Hot Eire

1 Oct 2010 By Peter Thal Larsen Follow @Peter_TL

The government’s bank rescue has left a gaping deficit for 2010. But the cash cost will be spread over 10 years, while other expenses aren’t included in the national debt. If Ireland can persuade investors it has capped its losses, however, the manoeuvres will be worth it.

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The Irish government on Sept. 30 announced plans to inject an additional 6.4 billion euros into Anglo Irish Bank, taking the total support provided to the stricken lender to 29.3 billion euros.

Under a stress scenario, the bill for bailing out Anglo Irish could rise to 34 billion euros.

The government will also inject a further 2.7 billion euros into Irish Nationwide Building Society, on top of the 2.7 billion euros it has already provided.

The capital injections, which count as government spending, will leave Ireland with a budget deficit of 32 percent of GDP for 2010, and boost its national debt to 99 percent of GDP. However, Ireland will inject capital in the form of promissory notes, allowing it to spread the cash cost over ten years.

Ireland said it would not raise any further government debt this year through bond issues. So far in 2010, the National Treasury Management Agency has raised 14.9 billion euros through bond auctions, and a further 5 billion euros through syndicated bond issues.

The government also plans to provide up to 3.7 billion euros of additional support to Allied Irish Banks by underwriting the bank's equity issue. It may also convert preference shares worth 1.7 billion euros into ordinary shares. These shares are held by the National Pension Reserve Fund, and do not count towards the national debt.

The National Asset Management Agency, which was set up to take on Irish banks' bad debts, has so far issued bonds worth 13 billion euros in return for doubtful loans. However, as the government expects NAMA to eventually make a profit, these bonds are not counted towards the national debt.

Finance Minister's statement

Allied Irish announcement

NTMA funding summary for 2010

Context News

The Irish government on Sept. 30 announced plans to inject an additional 6.4 billion euros into Anglo Irish Bank, taking the total support provided to the stricken lender to 29.3 billion euros.

Under a stress scenario, the bill for bailing out Anglo Irish could rise to 34 billion euros.

The government will also inject a further 2.7 billion euros into Irish Nationwide Building Society, on top of the 2.7 billion euros it has already provided.

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