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Decimal Digest
04 Apr 2011

Ireland: How much more bailout needed?

The Irish economy received a bailout package of Euro 85 billion in the last quarter of 2010. We, at that time, believed that the bailout is grossly inadequate. Now, the bond market yields, and the news flows are confirming our fears. We believe that Ireland requires a bailout of at least Euro 140 billion to become a sustainable economy.

Let’s look at the chart below:

Assuming that the liability of Central Bank of Ireland (CBI) to ECB for Euro 50 billion at the end of 2010 is properly accounted for, the NIIP for Ireland is around Euro 150 billion.

The Irish GDP is around Euro 170 billion and is falling. The funding costs for Ireland are well into double digits. Given these two conditions, any NIIP above 10% of GDP is not sustainable.

In other words, Ireland requires funding on soft-loan conditions of around Euro 140 billion. This figure is based on the following assumptions:

    1.The CBI liabilities to ECB are properly accounted for in NIIP data.
    2.The value of foreign assets is properly recorded at fair value.
    3.Any requirement for recapitalization of Irish banking system can be funded by Ireland through domestic sources.

Out of the Euro 140 billion, the past bailout accounted for Euro 85 billion, including the adjustment of Irish domestic pension fund assets and domestic cash balances. It would be interesting to watch out how this game plays


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