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News : Irish Last Updated: Apr 23, 2010 - 8:16:52 AM

Lenihan welcomes EU ruling to keep NAMA debt off national accounts; Inclusion would add 33% to 2010 Irish debt/GDP ratio bringing it to 109%
By Finfacts Team
Oct 20, 2009 - 4:21:33 PM

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The Minister for Finance, Brian Lenihan, today welcomed the preliminary view from the EU statistics office, Eurostat, that the €54 billion in public debt which the Government will raise to pay for the toxic property loans to be transferred to the Irish "bad bank:" NAMA, will not have to be included in the national debt total. It would have added 33% to the 2010 debt/GDP ratio bringing it to 109%.

The Euro Growth and Stability Pact rules provide that annual budget deficits of Eurozone countries, should be held to a limit of 3% of GDP (Gross National Product) and general government debt as a ratio of GDP should have a ceiling of 60%. So keeping the NAMA debt separate, gives more flexibility to management of the public finances, which will breach te EU limits until the mid years of the coming decade..

Last week, the public think-tank, the ESRI, said that by the end of 2010 the gross general government debt would be equivalent to 76% of GDP. It said these numbers take no account of the increase in the debt due to NAMA. The ESRI price tag of €54 billion would be equivalent to 33% of GDP in 2010 and would, if included, push the general government debt level close to 109% of GDP in 2010. The institute said in a standard, business-type balance sheet the corresponding assets would be taken into account.

The Minister for Finance, Brian Lenihan T.D., today said: “I welcome the preliminary decision of Eurostat that the operations of the National Asset Management Agency should be recorded outside the general government sector in the Irish national accounts. The preliminary decision of Eurostat means that the acquisition of the assets from the financial institutions by NAMA may be treated as off-balance sheet in the budgetary arithmetic under European national accounting rules. In other words, it will not increase the general government debt ratio and neither will our budget balance be directly affected by the NAMA initiative.

This has the very important effect of putting the treatment of the Irish asset protection scheme on an equal footing with bank support schemes in other member states, which are also being recorded off-balance sheet. The operations of NAMA will be treated in a similar way to the French scheme, which also uses a special purpose vehicle with majority private ownership. The Board of NAMA will hold a veto on the operations of the special purpose vehicle through the shareholding agreement.”

Lenihan said the statistical treatment is dependent on the establishment of certain entities which will be the legal holders of the NAMA assets, while NAMA will retain effective control and veto on decision making.

However, the statistical treatment does not change the fact that operations of NAMA will lead to an increase in the amount of the State's potential liabilities. This basic fact should not be overlooked. However, neither should it be overlooked that these liabilities will be matched by a countervailing asset holding."

The Minister also stated: “Officials from the Central Statistics Office, the interim National Asset Management Agency and my Department have been in regular contact with Eurostat over the last few months regarding the appropriate treatment of NAMA.
At this stage, the Eurostat decision is preliminary as the National Asset Management Agency Bill 2009 has not yet been enacted. However, we expect that the final decision of Eurostat will not differ from the organisation’s preliminary view.”

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