Commentators and economic cheerleaders were quite excited this week with the NTMA’s treasury bill auction. But the truth is, there really isn’t much to cheer about. These T-Bills are no more than a device to get the markets used to buying Irish bills again.
My take on it is that the treasury bill auction is no more than an aperitif. It will be some time before we know if the markets have the stomach for the main course.
Irish Debt Vs. US & German Debt
The bills sold at 1.8% and were 2.8 times oversubscribed. Compare that to the US where three month debt is selling at 0.09%. So we’re paying 20 times more than the Americans are to borrow money. And German three-month debt is negative; meaning people are paying them to take their money. So there’s not much room for us to get carried away.
The auction was probably worth doing, but it in no way suggests we’re
moving closer to large scale borrowing. Things will really only be looking up when the €64bn banking debt is removed from the sovereign debt, reducing our overall debt to €135bn next year. This would bring our sovereign debt to about 85% of GDP, making it much more likely that people would loan us money at affordable rates. But even this may not be enough. There are on-going downgrades in our GDP growth forecasts and Ernst & Young this week predicting a recession in Ireland next year. It would, however, but a huge step in the right direction.