Notes on the Front

Over the next 20 years Anglo-Irish (including Irish Nationwide) will cost the Irish taxpayers €90 billion. 

Just reflect on that for a moment.

Now repeat:  over the next 20 years Anglo-Irish will cost us €90 billion. 

It’s difficult to get one’s head around that amount but it is based on figures released last week by Michael Noonan in response to a parliamentary question from Pearse Doherty, TD.  Recently, Michael Burke, Tom McDonnell and I co-wrote a post on Progressive-Economy on the subject arguing that the Government should immediately enter into renegotiation with the Irish Central Bank and the ECB with a view to writing down that debt.

At that time, we estimated the cost at €65 billion – based on the Department of Finance’s note dated November 2011.  However, the Minister has released a revised schedule of payments.  And the cost has risen – substantially.  Here I reproduce Tom McDonnell’s calculation from Progressive-Economy.  The breakdown is as follows (difference in total due to rounding):

There are a couple of notes here:  first, the interest rate used after we exit the EU-IMF funding facility is 4.7 percent – the same rate that the Department of Finance used in their previous cost estimate.  Second, the 4^th column – Interest on the Cumulative Interest – pertains if the budget is in deficit.  Given that even if we were to hit the Maastricht borrowing guideline of -3 percent as a percentage of GDP by 2015 (or 2016 or 2017), it would be a long time before we reached surplus.

So €90 billion is a decent enough estimate.  Even if it turns out to be €85 billion, so what?  Would it matter to you if a 2.5 ton boulder fell on you rather than a 3 ton boulder?

I won’t bother going through all the proportions and comparisons (this makes up over 70 of GNP this year, etc.).  But there is a cost we should consider:  opportunity cost.

Opportunity cost is the cost of the next best alternative that is not chosen.  For instance, we decide to pay off Anglo-Irish debts rather than, say, installing a Next Generation Broadband; or a state-of-the-art water and waste system; or a pre-primary school system; or a heavily subsidised childcare network; or one-on-one tutorials for those with learning disabilities; or free comprehensive health care; or . . . or . . . or . . . etc. etc. etc. (when you are dealing with €90 billion you are dealing with a lot of ‘or’ and a lot of ‘etc.’. 

All these next best alternatives would boost growth, employment and living standards.  We can be sure that the value of the €90 billion put into economic and social investment would result in positive multiples measured in terms of GDP.  Paying off the Anglo-Irish debt will result in depressed growth as money is siphoned off a weakened economy and mostly flowing out of the country.

As Michael, Tom and myself proposed – it is time the Government announce that it intends to open negotiations with the Irish Central Bank and the ECB with a view to writing down this debt.  And until a satisfactory conclusion of that negotiation is reached, the Government should, in my opinion, suspend all payments owed under Anglo-Irish/Irish Nationwide.

And it should do this before November 2^nd.  For on that date we the people will be forced to pay over €700 million to unsecured and unknown bondholders.

Such a move by the Government would be overwhelmingly supported in all corners (for this is not a left/right issue or a trade union/employer issue – this is an issue of basic economic rationality). 

And it would certainly focus minds in any negotiation and help ensure that we come out with the best deal possible – namely, the wiping out of this odious, illegitimate and irrational debt.