Ireland’s Four Year “National Recovery” Plan

The Irish Government has announced details of its, IMF/ECB agreed, four year national recovery plan [pdf file].  The BBC provides some key points.  And The Guardian continues its live-coverage of Ireland’s financial crisis.

2.37pm: Cowen has explained that negotiations with the IMF are based on the assumption that €6bn of the €15bn cutbacks will be implemented in 2011.

That means that 40% of the total programme is ‘front-loaded’.

The aim is to slash Ireland’s deficit to 3% of its GDP. The report predicts that the deficit for 2010 will hit 11.7% of GDP, slightly over the target of 11.6%. It is forecast to drop to 9.1% in 2011, 7% in 2012, 5.5% in 2013 and 2.8% in 2014.

The plan admits that domestic demand will be hurt by the austerity drive. Lenihan, though, insits there is no alternative:

The reality for this country is that it has to control a spiralling deficit, and then reduce it

And let’s not forget the bigger picture…

Adds  Writing before the plan was published, the BBC’s Stephanie Flanders had this to say

Update, 12:30: I see the ratings agency Standard and Poor’s has similar fears for Ireland’s economy, which partly explains their decision to downgrade Ireland’s sovereign debt, yet again. Here’s a few nuggets from today’s press release:

As a consequence of the high overhang of private debt, fiscal austerity, and the uneven outlook for external demand in Europe, Standard & Poor’s now expects close to zero nominal GDP growth for 2011 and 2012. We do not envisage GDP exceeding 2% a year in real terms before 2013.”
 
“While export performance is forecast to remain firm over the medium term, we are of the further view that domestic demand will most probably stagnate, thwarting any immediate recovery in tax revenues.
 
“In our view, downside risks of deflation remain. These depend partly on the external environment and the speed with which the financial sector can recover sufficiently to contribute to the economy again. Meanwhile, uncertainties surrounding the timing and extent of imposed burden sharing by EU institutions have raised refinancing costs. In our opinion, these refinancing costs are likely to remain high until investors perceive the forecasts for primary fiscal balances as much improved.
“Of course, the value of the assets sitting on the banks’ balance sheets will be affected by the state of the property market and the overall economy. So will the state of the budget. It’s a simple point but an absolutely crucial one. If the economy doesn’t get better, then neither will the banks or the national budget. Right now, international markets don’t seem to have much confidence in any of them.

Update  The Irish Times has extensive coverage

And from the Guardian’s live-blog

5.20pm: This is interesting — the opposition Fine Gael party has just revealed that it will release its own four-year fiscal plan next week.

Michael Noonan, who is likely to become Ireland’s next finance minister if Fine Gael triumph, also said that he has been told by European officials that today’s package can be “renegotiationed” in the future:

“I’m please that the Commission has agreed that any and all of this document can be renegotiated,” Noonan said, according to Reuters in Dublin.

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  • Anon

    I could swallow just about everything bar the drop in the minimum wage. If there is serious deflation, this is moot and Ireland will default.

  • Mack

    I’m not neccessarily sure it will cause deflation, but it could contribute to it. It will depend.

    First up employers don’t have to cut salaries of existing workers. Some might do so, but they’ll risk the demoralisation that any pay cut brings. Hopefully the lower minimum wage will be used to create employment where salary costs have priced local workers out of the job market.

    Second, a lower minimum wage should lead to increased employment. It should mean more money and higher consumption from people who would otherwise be on welfare.

    Consider and economy that spends X on wages and Y on outsourcing someone to lower cost economies.

    So you reduce hourly wages by some factor. It does not neccessarily follow that X also falls. There will be increased production, some of which may well be exported which would help expand X. Lower wage costs may also mean that some of Y (the outsourcing spend) is reduced and instead spent on wages in the local economy (X).

  • Mack

    I would add that if the minimum wage is reduced one valuable role unions could fulfil is ensuring fair rates of pay pertain for unskilled workers. The lower the minimum wage the more important they become.

  • Pete Baker

    And from the Guardian’s live-blog

    5.20pm: This is interesting — the opposition Fine Gael party has just revealed that it will release its own four-year fiscal plan next week.

    Michael Noonan, who is likely to become Ireland’s next finance minister if Fine Gael triumph, also said that he has been told by European officials that today’s package can be “renegotiationed” in the future:

    “I’m please that the Commission has agreed that any and all of this document can be renegotiated,” Noonan said, according to Reuters in Dublin.

  • theythinkitsallover

    Estonia, which has been accepted to join the Euro in January 2011, has a minimum wage of less than €2/hour. That’s what Ireland has to compete against. Time for some reality.

  • RepublicanStones

    First up, will this 10% reduction in pay for new public sector entrants include the salaries of newly elected TD’s?

    Secondly, there was an interesting point highlighted on the Last Word, that the guys in the finance ministry are incapable of playing hardball with the EU/IMF. They have been there for too long and are too pally with the very guys they should be staring down, an element of ‘regulatory capture’, for want of a better term. Matt Cooper asked Lenihan would he be willing to take on outside experts/professionals (McWilliams et al) who have been proven right time and again, (just as the very people Lenihan now has in negotiations have been proven wrong) and are not tainted by association with the people who are sitting on the other side of the table. Is that a pie in the sky idea?

  • Itwas SammyMcNally whatdoneit

    3 fairly wise men (for economists) on RTE Radio this morning saying renegotiate/default is the best option.

    Warming to that myself but hopefully all options will be debated properly in the run up to the election.

  • pippakin

    Sammy

    Default does look like the best option and from what I have heard the 5% is looking unlikely.

  • Comrade Stalin

    This “default” idea, how does it work ?

    Won’t it permanently seal Ireland off from the credit markets and accordingly make funding public spending at least as hard, if not harder, especially if the recession bites harder ?

  • RepublicanStones

    Is this the letting the bank debt default but paying the sovereign debt idea?

  • Itwas SammyMcNally whatdoneit

    If more than 5% then EU know deault looks more likley.

  • Mack

    Any modification of the original terms of a loan / bond is a default. This may include imposing a haircut (reduction in principal to be repaid), changing the maturity of the loan, taking an interest holiday, reducing the rate of interest etc.

    They are not talking about defaulting on sovereign debt, but rather the private debts accumulated by the banks. Anglo subordinated bond holders have already taken a haircut >80% in recent days.

    There are still serious implications of this in terms of whether the banking system could still function, our relationship with the EU, but I’d imagine the interest rate on Irish sovereign debt would fall and we’d rise a credit rating our two..

  • Itwas SammyMcNally whatdoneit

    RS,

    The idea discussed on RTE by the economists was to get a good negotiator (O’Leary not available apparently) and to ‘offer’ them a stake in the banks (equity for debt swap) and if they dont like that they get feck all.

    No point in borrowing more if you cant pay back what you owe already – just postponing the inevitable.

    They will then have to retrun to bond markets and would presumably be ejected/leave EU. Not great- but worth exploring and if it going to happen in 3/4 years may as well do it now.

  • Pete Baker

    “They are not talking about defaulting on sovereign debt, but rather the private debts accumulated by the banks”

    And the banks are now substantially owned by the [sovereign] state…

    Does that “private debt” include the loans from other European banks – including the European Central Bank?

    There’s your serious implications for the future.

  • pippakin

    If it is true that a member of the ECB/IMF? has been ensconced in the finance dept for months and that the ECB advised the government to support the banks then I think the next government has the right to default on the banks.

  • Pete Baker

    Why, pippakin?

    The Irish government’s bank guarantee – with the support of all parties bar Labour – dates back to around September 2008.

  • Itwas SammyMcNally whatdoneit

    I dont suspect it will happen but if the EU wante 6 or 7 % then I suspect that the debate on defaulting would become live.

    Love for the EU would disappear overnight andth

  • Itwas SammyMcNally whatdoneit

    cont.

    Love for the EU would disappear overnight and probably SF and possibly Labour would then stand with a default pledge in the general election.

  • Itwas SammyMcNally whatdoneit

    In the Article by Prof in Trinity which arguably outed the Banks problems and sparked current crisis he stated that the ‘Germans’ were working away there for months.

  • pippakin

    Pete Baker

    It is a question of how much was known at the time. Did the opposition know where the advice was coming from and how much were they told. If they were told not much more than the public then surely any agreement gained was gained under false pretences. Since the money the banks owed was owed to Euro banks the ECB should not have been anywhere near the advice given. I think conflict of interest applies.

  • Mack

    Yes it does.

    VB on TV3 starting now on this issue.

  • pippakin

    Sammy

    Does that amount to conflict of interest bearing in mind the bulk of the money was owed to EU banks?

  • Pete Baker

    pip

    “If they were told not much more than the public then surely any agreement gained was gained under false pretences.”

    The labour party thought otherwise.

    And I’m not much taken by any argument that begins with an ‘if’.

  • Itwas SammyMcNally whatdoneit

    pippers,

    Dont really think so – we are part of the Euro Club.

    What is interesting is that for months people/companies were apparently taking their money out of the banks and the Euro bank was putting money in. The Irish government must have been aware of this but knew if they said anything it might make the situation worse.

    Until article by Trinity Prof there didnt seem to be any stories surfacing in the Irish press about banks problems getting suddenly much worse.

  • pippakin

    Pete Baker

    But since the only people with the full facts are the govt and the EU any question has to start with IF!

  • Alias

    Mack, what do you think would happen if the government suddenly decided to serve the national interest rather than the EU’s interest and told their colonial rulers that they intended to default on the private eurosystem debts that it had converted into sovereign debt?

    Their colonial masters would be looking at the collapse of the eurosystem first and then the collapse of the EU. All their years of planning to steal the sovereignty of member state would end in ruin.

    Do you think they wouldn’t try all in their power to save their grand plan of creating a single EU state under totalitarian rule?

    You can bet your last (worthless) euro that they would.

    That is the power that Ireland actually has here. If Ireland threatened to default, these europhiles wouldn’t be demanding 5% on the money but would be offering 15% for Ireland to take it!

    But Biffo will need a job shortly and he isnt going to play hardball with his next employer.

    Ireland saved civilisation once and can now save it again by destroying the EU.

    We shouldn’t sacrifice ourselves to save that totalitarian regime, and we should do the nations of Europe a favour they will forever thank us for and set them all free.

  • Mack

    If a lady changes her mind and makes that clear to continue thereafter is rape.

    Unfortunately the rouges have already had their way with m’lday, and it is nice guy ECB who will lose out on this opportunity to final lose it, but c’est la vie.

    We can end the guarantee. It does not a beautiful consensual and intimate relationship between equal adult partners, but the gang rape of a country, facilitated in part because the executive was (temporarily) deliquent.

  • Pete Baker

    “We can end the guarantee. It does not a beautiful consensual and intimate relationship between equal adult partners, but the gang rape of a country, facilitated in part because the executive was (temporarily) deliquent.”

    “the gang rape of a country”?

    That’s not even worthy of a reply.

  • Mack

    It’s missing the word represent. I think the analogy is spot on. To stretch it, you are saying that because the lady agreed earlier she must now follow through later. In a normal circumstances contracts should be enforced, but there do exist promises, such as that of an intimate loving relationship, that are enforceable – or that can be ended unilaterally. Given the scale of the costs being foisted on ordinary Irish citizens – this promise to bear the banking loses of the Irish investments of large European banks – is also one from which the Irish people can remove their consent.

  • Mack

    Another typo above a promise of love is ‘unenforceable’ not enforceable…

  • John Ó Néill

    I think you can largely disregard the ‘four year plan’ since the current coalition will not be in a position to see any of it applied. While FG and Labour have signed up to the reduct of deficity by 2014, there is no reason to believe that anything that was outlined today will feature in the next governments particular ‘four year plan’.

    All of this is displacement activity.

  • Alias

    Looking through the plan, it’s just as well that local stooge Michael Noonan has been told by the colonial power Olli Rehn that it is negotiable since it is unachievable, assuming much higher figures for growth and much lower bank liability contingency than is realistic. And since the debt is defaulting to income tax payers and ordinary citizens, it is unsustainable.

    How, for example, is the government going to repay the 150+ billion owed to the ECB, and that has been loaned to the Central Bank to prop up other eurosystem banks based in Ireland? This will again default to taxpayers but the government hasn’t accounted for it at all.

    And sticking with that unaccounted figure of 150+ billion: adding in the 70 or so billion liability of NAMA, the 110+ liability of Anglo, the 100+ liability of the IMF/EU eurosystem loan, and the liabilities of AIB and Bank of Ireland (wherein the state is majority shareholder), the liability of the 32 billion in cash given to these banks, and you’re now well over the 500 billion cost to Irish taxpayers of bailing out the eurosystem.

    It simply isn’t possible for Irish taxpayers to pay circa 300k each toward the cost of bailing out the eurosystem even if that is what the state is forcing them to do.

    The whole thing is simply a default deferral exercise.

  • pippakin

    Alias

    Completely agree.

    BTW the Bertie advert is on U tube.

  • Alias

    Technically, the state wouldn’t be defaulting if it let the eurosystem banks collapse since, although the debts default to their shareholders, their shareholders – as in any corporation under law – can decline to increase their share capital and, ergo, let the business go bust with limited liability. The government would, of course, have to repeal the statute that enacts its bank guarantee sceme beforehand. Likewise, NAMA could be put into liquidation and limited liability would apply.

    I’m not sure how the 150+ billion owed to the ECB via the Central Bank would work but the Central Bank is part of the ECB anyway and the circumstances of it are extradinary so this loan is unlikely to be formalised.

    The remaining assets of the banks should be used to repay their depositors and the taxpayers, with any funds remaining being used to pay off the other creditors, i.e. the eurosystem

  • Dear Irish people!
    Welcome to I.M.F. club. You are officially fucked up, big time! I am an unknown and unemployed Greek blogger and I think you need some nice words in these hard times you have. How do I know that? ‘Cause I am palaiouras (old member) in I.M.F. club. Thank God our prime minister (a.k.a. G.A.P.) took care of it. So, as I said you need some beautiful words to heal the pain. Sorry! There are no nice words to make you feel a bit better. You are completely and totally fucked up like we (Greeks) are and like very soon Spanish, Portuguese and Italians will be.
    Don ‘t worry. It ‘s like having sex in the ass. The very first time you will suffer but day by day, month by month and year by year you will be used to it. Who knows? Maybe one day you will ask for it, like many Greeks do nowdays! Imagine it like some kinky fashion. You will ask for help from E.U. and you will get it. The only thing you have to do to get this help is to forget that you are Irish and human. After you will get into Mnimonium (a.k.a. memorandum) era like we did here in Greece for approximately 60 years. Not big deal! Who knows? Maybe with the whole new situation you will have a reunion with northern Irland as a British colony. You will lose your jobs, your sallaries are gonna be decreased, you will not have money for the basics, your country dept will be increased etc. With one phrase we can say that you are in the very deep shit!
    Well, maybe I should stop fooling around with the Irish financial situation. I am sorry if my humor was not so good but you see here in Greece the only weapon we have is humor. We don ‘t have anything else. No decency, no responsibillity, no dignity. We have some of the most corrupted and arrogant politicians of the world. Trust me! Your politicians are saints. We don ‘t have the guts to get rid of them. We had the opportunity but we didn ‘t. No rallies in the streets, no nothing. I believe and I hope you will have more courage than us to do the right thing. Let us be the example for you. When I say example I mean bad example (object lesson).
    Allow me to describe you my reality. I lost my job and I really have no hopes for the future in Greece. I had dreams ’cause I am only 36. I cancelled my wedding three times because the money were never enough to do it. My fiance and I hope to have a family one day but we see that it ‘s almost impossible. As the days go by I see people I know and people who I don ‘t know, more miserable, more depressed in the streets to look for a way to escape from this bad situation but the only thing they find is a big nothing. Companies shut down. I give everywhere my CVs and I don ‘t get a phone call even to tell me they don ‘t need me. Taxes are getting increased more and more and the money I have are less and less day by day. I am studying in open university computer science because I wanna be something in my life. I want to be scientist. This is one of my dreams but I see that it ‘s gonna fade away because i can ‘t afford it. So, no job, no studies, no family, no dreams. What am I doing? I am not living, I ‘m just existing and breathing.
    Don ‘t do the same mistake that we did and we still do. I am one of the millions of greeks who pay the price. Which price? The price of the political arrogance, the price of the political irresponsibillity. There is no crisis. Everything is made up from the big countries of E.U. and not only, so they will get the natural wealth of the small countries for nothing.

    I wish you the best

  • Procrasnow

    I might be a bit slow on the uptake, but surely every euro you take out of the pockets of people is an euro that cannot be spent in the local economy.

    Doesnt make sense to me.

    With no nuclear codes or army to control, the inflated salary of the Irish PM, seems to have been missed in the plan.

    Wonder why that is?

  • Reader

    Procrasnow: I might be a bit slow on the uptake, but surely every euro you take out of the pockets of people is an euro that cannot be spent in the local economy.
    Stuffing the pockets of the people with money for a decade didn’t exactly work an economic miracle, though, did it? The party stopped when the bill arrived. Whatever the route out of this mess might be, I seriously doubt recovery will be based on another consumer boom.

  • Comrade Stalin

    Ahh. The penny drops. Now I know what Alias is prattering on about when he talks about nationalizing Eurosystem debt. I’m starting to think he has a point. Which scares me a bit.