Welfare, pensions, salaries slashed if we quit bailout

This has been touched on in the Morgan Kelly thread. The old chestnut about slashing PS wages is thrown out but I dont think people realise that everything will be have to be slashed if there books are to be balanced in one year. You're probably looking at taking 4K a year off an old age pensioner.
 
and we'll all be paying much higher taxes.
If that what it takes then so be it.
 
Yes, when we default (and we will default) we will be in a better position to do so on our own terms.
 
My understanding is that we don't have to balance the books but to get the deficit to 3% of GDP, which works out at about 5 billion. If we are currently taking in around 31 billion would it be possible to spend just 36 billion a year without having devestating affects on the country?
Maybe 13 billion for public sector and pension wages, 13 billion for social welfare and 10 billion for other (capital) spending?
 
Shawady said:
My understanding is that we don't have to balance the books but to get the deficit to 3% of GDP, which works out at about 5 billion. If we are currently taking in around 31 billion would it be possible to spend just 36 billion a year without having devestating affects on the country?
Maybe 13 billion for public sector and pension wages, 13 billion for social welfare and 10 billion for other (capital) spending?
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No, if you walk away from EU/IMF which is what Kelly is saying and don't have access to the markets, you can't run any deficit.
 
They will have to be slashed anyway. It comes down to whether we want it to be a time of our choosing or not.

Funny article by the indo though. Almost like people needed to be reminded that we are still running a massive deficit despite the (tiny) amount of cuts that everyone's been getting so hot and bothered about.
 
@Purple;Can you explain what you mean by "on our own terms"?
That sounds to me like terms that vested interests will negotiate?
 
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A couple of points;
1) Most public sector employees are not lazy work-shy scroungers on massive salaries who only have to show their face in work for a few hours a month because they are on flexi-time. The salary their earn is spent in the Irish economy and on extravagant things like mortgages and utilities. If their pay is cut by the same sort of percentages that it has already been cut (and yes, the pension levy is a pay cut) then it will cause a wave of mortgage defaults and an even bigger drop in consumer spending. In other words the knock-on effect for the private sector will be severe.
2) Most people who receive welfare are not lazy work-shy scroungers who only leave the house to go to the bookies, the pub or the dole office. Indeed, most people who receive welfare payments work legally. By cutting their welfare payments (Family Income Support, Medical Cards, children’s allowance, carers allowance, disability allowance, widows/widowers pension, old age pension etc) it will have a massive negative impact on the domestic private sector economy. It will also mean that people will not receive necessary medical care, people will be plunged into poverty and everyone will suffer (with those at the bottom suffering most).

Taking the above into account I’m still in favour of balancing our budget and defaulting on our banks debts (but not our original sovereign debt) as the alternative is worse. It will just take longer for us to feel it.
 
Sunny said:
No, if you walk away from EU/IMF which is what Kelly is saying and don't have access to the markets, you can't run any deficit.
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Yes you can, just at exorbitant rates. 10% is around the current asking. This figure assumes default, that if we were in the market now looking for money instead of using the EU/IMF deal this is what we'd be charged.

So from a practical point of view you could run a deficit of maybe 1 or 2 billion but no more.

So would that be achievable?

If not in year 0 (today) what about the UK/Swedish bilateral loans. Would they still be on the table? Could they plug the gap till year 1 or 2?

Would the IMF loans still be on the table?

I think the establishment has buried it's head in the sands for too long. The "delay and pray" strategy isn't going to work. It's time to look at the practicalities of the situation.
 
Sunny said:
No, if you walk away from EU/IMF which is what Kelly is saying and don't have access to the markets, you can't run any deficit.
Click to expand...

So if we default we would not have access to the markets because we are not paying back the money they have already given us?

What about if we just default on the bank element of the debt?
 
Purple said:
A couple of points;
1) Most public sector employees are not lazy work-shy scroungers on massive salaries who only have to show their face in work for a few hours a month because they are on flexi-time. The salary their earn is spent in the Irish economy and on extravagant things like mortgages and utilities. If their pay is cut by the same sort of percentages that it has already been cut (and yes, the pension levy is a pay cut) then it will cause a wave of mortgage defaults and an even bigger drop in consumer spending. In other words the knock-on effect for the private sector will be severe.
2) Most people who receive welfare are not lazy work-shy scroungers who only leave the house to go to the bookies, the pub or the dole office. Indeed, most people who receive welfare payments work legally. By cutting their welfare payments (Family Income Support, Medical Cards, children’s allowance, carers allowance, disability allowance, widows/widowers pension, old age pension etc) it will have a massive negative impact on the domestic private sector economy. It will also mean that people will not receive necessary medical care, people will be plunged into poverty and everyone will suffer (with those at the bottom suffering most).

Taking the above into account I’m still in favour of balancing our budget and defaulting on our banks debts (but not our original sovereign debt) as the alternative is worse. It will just take longer for us to feel it.
Click to expand...

Is the alternative to just default on the bank debts or will it have the same effect?
Any one know if there is a real alternative?
 
thedaras said:
@Purple;Can you explain what you mean by "on our own terms"?
That sounds to me like terms that vested interests will negotiate?
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The whole thing has been a stitch-up by the EU from day one. Dr Merkel and Mr. Sarkozy have been telling lies about Ireland for months (Dr. Merkel’s most notable one was that Ireland s low corporation tax rate was a major cause of our current problems). This is all about making an example of us and nothing to do with European solidarity or the acceptance that the same EU that us punishing us now has been pushing for an open market in banking for the last 20 years. When the dried up husk of what’s left of the Irish economy is pointed to in order to force the rest of the Euro-zone to play by the Franco-German rules it will be mission accomplished. We can wait to be bled dry slowly or we can act on our own initiative. When the IMF thinks you are getting screwed then you can be sure that you are definitely getting screwed.
 
Purple said:
A couple of points;
Taking the above into account I’m still in favour of balancing our budget and defaulting on our banks debts (but not our original sovereign debt) as the alternative is worse. It will just take longer for us to feel it.
Click to expand...

I think everyone wants to balance the budget Purple. The issue is how long you take to do it. Look at the effect that the gradual cuts are having on the economy. Growth prospects are very limited and that is by cutting about 5 billion from the economy each year. Now imagine cutting 20 billion in one go from the economy and imagine the impact on GDP. You would still have a deficit because the economy would be in the toilet and so revenues would have collapsed. You would also have social anarchy because you would have no functioning banking system, public services would probably grind to a halt and you would have huge social unrest.

The EU/IMF programme buys us time and allows us get our budget in shape before going to creditors and seeing what we can do about debt levels. We probably need to take larger bolder steps but there are consequences to everything.
 
@Sunny, I agree,but what "larger bolder steps" do you think are necessary?
And do people think its now time to strap the fiver we have left in the banks to our body's??
 
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Howitzer said:
Yes you can, just at exorbitant rates. 10% is around the current asking. This figure assumes default, that if we were in the market now looking for money instead of using the EU/IMF deal this is what we'd be charged.

So from a practical point of view you could run a deficit of maybe 1 or 2 billion but no more.

So would that be achievable?

If not in year 0 (today) what about the UK/Swedish bilateral loans. Would they still be on the table? Could they plug the gap till year 1 or 2?

Would the IMF loans still be on the table?

I think the establishment has buried it's head in the sands for too long. The "delay and pray" strategy isn't going to work. It's time to look at the practicalities of the situation.
Click to expand...

Without the EU/IMF money, we have defaulted. Ireland would not have access to bond markets at any yield. The reason we have 1 year yields at the moment of 10% is because the EU/IMF are providing the funds so investors know they will get their money back. Take away the 80 billion or whatever the IMF have given us and ask the same investors what they think.
 
The best case scenario is that our default takes the form of a Euro-bond that all Euro states have access to. The closer Spain gets to the vortex at the centre of the plug-hole the closer we get to the EU pulling up its trousers and allowing us up off the barrel.
 
Purple said:
The best case scenario is that our default takes the form of a Euro-bond that all Euro states have access to. The closer Spain gets to the vortex at the centre of the plug-hole the closer we get to the EU pulling up its trousers and allowing us up off the barrel.
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I agree. Spain is the key. I think what happens in Greece is also crucial. There will have to be some sort of restructuring but I think Europe will drag it out until at least 2013 when European banks should have enough capital raised to cope with an Irish, Greek and Portuguese restructuring.
 
Sunny said:
Without the EU/IMF money, we have defaulted. Ireland would not have access to bond markets at any yield. The reason we have 1 year yields at the moment of 10% is because the EU/IMF are providing the funds so investors know they will get their money back. Take away the 80 billion or whatever the IMF have given us and ask the same investors what they think.
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Err, I don't think your points are factually correct.

I'm totally open to correct but ... the oft mentioned rate of 10% is on 10 year bonds. Shorter terms have lower rates.

The 80 Billion includes 17 billion that we are providing ourselves through borrowing we did last year which would have covered us till mid 2011 and the nation pension reserve fund.

The 80 billion that may be drawn down has very little correlation with the price on offer in the bond market.
 
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