Free What If Ireland Defaults? by Brian Lucey

billion and can be financed via a direct write-down of the banks’ borrowings from the Central Bank of Ireland. In addition, restructuring bank-held government promissory notes to zero coupon 30-year notes will achieve Exchequer savings of circa €44–50 billion over the ten years’ horizon, depending on the various estimates of the total cost of these notes financing. Finally, taking a direct write-down of 20–25 per cent of Irish banks’ borrowings from the ECB will allow for the write-downs of the mortgage debts to the scenario that would bring them in line with the situation where the maximum extent of the current negative equity for primary residences will be no larger than 15 per cent. The combined measures will reduce the overall debt levels of the Irish Exchequer closer to more sustainable 80 per cent of GDP levels (relative to 2010–2012 GDP) and household debts to 90 per cent of GDP.
    In the current global economic environment and given the severity of the total real economy debt overhang in Ireland, the above restructuring, which does not involve any non-banking sector participation by private investors or public debt holders, is the lowest cost feasible solution for the crisis. Given the extremely low probability of the Irish economy being able to achieve sutained levels of growth that would be required to ‘grow out’ of the current debt crisis, it is virtually inevitable that some debt restructuring will take place sooner or later. The longer such a restructuring is delayed, the more severe will be the cumulative losses sustained by the economy in the periods prior to the restructuring and the weaker will be the economy to re-start growth post-restructuring. It is, therefore, imperative that the Irish government leads the markets with a concerted policy response designed to reduce our real economy’s debt overhang.
    Endnotes
    1 Comprising the group of countries defined by the IMF as ‘other advanced economies’ (advanced economies excluding G7 and Eurozone), see WEO database.
    2 All data from IMF World Economic Outlook, September 2011 database, unless specified otherwise.

4
    Ireland’s Public Debt – Tell Me a Story We Have Not Heard Yet …
    Seamus Coffey
    Seamus is a lecturer in the School of Economics in University College Cork.
    There has been an ongoing, and at times confusing, debate about what Ireland’s public debt will be in 2015. This chapter aims to look at some of the different elements of Irish public debt and the factors that can pull us away from the precipice of a sovereign default. This would be relatively straightforward if there was a universally accepted definition of public debt; there is not.
    Economists are at heart storytellers. As storytellers, economists decide what matters for their purposes; they are, in a word, selective. By appreciating economists as storytellers, the general public can perhaps appreciate better why economists disagree. The spectre of default in Ireland is an exemplar of storytelling and how appreciating the choices the economist as storyteller makes is crucial in enabling the reader of such stories entering into that economist’s imaginative world. So, let me tell you a story of default.
    As a starting point we will use the general government debt (GGD) measure as defined in the Maastricht Treaty of 1992. This is the measure used by Eurostat when compiling EU data and is also commonly used by the International Monetary Fund (IMF) and the Organisation of Economic Co-Operation and Development (OECD). The GGD is the consolidated gross total of all liabilities of general government.
    In the GGD no allowance is made for any assets that may offset some of these liabilities. The GGD is simply the total of all general government liabilities. The Maastricht Treaty laid out the rules for entry and participation in the single currency. One of these was that the GGD could not exceed 60 per cent of a