Reducing the debt

A previous post showed that total debt in Ireland is probably around 325% of GDP or 390% of GNP.   This is an unsafe level of debt and, at a minimum, the aggregate amount of debt should probably be no more than 250% of GNP with any amount over 300% considered unsafe.  We cannot expect economic growth to change the denominator significantly so repayments and deleveraging will have to do the heavy lifting to bring the numerator down.

However, repayments will not be the only way to bring the debt down.  There will be some defaults.  The government’s debt will be rolled over and not defaulted on.  Actual repayment of the debt is unlikely and the  hope is that in time growth and inflation will bring the public debt ratio down.  A lot of the private debt will be repaid but there will be defaults.  Lots of defaults. 

The State has provided €64 billion to cover loan losses in the covered banks (AIB, BOI, PTSB, EBS, Anglo and INBS).  This is not so much an outright default as a transfer of the liability from one sector of the Irish economy to another.   There are investors in the banks who have covered losses.  This is a graph from page 42 of the Nyberg Report.

Before the start of the crisis in 2007 the capital resources of the covered banks was estimated to be around €47 billion.  Since then the subordinated bondholders in the six banks have provided about €15.5 billion to meet loan losses and defaults in the covered banks.  The contributions across the covered banks are neatly summarised in this recent parliamentary question to Minister for Finance, Michael Noonan. 

The €25 billion of shareholder equity has been almost completely eliminated by loan loss provisions by the banks’ over the past three years.  The provisions have been made but it will be over the coming years that the loans will be written down.  The banks will try to obtain as large a repayment as they can but many of the loans made into the Irish economy over the past few years will never be repaid.

It is not only the covered banks that will suffer defaults on their loan books.  The covered banks make-up about two-thirds of the Irish banking sector and the State will make good losses in excess of those not covered by the capital resources wiped out above (as well as providing an adequate capital base for the banks).

One-third of the Irish banking sector is foreign owned and the State has accepted no responsibility for defaults on the loan books of these banks.  Some of  the loans books of these banks were very large.  The loan books and loss provision to March 2011 were neatly summarised by Simon Carswell in this Irish Time article.

These banks have allowed for the fact that almost one-fifth of the money they have lent into the Irish economy will not be repaid.   The banks’ owners have provided the capital to cover these losses.  For example RBS (82%) and Lloyds (40%) are both part-owned by the UK government.  Between them they have received €18 billion from their parent companies to cover loan losses in Ireland.

The details provided by Simon Carswell also show that the covered banks had made loss provisions of €75 billion from 2008 to the end of March 2011.

Although the figures here include loans in other countries (particularly for AIB, BOI and Anglo) it is likely that most of the loss provisions relate to their Irish loan books.  The largest part of the provisions (€42 billion) are for the loans transferred to NAMA but there are still large provisions on their remaining loan books, and it is likely that these will increase.  Last March’s stress tests projected €43 billion of lifetime loan losses under the adverse scenario which is greater than the stock of provisions in the banks.  See here for more details of the NAMA transfers and projected losses.

There was more the €350 billion of bank loans issued by Irish banks into the economy at the end of 2008.  The banks have already provided for defaults of almost €100 billion on these loans.  It is not clear what the final losses actually will be but it is expected that there will be a lot of loan defaults in Ireland.  This won’t happen in a big bang but will be steady stream over the next few years.  There has also been repayments over the past three years which will continue in most cases.

If we assume that this €100 billion of loan loss provisions translates to €100 billion of loan defaults then Ireland’s private debt mountain will be reduced to about €230 billion.  This will not be a painless process but last week’s draft Personal Insolvent Bill provides some details about how this can be achieved.

In this hugely hypothetical scenario private debt is €230 billion, and with a general government debt of €166 billion at the end of 2011, that would out total debts at just under €400 billion.  That would be 256% of GDP or 312% of GNP.  This is not far from the “danger” threshold of 300% of national income.

Getting there won’t be easy and even at 300% of GNP, Ireland’s debt level will be excessive but it won’t be terminal.  It will take much longer to get the debt below 250% of national income level which could be considered “safe”.  Once the loss provisions have worked their way through the system into actual write down the process of deleveraging will accelerate.  Ireland has a large and excessive level of debt but we are not likely to fall over a cliff face.

Debt in Ireland in 2011

A previous post showed the increase in private sector loans from 2003 until its peak at the end of 2008.  This showed that the level of private sector loans to Irish residents from banks in Ireland was around €350 billion in December 2008. 

Since then consumer loans from the banks have fallen to about €20 billion.  Residential mortgages have increased to €114 billion while buy-to-let mortgages have fallen to €33 billion offsetting the increase.  Loans to the business sector excluding the property sector have fallen to €40 billion.    Here is a summary table which updates the table from the earlier post.

As a result of the NAMA transfers and the exit of Bank of Scotland (Ireland) from the market it is hard to tell what has happened to the €112 billion that had had been lent to the property sector by the end of 2008. 

In the Central Bank data loans to the construction sector have fallen from €9 billion to 2008 to €3 billion now while loans for land and development activities have fallen from €103 billion to €56 billion.   Most of this fall is as a result if transfers to NAMA rather than repayments.

The “transactions” data provided by the Central Bank which accounts for the NAMA transfers and bank exits rather then the “volume” data which doesn’t.  This shows about a €5 billion drop in construction loans and no change in land and development loans because of transaction (draw downs and repayments) over the past three years. 

We don’t know what has happened to the loans that went to NAMA or what has happened to the loans in Bank of Scotland (Ireland) that are now being handled and wound-down by Certus.  We will just assume that there has been a €5 billion drop in property sector loans over the past three years based on the drop in construction loans.

Summing these changes means bank loans into the Irish economy are down to around €315 billion.  By adding in credit union loans and loans from other sources it is likely we would get up to €330 billion, give or take.  This is the total extent of private sector loans in the Irish economy.

With 2011 GDP likely to around €156 billion and GNP around €128 billion the loan to national income ratios will be around 210% for GDP and 260% for GNP.

At the end of 2011 the General Government Debt was around €166 billion.  Around €46 billion of this is to cover losses the covered banks made on the above loans.  Most of these losses were in land and development loans but the losses will by no means be confined to that category.  In our €330 million private sector total we have counted these non-performing loans but it is money from the government that will pay them (though only for losses in the covered banks).

The extra debt from the government sector is around €120 billion, about one-third of which is the debt the government brought into the crisis in 2007 and two-thirds the debt the government has accumulated by running huge deficits since 2008.  This €120 billion of government debt onto the earlier €330 billion of private sector loans gives a total of €450 billion of debt in Ireland. 

If we want to sure to be sure that this is the total amount of debt in Ireland we can make an allowance for some other loans such as those sourced from outside Ireland.  All in, it is likely that the sum of household, business and government debt accumulated by Irish residents is something under €500 billion.

At €500 billion it would put the debt ratios at 320% of GDP or 390% of GNP.  This is an excessive level of debt.  The next post will consider how this can be brought under 300% of national income though a reduction to well below that will be necessary to return to “safe” levels of debt.

Who “went mad borrowing”?

The following quote has generated a lot of response in the past week:

“What happened in our country was that people simply went mad borrowing.  The extent of personal credit, personal wealth created on credit was done between people and banks - a system that spawned greed to a point where it just went out of control completely with a spectacular crash.  The country borrowed over €60 billion at excessive rates and the IMF eventually came in with the Troika."

It is of course the answer Taoiseach Enda Kenny gave at a panel session at the World Economic Formum in Davos last week when he was asked “what went wrong in Ireland?”.  I’m not sure what the last sentence is referring to but here we’ll focus in the extent to which “people simply went mad borrowing”.

Here is a graph of loans to Irish residents from January 2003 to January 2009.  The data can be extended to December 2011 but the actual fall in loans is exaggerated in this data because of the impact bank exits and NAMA have on the Central Bank’s banking statistics.  In January 2009 this factors were not at play and this is widely accepted to be around the time when total loans peaked in Ireland.  It can be seen that the rate of increase began to ease in late 2007 and had plateaued by the middle of 2008.

The blue line represents total loans to Irish residents.  This increased from €110 billion in January 2003 to €350 billion by December 2008.  A rise of 220% in just six years.  Total loans went from being around 90% of GDP in 2003 to nearly 200% of GDP in 2008.  This would satisfy any criteria for going  “mad”.  The red and green lines represent total loans to Irish residents excluding two categories.

The red line excludes loans to businesses in the construction sector and for real estate, land and development activities.  The green line further excludes loans to households for buy-to-let mortgages.  The green line is thus total loans to Irish residents excluding loans for investment and speculation in the property sector.

Excluding these loans, loans to Irish residents rose from €83 billion in January 2003 to €195 billion by the end of 2008.  This is still a rapid rise but is an increase of 135% rather than the 220% increase seen for all loans.

As a percentage of GDP loans outside of investment in the property sector rose from 66% of GDP in 2003 to 108% of GDP in 2008.  This is a large increase but not catastrophic.

Loans for investment and speculation in the property sector rose from €27 billion at the start of 2003 to €150 billion at the end of 2008.  There was an increase from 25% of GDP in 2003 to 83% of GDP in 2008.

There is no doubt that borrowings by Irish people increased dramatically from 2003 to 2008 but a lot of the increase was concentrated in the construction, property and development sectors.

Loans to Irish businesses outside of the property-related sectors was €29 billion at the start of 2003 and reached €60 billion by the end of 2008.  This rise from 20% of GDP in 2003 to 33% of GDP in 2008 has not put us in the position we are in now.

Excluding buy-to-let investment mortgages loans to households rose from €52 billion to €140 billion.  Residential mortgages increased from €40 billion to €110 billion and other consumer borrowings rose from €13 billion to €30 billion.

With property-related loans perceived as being the source of our ills it is worth noting that household residential mortgages rose by €70 billion while investment and speculative loans in the property sector rose by more than €130 million.  Both increases are excessive but it must be realised that one is almost twice as large as the other and also that the increase in mortgage debt was spread over hundreds of thousands households rather than being concentrated like the property loans.

Here is a summary table and an annotated version of the graph used above is here.

The stand-out figures are the 350% increase in buy-to-let mortgages and the 490% increase in loans to the construction and property sectors.

[Note: The data here are taken from the Central Bank’s Money, Credit and Banking Statistics.  This includes data from all banks operating in Ireland.  For the period in question this excluded the credit union sector which was added to the data in 2009.  Total loans in the credit union sector have not exceeded €8 billion so their inclusion would do little to alter the conclusions.  The data also exclude loans that may have been obtained from banks outside of Ireland but it is not clear now prevalent this was in the household and business sectors.]

Consumption – Income and Credit

We have considered the change in consumption recently. See here.  Consumption in 2010 was down nearly 12% on the level recorded in 2007.  A key issue surrounding this is whether this is a demand problem – that is, is consumption down because demand is down?

As we saw, up to 2009, demand as measured by net disposable income only experienced a slight fall.  Here is the same graph.

It is clear that a large gap emerged between income and consumption in 2009.  In 2009 when net disposable income fell by €2 billion, consumption fell by around €10 billion. Even in 2008 it is evident that consumption expenditure was flattening out as net disposable income was still rising.  We do not have the 2010 figures yet.  For further details of the data to 2009 see here.

Here is a graph using the Credit, Money and Banking Statistics of the Central Bank.  It should monthly transactions for household consumer credit since 2005.  Positive numbers indicate that consumer credit expanded with negative numbers indicating a contraction.

Since the start of 2009 consumer credit has fallen (repayments on existing debt exceeded new loans forwarded) for every month except June 2009.  Of course, this is a combination of households’ reluctance to demand credit and the banks’ reluctance to supply it.

Since January 2009 the amount of consumer credit extended to households declined from €29 billion to €18 billion.

The jump in the series at the start of 2009 is because the country’s 400 credit unions were added to the Money, Credit and Banking Statistics.    The series was levelling off in 2008 and since 2009 has fallen almost every month.

Net Lending/Borrowing

This graph follows from a discussion to an earlier post on whether the Irish recession can be classified as a “demand-side recession”.  The graph is a replication of a slide in this presentation on the “balance sheet recession” that the Japanese economy experienced in the 1990s.

Here we use the data in the Institutional Sector Non-Financial Accounts to give the net lending/borrowing positions of different elements of the Irish economy since 2002.

The changes are fairly evident.  The government has gone from a surplus to a huge deficit.  The household sector has gone from borrowing 10% of GDP per annum to saving 5% of GDP per annum.  The changes in the other sectors are not noteworthy.

Mortgage Debt Forgiveness

The issue of mortgage debt forgiveness has come front and centre again.  The last time we looked at this was when 11 economists proposed a huge debt-forgiveness  scheme back in November.

The Irish Times article is here and the response on this site is here.  I remain opposed to the views in the article.  At one stage it says:

In the case of Ireland, such a formula would most likely lead to an implicit writedown of at least 30 per cent of the more recent mortgage amounts on average, yielding an expected total cost to the entire system of circa €37 billion to €49 billion.

I’m not sure the article is actually in favour of such a widespread scheme (but if not, why was the paragraph included I ask) but this is a huge immediate solution to what is a long run problem.  The article also overstates the size of the problem.

Their arrears of €10 billion would compare to total mortgage debt outstanding in the Republic of €115 billion.

This is wildly overstating the arrears problem.  The most recent recent figures from the Financial Regulator can be seen here.  There are 44,500 mortgages in arrears of three months or more.  The total outstanding balance of these mortgages is €8.6 billion and will likely approach €10 billion in the coming months.   This gives an average outstanding balance of around €190,000 per mortgage in arrears.

However, the balance outstanding and the arrears owing are two different things.  The total amount of arrears on these mortgages is actually around €700 million.  The average arrears per mortgage is around €16,000.  It is difficult to imagine the amount of arrears ever approaching €10 billion.  A solution based on clearing the balance of mortgages in arrears is just too broad when the problem is more focussed.  My initial thoughts can be read in the post linked above.

I still think that any solution should be based on interest relief rather than capital forgiveness.  I think the State should pay the interest on a certain portion of the loan for a certain period.  This is offering something to those in need but avoids shifting the burden of capital repayment around.  So, for some mortgages the State could service up to 50% of the loan for a certain period of time.  If these are tracker-rate mortgages the cost may be somewhat contained.  There will be some cost to the State.

[As an aside it would be great to know where the mortgages in arrears actually are.  What is the breakdown between the covered six, other domestic banks (UB, NIB etc.), banks that have left (BoS) and subprime lenders?]

Anyway once the State takes on the servicing of the mortgage to give these people some breathing space we need some process that sees the responsibility move back to the individual.  As in a debt-forgiveness scheme which would see people position themselves to benefit from it, I think the key is "incentives matter".  I would allow the scheme to extend, to say, 15 years but the individual decides when the mortgage moves back to them.

If they do so after three years they just take it back under the original conditions.  For every year after that the interest rate on the loan increases by some incremental amount (say 0.25%).  This extra interest does not go to the bank, but goes to to the State for providing the scheme.  The longer a person needs support from the scheme the more they will have to pay.  If they wait the full 15 years the extra interest will be 3% per annum.  These numbers are only for illustrative purposes.

A lot can happen over a period of five to eight years (even economic growth, inflation and the like can happen!).  I don't think we need a short-run solution (immediate debt-forgiveness) to what is a long-run problem (repaying a mortgage).

I may update this with further thoughts.

A “Demand-Side Recession”

This has been some criticism recently of the revised elements in the Memorandum of Understanding which forms the basis of the EU/IMF deal.  The details can be read from this DoF statement.  One frequent criticism levelled against the programme is that it offers “supply-side” solutions to what is a “demand-side” problem.  This is most visible if we consider the elements included under the heading ‘structural reforms’.

Structural Reforms

Product and Labour Market Reforms

• We are adopting policies to lower costs in sheltered sectors, thus boosting purchasing power and underpinning further competitiveness gains.
• The Government is due to consider a potential programme of asset disposals based on the Programme for Government and the Review Group on State Assets and Liabilities. The Government will discuss its plans with the European Commission, the IMF and the ECB when it has finalised its response to the Review.
• We are committed to create conditions conducive to job creation through the Jobs Initiative, which will be announced in May.
• The reversal of the cut in the minimum wage will be reversed with the effect on business costs being offset by a reduction in employers' PRSI.
• The review of the EROs/REAs and other measures to increase competition in sheltered sectors of the economy (these measures are not conditional on each other but are part of a comprehensive package designed to make work pay and improve the competitiveness of the economy).

No other structural reforms are listed.  Here is a thoughtful post on some of these changes from UL’s Stephen Kinsella - Will cutting GP and lawyer fees help Ireland?  I too would have concerns about the effectiveness of this list and would largely agree with the conclusion.

The core issues are not supply-side rigidities such as expensive lawyers and doctors and overpaid low-skilled workers. The core issue is the collapse in domestic demand.

Ireland's problem is demand deficiency caused by a collapse in asset prices, expansion in debt, and a fiscal imbalance caused by improper taxation policies during the boom.

Supply-side measures, while useful, won't solve, or even buttress, the problems of our economy, because they aren't the cause of the problem. We should remember this when listening to prognostications from our well meaning EU colleagues.

Although there is a “demand deficiency” I am not sure that demand-side solutions will necessarily work.  If we look at the contribution of the domestic and traded sectors to overall GDP growth we can see the domestic demand story stacks up.

It is pretty obvious that the domestic economy that has been the source of the collapse with falls in ten of the past 12 quarters.  On the other hand net exports has made a positive contribution to growth in eight of the 12 quarters.

As we have done before we can break the fall in domestic demand into it’s constituent parts of consumption, investment and government expenditure.

Although a negative pull of consumption is seen up to Q1 2009 for the past two years two factors have dominated the growth rates.  Net exports has made a positive contribution to growth and investment has made the dominant negative contribution to growth.  Here is the same data presented in a different fashion.

Private consumption has contributed to the fall in GDP but consumption has been unchanged over the past two years.  In real terms consumption in 2010 was 1.2% lower in 2010 than in was in 2009 (because of price falls the nominal change was –2.5%).  However as a result of the falls that occurred in 2008 and 2009, consumption in 2010 was 9.5% below the level seen in 2007 in real terms (the nominal drop is an eye-watering 12.8%).  There is no doubt that a fall in private consumption has been a key component of the downturn but most of this occurred more than two years ago.

On the other hand investment has been falling continually over the entire period.  Although investment makes up a much smaller proportion of GDP than consumption, it has made a much larger contribution to the collapse of GDP.  Since 2007, consumption in constant prices has fallen from €96 billion to €87 billion.  Over the same time investment in constant prices has fallen from €46 billion to €20 billion.  Consumption has fallen €9 billion.  Investment has fallen €26 billion.

One would expect that the fall in consumption is the result of a fall in income, but as we have seen that is not necessarily the case.

In 2009 net household disposable income fell by about 2%.  At the same time, consumption expenditure fell by over four times that rate.  Demand as measured by ability to pay still existed, it was demand as measured by willingness to pay that fell.  We don’t know what happened to disposable income in 2010 but we know that the decline in consumption eased.  The impact of the tax increases in last December’s Budget are likely to further tighten income. 

The above gap was money that was saved and more than likely used to pay down debt.  The savings rate has shot up to near 12%.  It is more probable more accurate to say that we have a “debt problem” rather than a “demand problem”, though the two are obviously related.  Consumption has fallen because the demand has shifted from buying goods and services to paying down debt.  This pattern is likely to continue.

Finally, as we said above, the biggest source of the decline in domestic demand is investment and it is pretty evident that we do not want to go back to the way things were.  Here is what has driven the change in the contribution of investment to GDP growth.

Building houses drove the boom and not building them has driven the recession.  It is likely that investment is undershooting, but the fall in investment from building 90,000 houses a year at the peak is a necessary one.  The fall of this “excess demand” is an adjustment that has to be made.  The task is now to find the replacement.

Central Bank Data

The Central Bank have released the Credit, Money and Banking Statistics to the end of October. (Release here, data here).  A couple of trends have remained consistent.

We’ll start with total private sector credit.

The total amount of credit extended to Irish residents has been falling since the middle of 2008.  The small ‘jump’ seen for January 2009 was when the loans offered by credit unions were included in the Central Bank’s measure of private sector credit.  Private sector credit peaked at €375 billion in October 2008.  In September it had fallen to €285 billion and this fall continued in October when it was €280 billion, a level not seen since June 2006.

Here we break the above total into lending to households, non-financial corporations (business) and financial corporations.

The biggest drops have been in the business sector which has seen the total amount of credit extended fall from €170 billion at the peak  in mid-2008 to €103 billion now.  The quantity of loans extended to business since the start of 2009 paints a telling picture.

Some of this decline may be due to the transfer of developer loans from the banks to NAMA but a significant portion of it is due to a contraction in the amount of credit available to businesses.  Here we look at the category of loans extended to business.

Although the totals in all categories of loans extended to businesses have been falling, the fall in 2010 for loans issued for up to 1 year has been very dramatic.  This has fallen by 42% in the first ten months of the year, from €49 billion in January to €28 billion now.  NAMA is not good for all of that.  Working capital for firms is getting scarcer and scarcer.  If only they had the ECB to act as an ‘lender of last resort’ to tide them over.

In the household sector some 80% of loans are mortgages, and for the past two years or so repayments on existing mortgages have been greater than the amount of new loans issued. 

Although we do have a huge arrears problem we do have a lot of household meeting their mortgage obligations and more.  The amount of outstanding mortgages peaked at €128 billion in May 2008.  These balances are now down to €108 billion.  It must be noted that most of this fall occurred up to the end of 2009 when mortgage balances stood at €110 billion.  This was the primary destination of our €11 billion of household savings in 2009. 

In the first 10 months of 2010 mortgage balances have fallen by €2 billion.  Unless household deposits are rising rapidly this suggests we can expect a dramatic drop in the household savings rate in 2010 from its 12% level in 2009.

So on that let’s look at deposits.  Not good.

Since the start of 2010, household deposits have fallen by about €3 billion.  With total loans to households down by one €1 billion over the year (from €139 billion to €138 billion) this indicates that Irish households are dissaving in 2010.  This is not because they are borrowing to fund consumption, but that they are drawing down savings to fund consumption.

If  we look at the ratio of household deposits to household debts we see a ratio that improved through 2008 and 2009 but has deteriorated this year.  The credit boom during the middle part of the decade is clearly visible as household debt soared.

Of course, there are number of caveats to the above ratio.  Firstly, this is an aggregate measure.  It is likely that the subset of households who hold the €96 billion of deposits is a different subset to those who are carrying the €138 billion of loans.  The indebtedness of many households in Ireland is enormous.  Secondly, the decline in deposits in Irish banks could be a reflection of the ongoing crisis our banks face and it may be that people are not necessarily using up their savings but transferring it to banks in other countries.

The banking crisis is having an effect on the category of deposits used by households.  Households are less willing to have their money tied up in accounts which can have maturities of up to two years.  Accounts with notice periods of no more than three months are seeing more money placed into them.

Finally, here are the total deposits of Irish businesses since January 2009.  Businesses are being squeezed on all sides with credit falling as we have seen above and the graph below showing that the amount of deposits businesses have access to also falling.

Can we measure Private Sector Credit in Ireland?

One of the most commonly used measures of the “bubble economy” in Ireland was the expansion of private sector credit in Ireland.  This is the total amount of money lent to Irish residents from our financial institutions.  The pattern on this variable for the past decade is very clear.

Private sector credit rose continually from €100 billion at the start of the decade to break through the €400 billion mark towards the end of 2008.  This has been a fall back since then, and the most recent figure from February is €365.5 billion.  This has occurred because repayments on existing debt have been more than the issue of new loans and because the banks have begun to slowly write down the value of bad debts on their balance sheets.
The huge increase in PSC from 2000 was often quoted to back up the claim that Irish households were “swimming in debt” and had borrowed huge amounts of money.  Statistics were quoted which divided the total amount of debt with the total population to give measures of borrowing per capita. For example €400 billion in debt divided by a population of 4.4 million gives an average debt of over €90,000 per capita in 2008 or over €200,000 per household.
But with all the revelations about NAMA and the Irish banking collapse there must be doubt now cast on how these PSC figures actually relate to the ‘man on the street’.  We are only now getting a clearer picture of the activities of bankers and developers in Ireland.
Yesterday, NAMA announced they were taking €16 billion in loans off the Irish banks in the first tranche of a total of €80 billion.  NAMA have revealed that half of this $80 billion total relates to just 100 borrowers.  The other €40 billion relates to some 1,400 people.
These 100 biggest borrowers are having an average of €400 million in debt transferred to NAMA.  These are figures that are almost beyond comprehension.
What has this to do with Private Sector Credit? Well, it is clear that a huge amount of the credit issued in Ireland was going to a very small group of people.  This had little effect (up to now) on the debt of the average person in Ireland.
If we ignore the borrowings of these 1,500 being transferred to NAMA there is €285.5 billion in private sector credit remaining.  Dividing this by the current population estimate of 4.5 million people gives an average debt per capita of just under €63,000.  Taking out just 1,500 people from a population of 4.5 million sees the average debt per capita fall by nearly €30,000 or nearly 33%.  This group of borrowers makes up 0.03% of the population.
Of course we can’t ignore these borrowings.  They may be removed from private sector credit.  But they have been transferred to the public debt (even if it is off balance sheet).  Public debt is debt owed by the public.  This means it is now owed by ‘the man on the street’.