Ireland officially recorded the biggest government deficit in the EU last year. Revised figures published today by the EU's statistics agency Eurostat show Ireland's deficit for 2009 at 14.3% of GDP - higher than Greece and Britain.
Until now the government deficit has been shown at 11.8%, but Eurostat and the Government have agreed that the €4 billion injected into Anglo Irish Bank can no longer be regarded as a financial investment, but must be recorded as capital spending, and included in the deficit. The €4 billion spent on Anglo was equivalent to 2.5% of GDP.
Under the bank recapitalisation scheme announced recently, the Government will issue a promissory note to add a further €8.3 billion to Anglo's balance sheet over a ten-year period starting next year.
It is not certain how this will be treated in calculating the deficit in the future. One option is to record the money as it is spent as part of the deficit. The other is to add the whole amount - equivalent to more than 5% of GDP - to the deficit in a single year. If it were done this year the deficit would be around 17% of GDP.
The interest rate to lend money to Ireland moved higher on news of the EU figures. The rate or yield on bonds moved up to 4.787% this evening. Yields on bonds from Portugal and Greece also rose.
In the revised list of deficits published today, Ireland comes first at 14.3%, then Greece at 13.6% (after a sharp upward revision following a visit by Eurostat inspectors), then the UK at 11.5%. The lowest deficit was in Sweden at 0.5%.
Today's change is a technical revision, as it does not involve any new borrowing or spending by the Irish Government. But it will disappoint the Government as it returns Ireland to the top of Europe's list of problem economies.
'There is no additional borrowing associated with this technical reclassification,' Finance Minister Brian Lenihan said in a statement. 'This is a once-off impact.' He said the underlying deficit was 11.8% of GDP, broadly similar to that projected in December's Budget.
But Fine Gael spokesperson for Finance Richard Bruton, speaking on RTE radio, described the comments as 'nonsense', and said the measurement showed the Government would have to raise taxes or cut expenditure in future budgets.
'14% of tax going to pay off debt'
About 14% of all taxes collected this year will go to pay for the national debt, the chief executive of the National Treasury Management Agency has told the Oireachtas Public Accounts Committee.
John Corrigan said that, as interest rates were rising, the NTMA expected that cost to rise to about 20% of tax revenue. He said that in the past, the cost of servicing the national debt had been about 26% or 27% of tax revenue.
Mr Corrigan said the national debt was expected to rise to €94 billion by the end of this year, and to €112 billion by the end of 2011, from just over €50 billion at the end of 2008. He said the cost of servicing the national debt this year would be about €5 billion.