Many Institutions Believe Ireland To Be A Model of Austerity Implementation But the Facts Beg to Differ!

Reggie Middleton's picture

ZeroHedge ran an interesting article yesterday, IMF
Prepares For Global Cataclysm, Expands Backup Rescue Facility By Half A
Trillion For "Contribution To Global Financial Stability"
, stating
that the IMF will surcharge larger developed countries to raise an
enormous amount of money for what apparently is preparation for a
massive increase in default risk throughout the world. One of the
countries in line for a significant charge is Ireland. This is
interesting, for it plays directly into the Pan-European Sovereign Debt
Crisis theory that we have been working for all of 2010. It is our
belief that the very real threat of defaults will reverberate throughout
a material portion of Europe. Even countries that are supposed to be on
the right track, are in reality, skating the brink of insolvency. A
forensic look of Ireland brings this thesis into focus.

We have performed a cursory overview of the risks inherent in Ireland
though previous "preview" posts: Ovebanked,
Underfunded, and Overly Optimistic: The New Face of Sovereign Europe
 and Reggie
Middleton on the Irish Macro Outlook.
For the most part, Ireland
has considerable embedded risk through both foreign claims on troubled
countries (ex. PIIGS) and significant bank NPAs as a percent of its GDP.

ireland_claims_against_piigs.jpg

Below is an excerpt from our recent forensic Ireland analysis.
Subsccribers, please download the most recent report here: Ireland public finances projections Ireland public
finances projections 2010-04-14 02:24:52 568.24 Kb

:

A deteriorating
external environment and a correction in the domestic housing market
made 2009
a difficult year for the Irish economy. Ireland's
GDP growth registered a fall of 7.5% (the highest rate of decline since
the
country's records have been compiled) with a fiscal deficit of 11.7% of
the GDP
for 2009.
Moreover, amidst an ailing banking system Ireland's
economy is
further expected to report a 1.3% decline in its GDP and a fiscal
deficit of
11.6% of the GDP for 2010, as per the government estimates. Consequent
to
rising fiscal deficit, government's debt levels have also increased
enormously
from 24.8% of GDP in 2007 to 44.1% in 2008 and 64.5% in 2009. This
rising debt
is further fuelling an increase in fiscal deficit through an increase
in
interest expenditure. Thus, in its 2010 Budget, Ireland's government
plans to
secure structural improvements to the expenditure base, which is
expected to
result in a savings of €4 billion. However,
considering the current economic slowdown and rising unemployment,
deterioration in Ireland's tax revenues is expected to continue in
2010, which
will negate the impact of expenditure savings, and result in further
widening of
the fiscal deficit to 12.6%, as per our estimates.

Moreover, as per the
government's "Stability Programme Update - December 2009", the
government plans
to bring down its fiscal deficit from 11.7% in 2009 to 2.9% in 2014
(below the
European Union target of 3%), primarily backed by a strong economic
recovery
starting 2011. However, we believe that this targeted reduction is
based on overly
optimistic growth targets, which are difficult to achieve.

The current government
estimates fail to take into account additional funding that the
government might
have to infuse to stabilize Ireland's banking system, which will
further
increase the government's budget deficit.

  • According to Bloomberg (March 31), "Ireland's banks need $43 billion
    in
    new capital after "appalling" lending decisions left the country's
    financial
    system on the brink of collapse. The fund-raising requirement was
    announced after the
    National Asset Management Agency said it will apply an average
    discount of 47
    percent on the first block of loans it is buying from lenders as part
    of a plan
    to revive the financial system." 
  • Ireland's banking system is critically dependent on the government for
    financing. At the end of January 2010, Central Bank of Ireland's
    lending to
    banks was €98 billion, which is equivalent of 60% of the country's
    2009 annual
    GDP. Moreover, it represents 13% of total Eurosystem lending to banks
    compared
    with Ireland's 2% share of Eurozone GDP. Ireland's lending to banks is
    much
    higher compared to other troubled European countries
    - the Bank of
    Greece's
    lending to banks amounts to 20% of Greek GDP while numbers for Spain
    and
    Portugal are much lower.

image009.png

In addition, Ireland (like practically every other country in the EU,
see Lies,
Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!
)
unrealistically optimistic in their GDP growth projections. 

ireland_gdp.png

Moreover, similar concerns on GDP growth estimates were highlighted by
the European Commission in its March 2010 report, “The budgetary
outcomes could be worse than targeted in 2010 and considerably worse
than targeted thereafter. The authorities should stand ready to take
additional measures beyond the planned consolidation packages in case
growth turned out to be lower than projected in the programme. The
biggest problem is the Government's prediction that the economy will
expand 3.3pc next year.” We have shown, beyond a shadow of a doubt, that
the EU and the IMF have been dramatically optimistic concerning GDP
growth and deficits regarding EU member countries ever since this "Asset Securitization Crisis" cum Pan-European
Sovereign Debt Crisis (see the end of this post) began. Again, I
reference Lies,
Damn
Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!.

Consequently, for the aforementioned issues as well as a host of other
reasons detailed in our subscriber forensic report (Ireland public finances projections Ireland public
finances projections 2010-04-14 02:24:52 568.24 Kb

), we believe
that the government will over shoot its fiscal deficit target by 1% in
2010 and
by much higher in 2011 and 2012, which in turn will result in higher
debt and
thus higher interest expenditure.

 

The Pan-European Sovereign Debt Crisis, to date (free to all): 

1.     The
Coming Pan-European Sovereign Debt Crisis
 - introduces the crisis
and identified it as a pan-European problem, not a localized one.

2.     What
Country is Next in the Coming Pan-European Sovereign Debt Crisis?
 -
illustrates the potential for the domino effect

3.     The
Pan-European Sovereign Debt Crisis: If I Were to Short Any Country,
What Country Would That Be..
 - attempts to illustrate the highly
interdependent weaknesses in Europe's sovereign nations can effect even
the perceived "stronger" nations.

4.     The
Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western
European Countries

5.     The
Depression is Already Here for Some Members of Europe, and It Just
Might Be Contagious!

6.     The
Beginning of the Endgame is Coming???

7.     I
Think It's Confirmed, Greece Will Be the First Domino to Fall
 

8.     Smoking
Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer
Beware!

9.     Financial
Contagion vs. Economic Contagion: Does the Market Underestimate the
Effects of the Latter?

10.   "Greek
Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on
Fire!
 

11.   Germany
Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort
of...

12.   The Greece and the Greek Banks Get the Word "First"
Etched on the Side of Their Domino

13.   As
I Warned Earlier, Latvian Government Collapses Exacerbating Financial
Crisis

14.   Once
You Catch a Few EU Countries "Stretching the Truth", Why Should You
Trust the Rest?

15.   Lies,
Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

16.   Ovebanked,
Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

17.   Moody's
Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks

The
EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!

How
BoomBustBlog Research Intersects with That of the IMF: Greece in the
Spotlight

Grecian
News and its Relevance to My Analysis

A
Summary and Related Thoughts on the IMF's "Strategies for Fiscal
Consolidation in the Post-Crisis

Euro-Gossip
Debunked, Courtesy of Trichet and the IMF!

Greek
Soap Opera Update: Back to the Bailout That Was Never Needed?

Related Subscription-only materials:

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loup garou's picture

You are absolutely correct, Reggie. The crisis includes all the PIIGS, and will worsen this year. In the meantime, the capital exiting Europe is likely to chase The US Dollar, gold, and possibly US equities. (Eventually, the ‘sovereign debt crisis’ will hit the U.S. as well, and that won’t be pretty.)

Hephasteus's picture

Kind of funny reggie but my uncle said same sorts of things you are saying about how ireland is an economic social control experiment.

Buck Johnson's picture

Good point Reggie, I never looked at it this way.  Also I didn't know that Irelands pensions where raided to bailout the zombie banks.

theprofromdover's picture

Small is beautiful.

Everybody must be able to fend for themseves, and sort out their own mess in their own terms. On any objective basis, if the solution is to drop out of the Euro, then just bl**din' drop out (or as another poster says -maybe just Germany needs to drop out, cos everyone else is in the same much of a muchness of a deep hole.)

The whole goddam Euro-experiment is yet another idyllic dreamer's nonsense. People with no connection to the real world think up these dumb notions of a perfect, frictionless society. The only way it works is in Stalin's brutal terms, and even then only for two generations at a time.

Ireland seems to be prepared to take the pain (meantime at least), whereas Greece seems to want to squirm and squeal until it is given a doctors note. They should each be free to choose, out on their own with punts and drachmas.

 

 

Edmon Plume's picture

Jim Rickards (in a King World news interview) thinks differently, and I'm not sure I agree with him.  His rationale is that the EU is a culmination of all of the intravenous strife among their countries, going back hundreds of years.  Because of that, he believes that devotion to the EU is much more important for Europeans than the rest of the world understands.  I see why that is important, but I don't see how that glue is strong enough to keep them from tearing apart.  On the other hand, Rickards is pretty savvy.

What's the real sentiment in Europe in regard to the EU?  Is it praised or cursed in the pubs?

THE DORK OF CORK's picture

EDmon most of the population in Ireland is in a state of shock really.

We are unable to fully comprehend such matters now - we are merely servants of debt

Between the first agricultural land boom of the late seventies (EU subsidies)

The  late 1980s austerity programme

The output boom of the 1990s

The wall of German Savings of the noughties which brought a level of hedonism that was unimaginable.

And now the Greater depression of the present time.

Sometimes I think those Olympian Gods are for real and that they are getting great entertainment from our poor confused ramblings.

trav7777's picture

Don't forget the Great Famine...that's the BOE's idea of Irish Austerity.

Ireland has been rentier heaven since the 1600s

THE DORK OF CORK's picture

I guess we were the prototype - although Corsican history from a earlier period had much similarities

Just replace the English for the Genoese and it is pretty much the same thread.

They even brought in Greek settlers to divide and conquer the populace not unlike the plantations in the north.

The only difference is that Corsicans are thee most unfriendly people I have ever had the pleasure to converse with.

You can't understand Napoleon unless you have been to Corsica.

THE DORK OF CORK's picture

I like the Germans - they are straightforward and tolerate little bullshit - it just requires a little courage to tell them fu%k off.

 

Hephasteus's picture

Plus they produce alot of great comedians. Oh wait. No they don't.

zenon's picture

Individually, yeah. En masse they can get a bit heavy (to put it mildly).

statist shill's picture

Congrats on hitting 5500 registered users Reggie.

Leo Kolivakis's picture

And don't forget the looting of Irish pension funds to support their zombie banks. What a disaster!

THE DORK OF CORK's picture

Leo when you factor in our national pension fund we had no fiscal debt in 2007 ! and yes it is a disaster.

zenon's picture

At the arte we're going, maybe Germany should leave the Euro and go back to the reichsmark. I mean, Jesus, the US, the UK and Japan are financing their deficits by printing and European nations are supposed to buckle down by suffering a 25% drop in GNP?! Give me break. And what about the ECB? Why should it provide unlimitted finance to the banking sector and not consider loaning to individual states? When are people going to wake up and take power away from the fu**ing banks?

Auroch's picture

The Populace here (in ireland) are mostly somnolent and oblivious.

The government are entirely captive to the banking interests, not least because all the civil service pensions are invested in real-estate.

We're most likely in for waves of public-sector strikes before the promised spending-cuts take effect...

http://daftwatch.thepropertypin.com/

http://www.irisheconomy.ie/

 

THE DORK OF CORK's picture

Agreed we are sad little country with little concept of building true wealth - we have had a OBSESSION with land since the first Neolithic's arrived on this shore after the ice age.

There seems to be little point in engaging in a logical debate with my countrymen - they just want the problems to magically go away.

We deserve to be governed in the mode of a efficiently run colony as we have little ability for anything other then bullshit.

THE DORK OF CORK's picture

I urge zero hedgers to google Professor Morgan Kelly of UCD for the most accurate and indeed bearish of views on the Irish economy.

Read a Irish Times contribution by Mr Kelly here - 

         The Irish Economy » Blog Archive » Morgan Kelly on the Irish ...

 

 

Unfortunetly he has been effectively silenced in the state media and closed private media in Ireland.

The Fiscal debt is still not the primary driver of our debt woes as we had effectively zero national debt at the start of the crisis.

 However If we continue to grossly subsidise our commercial banks it will rapidly become so.

Also Ireland Has a very large divergence between our GDP and GNP because of the large multinational sector in our economy.

I believe that GNP which more accurately conveys the level of activity within the domestic economy has contracted a huge 25% since the start of the crisis.

Unlike Spain many of our young people will choose to emigrate as we have a rolling stone culture - this will and is having a huge impact on our consumption levels but the people who choose to stay are chiefly dependents both natural Irish and recently arrived foreigners

It will however reduce pressure on the outgoing government expenditures - indeed unemployment seems to be stabilizing because of this phenomena. 

taxes will however fall further.

I have stated many times on this forum that Ireland will have no choice but to default on its sovereign debt if it is asked by its external debt holders to shoulder the burden of private risk debt.

A vivid example of this bloodsucking is the collapse of deposit rates within the Irish banking sector as it scrambles to pay London and Frankfurt all the remaining surplus.

During the height of the panic you could get 5% to 8% for a 1 year term deposit , now you would be lucky to get 2.5%

Also mortgage rates are rising steadily to square the circle of rising external debt.

So the wealth of this country is contracting at a exponential level because the powers in Germany and elsewhere refuse to accept a loss on their flawed investments.

I would now advocate a complete default on Irish banks foreign debts with a token equity in our shattered banks.

If Frankfurt's Banking friends do not like this they can go to hell.

Anyhow somebody is going to take a loss - if we continue with this madness even our sovereign debt holders will take a loss as I imagine our new punt currency will be a fraction of a rump Euro currency.

 

Steaming_Wookie_Doo's picture

Do you know why the Irish unit of currency is called the 'punt'? Because it rhymes with Bank Manager.