2011 Jun 23 - Seamus Coffey - Economic Update

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2011 Jun 23 - Seamus Coffey - Economic Update

  1. 1. Navigating Through Challenging TimesIreland’s Public Debt CrisisSEAMUS COFFEY
  2. 2. Morgan Kelly = €250 billion“Subtracting off the likely value of the banks andNama assets, Namawinelake (by far the bestsource on the Irish economy) reckons our finaldebt will be about €220 billion, and I think it willbe closer to €250 billion.” Prof. Morgan Kelly, Irish Times, 7th May 2011 Namawinelake = €220 billion
  3. 3. Reality = €??? billionGeneral Government Debt: START: 2006 = €44 Billion MIDDLE: 2010 = €148 Billion END: 2014 = €??? Billion
  4. 4. 2007 to 2010: From €44bn to €148bnThree reasons:1. Annual Deficits: €52 billion2. Increase in Cash Balances: €12 billion3. Banks & Promissory Notes: €40 billion2006 GGD of €44 billion plus this €104 billion2010 General Government Debt = €148bn
  5. 5. 2011 to 2014: From €148 bn to ???What’s remaining?1. Projected Annual Deficits: €48 billion2. Further Bank Recapitalisation: €10 billion3. Interest on Promissory Notes: €4 billion2010 GGD of €148 billion plus this €64 billion 2014 General Government Debt = €210bn
  6. 6. 2014 Government DebtITEM €billion2006 General Government Debt 44Accumulated Deficits 2007 to 2010 52Borrowings for Cash Balances 12Direct Payments to Banks 9Promissory Notes to Banks + Interest 35Bank Recapitalisation from Stress Tests 10Projected Deficits 2011 to 2014 482014 Projected General Government Debt 210Cash Balances -162014 Projected Net Government Debt 194
  7. 7. Domestic UncertaintiesOn the asset side:1. Value of remaining €5 billion in the NPRF2. Resale Value of the Banks = €? billionOn the liability side:1. Slippage in the annual deficits above €48 billion2. Potential Losses on €30 billion of NAMA loans3. Further losses in the banks4. €130 billion of Central Bank Liquidity
  8. 8. Breakdown of this €210 Billion Debt2006 Pre-Crisis Debt: €40 billion2007 to 2014 Deficits: €100 billionBank Related Debt: €54 billionCash Reserves: €16 billionBy 2014, the bailout of the banks will beresponsible for around 25% of our gross debt.
  9. 9. Our Bust Banks are CoveredLosses Accounted For = €105 billion1. NAMA: €42 billion2. Stress Tests: €53 billion3. Stock Provisions: €10 billionMoney Provided to meet losses = €105 billion1. The State: €66 billion2. Equity & Reserves: €25 billion3. Junior Bondholders: €14 billion
  10. 10. Can we even get to 2014?How much do we need? Where can we get it?
  11. 11. External Uncertainties1. The other little (and not so little) PIGS - Greece: small but dangerous - Portugal: small and containable - Spain: large and unknown2. The ECB and the future of the Eurozone - Can the ECB make effective decisions? - Will the euro experiment survive?3. Where should we look? - Iceland, Argentina or elsewhere
  12. 12. Protecting Your Capital?

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