Irelands Credit Rating - Why lower than Germany?

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csirl

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As we're all aware, it costs Ireland more than Germany to borrow money as Ireland is perceived as being more risky than Germany. Germany is always trotted out as being the safe bet.

As far as I'm aware (correct me if I'm wrong), Ireland has never defaulted on a debt. Throughout or history we have been the perfect customer, paying all our debts in a timely manner.

However, in recent history (bearing in mind that this money is borrowed over decades), Germany has had a number of actual default or practical defaults. Germany defaulted after WWI. Then Germany had was was essentially a default in the 30s with their rampant inflation, followed by another default at the end of WWII. East Germany essentially defaulted when it ceased to exist in 1989. 4 default episodes in 100 years - yet regarded as the least risky borrower in Europe?

Do the lenders take past history into account at all? You may argue that the above events were "once off", but, when you have 4 x once off events in a short space of time, they can hardly be called once offs anymore?

So, how does a country with a perfect payment record and a past history of doing whatever it can, even to the detriment of its citizens, to pay the debts be regarded as a bigger risk that a regular defaulter?
 
Exaggeration to prove a point:

Who would you lend to?
Donald Trump (bankrupt several times) or someone living on the breadline but never missed a payment.
 
What happened 60 years ago is a lot less relevant.

Ireland has a huge budget deficit at the moment. While the government has taken some small steps to address it, we are living well beyond our means.

Germany is in a much more healthy posiiton.

Brendan
 
NorfBank said:
Exaggeration to prove a point:

Who would you lend to?
Donald Trump (bankrupt several times) or someone living on the breadline but never missed a payment.
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But wouldnt you just lend someone what they can afford to pay back ? I could happily lend the guy on the breadline a tenner at better rates than a couple of million to the ''always going bankrupt'' guy.
 
csirl said:
East Germany essentially defaulted when it ceased to exist in 1989.
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Is this true ?
Did the new unified germany not pick up any outstanding debts of East Germany ?

csirl said:
So, how does a country with a perfect payment record and a past history of doing whatever it can, even to the detriment of its citizens, to pay the debts be regarded as a bigger risk that a regular defaulter?
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Maybe it's because we have the highest borrowing as a % of GDP in europe, the second highest minimum wage (after Luxembourg), the highest paid public service, and finally, only Latvia, Lithuania, and Spain have a higher unemployment rate than us in European Union.
 
In regards to Germany you mention four different countries, politically speaking. From a debt or economical standpoint borders don't matter.
1) German Empire under the Kaiser
2) Weimar Republic
3) Third Reich
4) GDR

The Germany of today is the Federal Republic of Germany which has never defaulted, has manageable debt, very good current account balance, and the new government is working on laws to put an end to budget deficits, among many other things.
 
The UK's budget deficit is bigger than ours. Why do we get such a kicking by bondholders and the UK doesn't?
 
RIAD_BSC said:
The UK's budget deficit is bigger than ours. Why do we get such a kicking by bondholders and the UK doesn't?
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Because our government in the UK can magically print money that immediately creates wealth and can then divert it into the world's largest ponzi scheme by buying back their bonds themselves.

Pure magic. Unfortunately in Ireland you have to due the old fashioned thing of trying to balance the books, spend less than you take in taxes and put a bit away for a rainy day.

UK bonds are going to crash big style, especially if there is a hung parliament or Labour somehow cling on to their economically corrupt position.
 
RIAD_BSC said:
The UK's budget deficit is bigger than ours. Why do we get such a kicking by bondholders and the UK doesn't?
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true, UK has a bigger nominal budget deficit, because it has 15 times more people

But its deficit as a % of GDP is less than Irelands

Irelands is -15% deficit (worst in EU)
UKs is -13% (second worst in EU)

I picked up these figures from a google search, they may not be accurate of course.
 
I dont have facts & figures to back this up but I think, the reason why Germany gets more levy is because of its size in terms of number of tax payers which is also one of the reason for its status in the EU. Based on the high(er) number of people living in Germany and paying tax, ultimately more money flows into the EU/ system in general from Germany than it is the case with Ireland. Hence the bigger loan allowances.
 
Let's not forget the fact that Germany basically signs the majority of the cheques for the EU. It was the world's biggest exporter until last month, bigger than the USA and always runs a current account surplus.
 
alaskaonline said:
I dont have facts & figures to back this up but I think, the reason why Germany gets more levy

Levy? What levy? This thread is about bond yields and spreads.

is because of its size in terms of number of tax payers which is also one of the reason for its status in the EU. Based on the high(er) number of people living in Germany and paying tax, ultimately more money flows into the EU/ system in general from Germany than it is the case with Ireland. Hence the bigger loan allowances.

What is a loan allowance?
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Strathspey said:
Let's not forget the fact that Germany basically signs the majority of the cheques for the EU.
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Major exaggeration here !
Germany contributes 19% of the EU budget. It's a lot, but it's not the majority ! France contributes 17%.

Germany is the 4th biggest net contributor per capita to to EU.

Denmark , Sweden, Netherlands and Austria are all bigger nett contributors per capita than Germany.
 
Maybe Germany, apart from being in the Euro, makes things people buy, ie exports, and is therefore more likely to repay its loans if it had to.
 
Firefly said:
Maybe Germany, apart from being in the Euro, makes things people buy, ie exports, and is therefore more likely to repay its loans if it had to.
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Germany's biggest export is cars, which is pretty much how they got sucked into the situation with a sudden drop off in demand for new big ticket cars.

But lower rate is simple, those lending the money have more faith in Germany's ability to pay it back. It really is that simple.

Nothing to do with the money given to the EU or influence in the EU. Germany's situation is significantly different to a lot of other countries. The main difference is the much lower personal debt public and private, the control of public spending as well as some pick up in manufacturing.
 
But lower rate is simple, those lending the money have more faith in Germany's ability to pay it back. It really is that simple.
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Germany has much higher business and personal taxes that Ireland, so it has practically no means of raising additional money to fund new loans. Ireland have very low taxes - the majority of workers pay little or no income tax - and so has a lot more scope to raise additional revenue if needed to pay back any debts. This should count in Ireland's favour.

Because our government in the UK can magically print money that immediately creates wealth and can then divert it into the world's largest ponzi scheme by buying back their bonds themselves.
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To me, this would be a reason to avoid lending to the UK - because by the time you get your money back, it's real value will be a lot lower due to them printing more.
 
darren10 said:
This is a very relevant discussion at present. Markets have nose dived in the past few days due to the fact that countries may not be able to repay debts. It is a self fulfilling prophecy... people worry about a country not paying their debt, so the interest rates charged to that country go up...when the rates go up it becomes less affordable to repay the debt so .....people worry about a country not paying their debt etc etc. That is how the banks started collapsing so I wouldn't be surprised to see countries start to fall next.
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The root cause of all our troubles are irresponsible governments:

- Governments that can't balance their books,
- Governments that believe they can spend on aimless (none return) public investments,
- Governments that tax the hell out of the private wealth creating private sector,
- Governments that created a moral hazard for the bankers to speculate,
- Governments that bail out 'zombie' organisations instead of diverting that capital to the wealth creating 'sound' companies and sectors,
- Governments that kept interest rates too low, too long (irrespective of the 'real' inflation rate at the time),
- Governments that believe in bloated public sectors,
- Governments that believe in burdensome EU regulations,

The list goes on. You can't blame the speculators for targetting weak economies created by weak governments.

We need a country to go bust so the West can get real on balancing their books and putting in place the policies that lead to new wealth creation -

- Low corporation taxes,
- minimal regulation,
- interest rates that follow inflation,
- small government and policies aimed at the only wealth creator - the private sector.

As a non Irish person, I actually admire the way the current Irish government are getting tough on dealing with the deficit.

We need more politicans with the balls of Volker and Reagan in the early 80's to put in place real economic policies. Otherwise Europe and the US will sink for decades.

The future is already heading to Asia. Can we do anything to stem the flow of wealth Eastwards? I doubt it with the current muppets in charge of the West.
 
ringledman said:
(snip)
The future is already heading to Asia. Can we do anything to stem the flow of wealth Eastwards? I doubt it with the current muppets in charge of the West.
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The banks and the governments were too "tight" with their lending practices in the eighties, when interest rates generally did follow the market.
Add to that the soft attitude on people who went on strike at the drop of a hat never minding the damage it did to the wider economy.

The loosening op of lending restrictions improved the economy within reason.
So too did the Urban Renewal tax incentives and the 20% Capital Gains Tax.

All we had to do was live within our means, become more responsible for our health, and stop driving under the influence and we could have had it all.
But the tax incentives and 20% capital gains tax meant that instead of spurring necessary development the whole thing mushroomed out of control.
Instead of building for an existing market developers were building for themselves to have something to write off taxes against.
We did our own peculiar take on the sub-prime market, by selling at prices that were not supported by the underlying need.
They were artificially kept high by the demand created by property developers to buy their own products - silly boys.
This coupled with unregulated mortgage lending meant more people put far more than the nominal 30% of income.
All we are waiting for now is a rise in interest rates to totally destroy the middle demographic.

If the health and security services were privatized would we have our current wage bill? No.
All that nonsense stops when you privatize things and tie Ireland to a stable currency.

But I disagree totally with you about low levels regulation.
Privatize, let the market determine the prices for services, but regulate the standards.

You cannot blame the lack of probity shown by the lending institutions on the low interest rate.
Yes they were under pressure to make money and lending looked like a viable alternative, but them assuming property would continue to increase in value and not putting a lid on people's personal spending was totally unsustainable.

Our office is being screwed now simply because there is little or no work around, not because we over-borrowed or spent unwisely.
Other office that look like they have work on are coasting to the end of old public contract developments.
When they finish, expect to see a lot more architectural firms existing stage left.

BTW the Reagan Government (ptui) was the one that sanctioned acts against Nicaragua for which America was sanctioned by the World Court.

ONQ.
 
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