I played around with some figures to compare the cost of the old scheme versus the new one. To do this I put everything into today’ money because we are dealing with different time periods so net present values have to apply (link to the spreadsheet so you can play too).
Using different rates we get the costs below:
|Discount rate||Old Deal||New Deal||Savings|
To put it in perspective, I heard that Anglo and INBS cost each person working in the country €22,000. This deal will save each person in the country somewhere between €1,937 and €2,900 off of that amount or up to €8,000 per household.
I’m sure that the usual disagreements will come into play, the discount rate used (I defaulted to 5% even though we have an ‘at or just below 2%’ agenda), and I didn’t net out all costs and fund flows (again, this is just an example not a live working model). And then there is the fact that I might have some things entirely wrong, but I don’t make my living by having an extra coffee break and doing a spreadsheet so this is just a caveat on that front.
The main thing to take from this is that the deal delivers impressive savings, if we get a rapid increase in interest rates which will raise our new deal costs it may not be so good, but then again the inflation will reduce the impact on the debt.
When you hear people saying this will saddle our kids with debt, I have some bad news, we are doing that anyway (good post by Declan Jordan here), this loan is not particularly special in that very large and popular passing of intergenerational debt trend.
Obviously this is a static look that makes huge assumptions, if anybody out there knows the future for certain let me know, I’ll adjust the figures, but all said this deal isn’t a bad one. We did turn a debt into a steadfast sovereign one, but in practice that is what we had anyway – that old rule about ‘looking, sounding and flying like a duck’ applies.
The other thing that hasn’t gone in (yet, if the day is slow later on I’ll try it) is the costs funded out for borrowing the €3.1bn bullet payments that we would have been making under the old deal. While the rate on the promissory notes is 8% there is an additional cost to borrowing the money which goes to pay that 8% (see the original DoF table here).
Anyway, warts and all, play with the figures if you like, they’ll be as wrong or worse as anybody else’s because it will only be a short time until assumptions and facts change which will skew all of it.