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October 13, 2009



This is the key to the current situation. If the government increases investment, not only will economic activity rebound, but the deficits will be no wider and probably decrease. Currently reverse multiplier effects are in operation, with every cutback depressing activity and the tax base with it.
It is alo posible to cut a huge amount of unproductive spending; the deficits approaching 13% of GDP include no estimate of any addition to public debt as a result of NAMA. But it is possible to arrive at some estimate of the likely losses to the taxpayer. Davy Stockbrokers estimated that the total losses in property and construction values could be something around 70%. That implies the NAMA assets to be purchased are actually worth 23bn Euros, ie a loss to the taxpayer of 31bn Euros compared to the 54bn Euros the banks will receive. If the Glass Bottle writedown is a worst case scenario for all the assets, down 85%, then the loss to taxpayers rises to 42bn. That is, just under 25% of GDP.

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