S&P downgrades US bonds to AA+

After a day of speculation Standard and Poor’s have officially downgraded US government debt from the top rating AAA to AA+.  Here is the full list of S&P ratings.  Everything from BBB- up is considered investment grade, with ratings from BB+ down given speculative or junk status.

Yesterday, S&P confirmed Ireland investment grade status of BBB+.  Here are the bullet points that accompanied the S&P statement. (The full statement is reproduced below the fold.)

• We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.
  We have also removed both the short- and long-term ratings from
  CreditWatch negative.
• The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's
  medium-term debt dynamics.
• More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
• Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.
• The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

There was some debate that the figures used by S&P t0 justify the downgrade were incorrect.  S&P came out and admitted that the numbers were wrong but argued that the revision did not change their overall view.  See clarification statement here.

The full S&P statement on the US downgrade is below the fold.

TORONTO (Standard & Poor's) Aug. 5, 2011--Standard & Poor's Ratings Services said today that it lowered its long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA'. Standard & Poor's also said that the outlook on the long-term rating is negative. At the same time, Standard & Poor's affirmed its 'A-1+' short-term rating on the U.S. In addition, Standard & Poor's removed both ratings from CreditWatch, where they were placed on July 14, 2011, with negative implications.

The transfer and convertibility (T&C) assessment of the U.S.--our assessment of the likelihood of official interference in the ability of U.S.-based public- and private-sector issuers to secure foreign exchange for debt service--remains 'AAA'.

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria (see "Sovereign Government Rating Methodology and Assumptions ," June 30, 2011, especially Paragraphs 36-41). Nevertheless, we view the U.S. federal government's other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged.

We have taken the ratings off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment of 2011 has removed any perceived immediate threat of payment default posed by delays to raising the government's debt ceiling. In addition, we believe that the act provides sufficient clarity to allow us to evaluate the likely course of U.S. fiscal policy for the next few years.

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.

Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a 'AAA' rating and with 'AAA' rated sovereign peers (see Sovereign Government Rating Methodology and Assumptions," June 30, 2011, especially Paragraphs 36-41). In our view, the difficulty in framing a consensus on fiscal policy weakens the government's ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid). A new political consensus might (or might not) emerge after the 2012 elections, but we believe that by then, the government debt burden will likely be higher, the needed medium-term fiscal adjustment potentially greater, and the inflection point on the U.S. population's demographics and other age-related spending drivers closer at hand (see "Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even More Green, Now," June 21, 2011).

Standard & Poor's takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.'s finances on a sustainable footing.

The act calls for as much as $2.4 trillion of reductions in expenditure growth over the 10 years through 2021. These cuts will be implemented in two steps: the $917 billion agreed to initially, followed by an additional $1.5 trillion that the newly formed Congressional Joint Select Committee on Deficit Reduction is supposed to recommend by November 2011. The act contains no measures to raise taxes or otherwise enhance revenues, though the committee could recommend them.

The act further provides that if Congress does not enact the committee's recommendations, cuts of $1.2 trillion will be implemented over the same time period. The reductions would mainly affect outlays for civilian discretionary spending, defense, and Medicare. We understand that this fall-back mechanism is designed to encourage Congress to embrace a more balanced mix of expenditure savings, as the committee might recommend.

We note that in a letter to Congress on Aug. 1, 2011, the Congressional Budget Office (CBO) estimated total budgetary savings under the act to be at least $2.1 trillion over the next 10 years relative to its baseline assumptions. In updating our own fiscal projections, with certain modifications outlined below, we have relied on the CBO's latest "Alternate Fiscal Scenario" of June 2011, updated to include the CBO assumptions contained in its Aug. 1 letter to Congress. In general, the CBO's "Alternate Fiscal Scenario" assumes a continuation of recent Congressional action overriding existing law.

We view the act's measures as a step toward fiscal consolidation. However, this is within the framework of a legislative mechanism that leaves open the details of what is finally agreed to until the end of 2011, and Congress and the Administration could modify any agreement in the future. Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow. Under our revised base case fiscal scenario--which we consider to be consistent with a 'AA+' long-term rating and a negative outlook--we now project that net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021. Even the projected 2015 ratio of sovereign indebtedness is high in relation to those of peer credits and, as noted, would continue to rise under the act's revised policy settings.

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade.

Our revised upside scenario--which, other things being equal, we view as consistent with the outlook on the 'AA+' long-term rating being revised to stable--retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating. In this scenario, we project that the net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021.

Our revised downside scenario--which, other things being equal, we view as being consistent with a possible further downgrade to a 'AA' long-term rating--features less-favorable macroeconomic assumptions, as outlined below and also assumes that the second round of spending cuts (at least $1.2 trillion) that the act calls for does not occur. This scenario also assumes somewhat higher nominal interest rates for U.S. Treasuries. We still believe that the role of the U.S. dollar as the key reserve currency confers a government funding advantage, one that could change only slowly over time, and that Fed policy might lean toward continued loose monetary policy at a time of fiscal tightening. Nonetheless, it is possible that interest rates could rise if investors re-price relative risks. As a result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in 10-year bond yields relative to the base and upside cases from 2013 onwards. In this scenario, we project the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021.

Our revised scenarios also take into account the significant negative revisions to historical GDP data that the Bureau of Economic Analysis announced on July 29. From our perspective, the effect of these revisions underscores two related points when evaluating the likely debt trajectory of the U.S. government. First, the revisions show that the recent recession was deeper than previously assumed, so the GDP this year is lower than previously thought in both nominal and real terms. Consequently, the debt burden is slightly higher. Second, the revised data highlight the sub-par path of the current economic recovery when compared with rebounds following previous post-war recessions. We believe the sluggish pace of the current economic recovery could be consistent with the experiences of countries that have had financial crises in which the slow process of debt deleveraging in the private sector leads to a persistent drag on demand. As a result, our downside case scenario assumes relatively modest real trend GDP growth of 2.5% and inflation of near 1.5% annually going forward.

When comparing the U.S. to sovereigns with 'AAA' long-term ratings that we view as relevant peers--Canada, France, Germany, and the U.K.--we also observe, based on our base case scenarios for each, that the trajectory of the U.S.'s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.

Standard & Poor's transfer T&C assessment of the U.S. remains 'AAA'. Our T&C assessment reflects our view of the likelihood of the sovereign restricting other public and private issuers' access to foreign exchange needed to meet debt service. Although in our view the credit standing of the U.S. government has deteriorated modestly, we see little indication that official interference of this kind is entering onto the policy agenda of either Congress or the Administration. Consequently, we continue to view this risk as being highly remote.

The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction--independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners--lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government's debt dynamics, the long-term rating could stabilize at 'AA+'.

On Monday, we will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors.

Bond yields fall and S&P are happy

After a year of almost unrelenting increases Irish government bond yields have been falling for the past two weeks.  The recent drop only goes some way to offsetting the increases that took place over the past year.  Here is the 10-year bond yield constructed by Bloomberg.

Although the recent drop has been rapid, the 10-year yield is only back to where it was at the end of April.  There is still a long way to go before these yields give any indication that Ireland can return to raising funds on bond markets.

That would require a drop to around 5% or so.  As it is we have yet to drop below 10%, but dropping through this level is something that could happen in the next day or so.  Trading today has seen the yield hover around 10.2%.

The movements in Irish bond yields are running counter to all of other fellow PIIGS (Portugal, Italy, Greece, Spain) who are continuing to see rising yields, albeit only moderately.   The actual yields and yesterday’s closing prices off all Irish government bonds can be seen in this daily report from the NTMA.

[UPDATE: The Irish ten-year yield produced by Bloomberg finished the day at 10.024%. Chart here.  Getting below 10% is not far away.  It finished as a reasonably good day for the PIIGS with only Greece seeing rising yields on the day.]

The news on Ireland today was further boosted by a statement from S&P this morning confirming our BBB+ investment grade rating for Irish government bonds with a stable outlook.  BBB is two notches above speculative or junk status and is defined as “adequate capacity to meet financial commitments, but more subject to adverse economic conditions”.

Here is the S&P view of Ireland’s public debt:

We expect Ireland's net general government debt burden will peak at about 110% of GDP in 2013, including NAMA's debt obligations, before falling to about 103% of GDP in 2015. Excluding NAMA obligations, we expect net debt to peak at around 97% of GDP in 2014.

This is a long way from what some domestic commentators are trying to predict.  The full S&P statement is reproduced below the fold and in general it is reasonably positive.

The ratings on the Republic of Ireland reflect our view of the government's commitment and capacity to stabilize public finances following a severe banking crisis and a structural deterioration in the fiscal balance. We believe that Ireland's creditworthiness is sustained by a strong political consensus in favor of fiscal consolidation, which should reduce the general government deficit to around 3% of GDP by 2015. We also view Ireland's competitiveness gains since late 2008 and open economy as being supportive of modest, export-led economic growth over the medium term.

In our opinion, the Irish government's fiscal strategy should be capable of putting the public finances on a more sustainable path. Following the Heads of State or Government of the Euro Area and EU Institutions statement of July 21, 2011, we expect the interest rate on the European Financial Stability Facility (EFSF: foreign currency AAA/Stable/--) portion (€17.7 billion) of Ireland's €67.5 billion external support package to decrease to about 4.5%, from about 6.0%. We estimate the saving to the Irish government on interest payments will be around €0.9 billion (0.6% of GDP) cumulatively over 2012-2015. The maturities on EFSF loans are also expected to be lengthened as part of the Heads of State agreement. Meanwhile, it is also possible that interest rate reductions will be extended to Ireland's European Financial Stability Mechanism (€22.5 billion) and bilateral borrowings (€4.8 billion).

In our view, the Irish government has sufficient funding under its external support package to cover its financing requirements until the second half of 2013. At this time we expect Ireland will look to refinance a €11.9 billion bond maturing Jan. 15, 2014. We expect Ireland's marginal funding costs at this time to have declined to rates of around 6% or lower, a level that in our view would not put the government's debt dynamics at risk. Such funding rates would, we believe, be commensurate with the Irish government's success at convincing the capital markets that its primary fiscal balance and growth prospects are sufficient to put the public finances on a more sustainable path. On the other hand, any failure to meet these fiscal targets or to restore growth of the domestic economy could imply locking-in higher nominal interest rates, which we believe would likely damage debt sustainability.

As well as attempting to halve the 2010 structural deficit of around 10% of GDP by 2015, the Irish authorities are also contending with the aftermath of a severe banking crisis. In our view, the assumptions underlying the central bank's Financial Measures Programme were robust (see "Ireland's Ratings Lowered To 'BBB+/A-2' And Removed From CreditWatch; Stable Outlook Reflects Credibility Of Stress Test," April 1, 2011) and we do not expect any further material costs to the government of supporting the domestic banking system over and above the €64 billion (41% of GDP) in capital already injected and the €28 billion (18% of GDP) in National Asset Management Agency (NAMA: local currency BBB+/Stable/A-2) debt securities issued (see Related Research below).

We expect Ireland's net general government debt burden will peak at about 110% of GDP in 2013, including NAMA's debt obligations, before falling to about 103% of GDP in 2015. Excluding NAMA obligations, we expect net debt to peak at around 97% of GDP in 2014.

In our view, Ireland is the most open economy in the euro area, with exports estimated to exceed 105% of GDP and on track to expand an estimated 7% in volume terms this year. In absolute terms, Ireland's merchandise trade balance, which hit an all-time high of US$48 billion (31% of GDP) in 2010, is the third highest in the euro area, despite Ireland's position as the twelfth-largest economy in the EU-17. Due to its openness, Irish output is sensitive to any potential external demand shocks, as well as to the level of the real exchange rate (which has been depreciating due to declining nominal wages). Most of the gross value added from Ireland's export sector gets transferred abroad via dividend payments. Moreover, the international tradables sector has so far contributed little in the form of new employment to the Irish economy. Nevertheless, the second round impact of the export sector on job creation, domestic incomes, and public finances should not be understated.

Standard & Poor's projects that Ireland's real per capita GDP will increase by 0.3% during 2011, driven exclusively by net exports and accelerating toward 2.0% by 2014. We expect real domestic demand will continue to decline until 2013 and could be further depressed as the European Central Bank (ECB) embarks on a monetary policy tightening cycle. At end-2010, 86% of Irish residential mortgages carried flexible interest rates. Meanwhile, external demand could also weaken.

The 'AAA' T&C assessment, which applies to all EMU members, reflects Standard & Poor's view that there is an extremely low risk of the ECB restricting access to foreign exchange needed for debt service.

The stable outlook reflects our view of the balanced risks to Ireland's creditworthiness. However, if the government doesn't achieve its fiscal strategy, downward pressure on the ratings could build. Alternatively, were the economy to return more quickly to average real GDP per capita growth rates above our current expectation of 1.6% during 2011-2015, we could consider raising the ratings.

44% and all that

There has been surprising (well surprising to me anyway) response to a front-page article from last weekend’s Sunday Independent.  Here are some extracts from the article which ran under the headline:

Private-sector pay now 44% behind

The pay gap between workers in the public and private sectors has widened to 44 per cent since the recession began, according to a study carried out by a firm of international economic consultants.

The Indecon report, for the Sunday Independent, reveals that, on average, weekly pay in the public sector has increased by three per cent since 2007.

However, the Indecon report shows that, before tax, the average public sector worker earns €871 a week -- or €269 a week more than the average private sector worker, who receives €602 before tax.

There is no disputing that 871 is a number that is 44% higher than 602.  We could reverse the comparison and say that private sector workers get paid 31% less than public sector workers but that is just a different way of saying the same thing.  However, let’s focus on the 44% difference between public and private sector workers.

Firstly, these figures do not come from an “Indecon report for the Sunday Independent”.  These figures might be in this report but they actually come from the Central Statistics Office.  The CSO publishes a quarterly Earnings, Hours and Employment Costs Survey from which this information was drawn but the source was not cited.

The latest release of the EHECS was published on the 16th June (six weeks ago!) and can be read here.  There has been some analysis of the results of the EHECS on this site here.  Table 2 on page 6 of the EHECS release provides the figures that Indecon refer to: average weekly private sector pay is €602.85 and average weekly public sector pay is €871.09. 

Secondly, we will explore how real this 44% difference is for these notional “average” private and public sector workers.  In annual terms these weekly rates correspond to an annual salary of €31,348 for the  private sector and €45,297 for the public sector.

Using a fairly simple tax calculator we can work out the net pay of each worker.  The private sector worker earning €31,348 has a net pay of €25,875 or €498 per week.  The public sector worker earning €45,297 has a net pay of €29,993 or €577 per week.

Although in gross terms there is a 44% difference between the wage rates when we consider the take home pay the difference falls to 16%.  A €268 advantage for the public sector worker in gross weekly pay is reduced to €79 by the time the money reaches the worker’s pocket.

Here is a summary of the figures provided by the tax calculator.

Although some of the difference is accounted for tax and PRSI it is clear that the pension deduction of zero for the private sector worker and nearly five thousand for the public sector worker has a huge effect.

The pension deduction for the public sector worker of €4,886 is made up of two components:

• There is a €2,106 deduction as the employee contribution to the individual’s pension, and
• There is a €2,780 deduction for the Public Sector Pension Levy.

The above comparison is therefore not strictly valid as it compares a private sector worker making no pension provision against a public sector who is.  Next we will assume that the private sector worker makes a 7.5% pension contribution.  Here is the updated table.

In this instance the “average” public sector worker takes home 25% more than the “average” private sector worker making an employee pension contribution of 7.5%.  The private sector worker does not, nor cannot, pay the public sector pension levy so this seems a much fairer comparison to make. 

In any case, trying to suggest that the public sectors earns 44% more than the private sector is wide of the mark.  There is no doubt there is a difference, and I will leave it to others to debate the merits or otherwise of this, but it would be helpful if we could at least start the debate with meaningful figures.

Bond Yields Track Downwards

The surge in Irish government bond yields that preceded the EU emergency summit in Brussels last week has been more than fully reversed.  In the week since the summit the prices of Irish government bonds have been steadily rising.  At the close yesterday the 10-year yield constructed by Bloomberg was down to 10.5%, significantly down from the seen just prior to the summit.

The 10-year yield is now back to levels last seen in the middle of May.  There is still a very long way to go before these rates would allow us to sustainably raise private funding (the revised rates on loans received through the EU will be around 4%), but the current moves are at least in the right direction.

The fall in Irish 10-year yields this week contrasts with the movements for some other EU countries.  Here are the Monday opening and Thursday closing 10-year yields for a group of  EU countries.  Click the country name to go through to the Bloomberg app for that country’s 10-year bond yields.

Country	Monday Open (percent)	Thursday Close (percent)	Weekly Change (basis points)
Ireland	11.87	10.57	-130
Greece	14.75	14.78	+3
Portugal	11.08	10.84	-24
Spain	5.78	6.03	+25
Italy	5.42	5.83	+41
Belgium	4.27	4.34	+7

The 130 basis point drop in the Irish 10-year yield is a noticeable outlier.  Only Portugal amongst this group has also seen a drop in bond yields but the drop in Irish yields has seen them drop below Portuguese levels for the first time in more than a year. 

Yields for Greece, Spain, Italy and Belgium have all risen this week, with Spain continuing to have yields above the benchmark 6% level.

Retail sales slide again

The CSO has just released the June update of the Retail Sales Index.  The first impressions are that retail sales are rising and some media reports reflect this (Irish Times: Retail Sales Rise in June).  It is true that the overall index is up 0.2% on June of last year, but if we strip out the effect of the motor trades a somewhat different picture emerges.

The motor trades category makes up 23.2% of the retail sales index in June and the motor trades had an artificial jump in June created by the closing of the car scrappage scheme.  By volume motor trade sales were 22% up on the same time last year. 

What do we see when we look at the other three-quarters of the index?

This is no where near as positive as the overall index (graph here).  The best that can be said about the above graph is that the rate of decline seen since March eased somewhat in June.  However, as has been said over and over in this crisis, “getting worse more slowly is not the same as getting better”.  Retail sales are continuing to decline.

The relative improvement compared to the last few months can be seen when we look at the monthly changes but both series remain below the zero line.

The annual changes show how moribund retail sales remain.

Two-Year Bond Yields Plummet

The market reaction to yesterday’s EU summit (release here) has been dramatic.  We watched the recent alarming rise in the Irish two-year bond yields constructed by Bloomberg.  This is largely based on the €12 billion bond we have maturing on the 15th of January 2014.

In the past fortnight these rose from 13% to 23% (though we did note that this was based on low volumes).  In the days preceding the emergency EU summit the yields began to fall and were down to 19% at the close yesterday.

What has happened this morning?

The yields have been dropping like a stone!  After opening just above 19%, the yields are now down to 14.5% – the price of Irish bonds has risen substantially in morning trades. This movement is undoubtedly welcome and the short term market outlook for the Irish economy is more stable but we won’t be popping the champagne just yet.  The tw0-year bond yields are simply back to where they were a fortnight ago.

The movement in the key 10-year yield has been less dramatic.  At its local maximum it reached over 14% on Monday and had fallen to 12.3% by the close yesterday.  By half nine this morning it had fallen, but only to 11.8%.  Yesterday’s summit has done little to change the long term view of the Irish economy.

The reduced interest rate means there will be more money in the kitty to pay the January 2014 bond.  The yield on this has fallen.  Our long term ability to return to markets has not improved and the 10-year yields remain prohibitively large and like the two-year yield are only back to where they were a fortnight ago.

We have probably got as much as a concession from Europe as we are going to get for the next 18 to 24 months.  Getting our own house in order (i.e. having a lower deficit) can bring us much further.

Solutions to Problems

I have to assume that Ajai Chopra is a man who is very careful with his words.  It came as a bit of a surprise that he said the following when discussing the EU/IMF rescue package after quarterly review in April.

“It represents an Irish solution to an Irish problem and it enjoys our support. In the root of the problem was a deep banking crisis and that’s where the emphasis of this programme is. The new government is making good headway on this front.”

It is very unlikely that Chopra would have used the phrase “Irish solution to an Irish problem” without knowing the local context of the phrase.

Chopra revisited the phrase in a manner this week when he returned for the third quarterly review.

“The problems that Ireland faces are not just an Irish problem.  They’re a shared European problem. What we need and what’s lacking so far is a European solution to a European problem.”