Ireland: Debt Dynamics

1. Ireland: Debt Dynamics John FitzGerald Oireachtas Committee, 26th October 2011 www.esri.ie

2. Introduction • Origins of Crisis • Tackling the Crisis • Exit from the Crisis • Everything depends on solving Euro zone crisis

3. National Debt, Gross

4. Fiscal Action, € billion How much to do in 2012? €3.6 billion or €4 billion?

5. Exit from the Crisis • Permanent loss of output • Real depreciation through cutting costs • Exports had a “good” crisis. • Balance of Payments surplus – rising • Major changes in private sector balance sheet • When will private balance sheet be restored? • Consumption and investment eventually rise • Domestic demand is more employment intensive

6. Balance of Payments Surplus

7. General Government Deficit

8. Government Borrowing, % of GDP • Alternative assumes: • The reduction in the interest rates of July 2011 • Lower than expected cost of bank recapitalisation

9. Debt /GDP Ratio

10. Preparing to Return to Markets • Funded till 2013 • What are funding needs post 2013? • What will be the Euro area background?

11. Debt Repayment as of mid-2011

12. Conclusions • Risks • Everything depends on Euro zone stability • Strategy for Irish return to markets 2013? • To do on banks: • Wean off ECB • Deleverage • Sell the banks to reduce debt • Most important of all • Return to growth