“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Thursday, September 30, 2010

Irish Deficit to hit 32% of GDP

The current US deficit is 9.1% of GDP.

Cost of Ireland's bank bail-out to hit €40 bn

The cost of Ireland's banking bail-out will rise to €40 billion (£34bn), the authorities have announced, placing an unprecedented strain on the nation's finances.

10:00AM BST 30 Sep 2010

The increase in the bill to bail out Anglo-Irish bank and other stricken lenders will push the country's budget deficit up to 32 per cent of GDP, more than ten times the limit imposed on eurozone economies by Brussels.

Worries over the costs of rescuing the financial sector has lead to sharp rises in the premium Dublin must pay to borrow on international markets.

The Government is now hoping its strategy of transparency over the bail-out bill – which amounts to a fifth of the total wealth generated by the entire economy in a year – will win back investors and restore the flow of credit through the economy.

Exposed as among Europe's most overstretched by the credit crisis, Anglo Irish has aroused widespread anger throughout the country. The bank lent heavily during a decade-long property boom in the so-called Celtic Tiger economy but found many of its loans worthless as the bubble burst.

However the Treasury insists that bailing out the lender is the only option because its collapse would "bring down" the whole country.

So far ploughed €29.5bn has been ploughed into Anglo Irish, and the authorities warn that it could need an additional $5bn under a worst-case scenario.

In addition, Allied Irish Banks will need to raise an additional €3bn by the end of the year. Support for Irish Nationwide will rise to €5.4bn from €2.7 bn.

"This is the only course to follow if we are to ensure the future economic wellbeing of our society," Brian Lenihan, the Finance Minister, said today.

"We have to bring closure to this matter and that is what we have done.

"Of course these figures are horrendous but they can be managed over a 10-year period and they will be managed in that way."

Ireland's central bank said the extra cost of bailing out the banks would force the government to make further budget cuts.

Mr Lenihan said Dublin would aim to slice more than an existing target of €3bn off its 2011 budget.

He said he would also outline a four-year plan in November to get its shortfall to below 3pc of GDP by 2014.

European Union officials had pressed Dublin to come up with a detailed plan for getting its fiscal gap – the worst in the bloc – under control within five years.


  1. Seems like just yesterday I was reading about the "Irish miracle".

  2. Erin meet Rufus, Rufus meet Erin. :)

  3. More and more investors aren't bothering to pore through corporate reports searching for gems and duds, but are trading big buckets of stocks, bonds and commodities based mainly on macro concerns. As a result, all kinds of stocks—good as well as bad—are moving more in lock step.

    Will individual fundamentals ever matter again?


    "Stock picking is a dead art form," contends James Bianco of Bianco Research. "Macro themes dominate the market now more than ever."

    Some stock pickers say the current macro focus is only temporary, and will generate great investment opportunities simply because companies with different outlooks shouldn't be moving in lock step long-term. Eventually, they say, stocks will move in line with their fundamental values.


    Right now there's a great uncertainty. And there's very smart people saying the economy is going into a double dip, and there are other equally smart people who seem to think they were going to be back to a fairly normal situation.

    When you've got that great uncertainty out there, it doesn't make much sense to bet on individual companies. And I think now if the outlook becomes more clear, this whole focus on macro will go away and I'll go back in a corner again and hide.

  4. This strategy of Dublin´s policy doesn´t deal with satisfaction of every interested subject. The question of GDP point to new possibilities and important responsibility for every european government. And the controlling public expense is the most difficult question at the moment.