement. I would have preferred that over the past few years once the austerity budgets started that we would have cut more sooner. Instead of reducing the deficit by €2.5b a year, why not €3b or slightly more.

Farmer Pudsey

AlmightyCushion wrote: »

Well, even increasing our national debt slower than we did and are would be an improvement. I would have preferred that over the past few years once the austerity budgets started that we would have cut more sooner. Instead of reducing the deficit by €2.5b a year, why not €3b or slightly more.

Geuze wrote: »

politically impossible.

Read the above

Amirani

realitykeeper wrote: »

The banks were in trouble and the government bailed them out. There will be no profit.

There's already been a profit on Bank of Ireland. I think a profit on AIB is unlikely, at least in the medium term, but the State should get most of its investment back there.

braddun

http://www.irishtimes.com/news/politics/national-debt-and-its-servicing-still-weigh-heavily-on-state-1.1965128

Rightwing

Diego Simeone wrote: »

There's already been a profit on Bank of Ireland. I think a profit on AIB is unlikely, at least in the medium term, but the State should get most of its investment back there.

No, there will be a sizeable loss on AIB, unless the mother of all bubbles emerges.

Saipanne

realitykeeper wrote: »

The banks were in trouble and the government bailed them out. There will be no profit.

Why?