Saturday, March 30, 2013

30/3/2013: Irish Debt Deleveraging 2012: Not much happening

Over the recent years we have been told ad nausea that all the economic suffering and pain inflicted upon us was about 'deleveraging' our debt overhang, 'paying down our debts', 'repairing balancesheet of the economy' and so on. Well, surely, that should mean reduction in our total economic debt levels, right?

Wrong! Our debt levels, vis-a-vis the rest of the world are up on the crisis trough and on pre-crisis peak (EUR580bn in 2007 to EUR651.2bn in 2012), and our net position (foreign assets less foreign liabilities) is down from EUR119.4bn deficit in 2007 to EUR153.7bn deficit in 2012:

 The above exclude IFSC.

Meanwhile, IFSC continues to grow in size, both in absolute and relative terms:

  • Foreign assets up from EUR1,810bn in 2007 to EUR2,319bn in 2012
  • Foreign liabilities up from EUR1,727bn in 2007 to EUR2,322bn in 2012
  • Proportionally to our total foreign assets and liabilities the IFSC has grown from 79.7% in 2007 to 82.3% in 2012 on assets side and from 74.9% in 2007 to 78.1% in 2012 on liabilities side.

Back to non-IFSC balancesheet (as our policy makers and civil servants love treating ISFC as some sort of a pariah when it comes to counting its liabilities, and as some sort of a hero when it comes to referencing it in terms of employment, tax generation etc):

Chart above shows frightening trends in terms of our foreign liabilities as a share of GDP and GNP. Put simply, in 2007, non-IFSC foreign liabilities stood at a massive 357.5% of our GNP. Last year, they reached a n even more dizzying 488.1%.

You might be tempted to start shouting - as common with our officials and 'green jerseys' - that the above are gross figures and that indeed we have vast assets that are worth just so much... Setting aside the delirium of actually thinking someone can sell these 'assets' to their full accounting / book value etc, err... things are not looking too bright on the net investment position (assets less liabilities) side:

In 2007, Irish net investment position vis-a-vis the rest of the world was a deficit of 63.3% of GDP and 73.6% of GNP. In 2012 the net position was in deficit of 93.9% of GDP and 115.2% of GNP. Put differently, even were the Irish state to expropriate all corporate, financial and household assets held abroad and sell them at their book value, Ireland would still be in a deficit in excess of 115% of our real economy.

But back to that question about 'deleveraging' our debt overhang, 'paying down our debts', 'repairing balancesheet of the economy' and so on... the answer to that one is that Ireland continues to increase the levels of its indebtedness. The composition of the debt might be changing, but that, folks, is irrelevant from the point of view that all debts - government, banking, household, corporate, etc - will have to be repaid and/or serviced out of our real economic activity, aka you & me working...
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