How much debt can the country support?

[DerKaiser]

I'd just like to canvass a few opinions on this one as it is impacting on assumptions for some business planning I'm doing.

My gut feel from all the info I have read is that we are headed for €200bn national debt but can probably only service €150bn.

So if there's to be a default, is 25% a reasonable number?

In my opinion the only good way to gauge this is by comparing our projected debt to a good estimate of what we can genuinely support.

 

[Chris]

I think you are going to get many different answers dependent on who you ask. The market obviously believes that Ireland's debt forecast is not going to be repayable as can be seen in bond yields and credit default rates. The big question is at what stage did this become apparent?
It would probably take some digging into debt projections at the time of the big increase in bond yields, which was mid last year ([broken link removed]). According to the NTMA the debt in summer 2010 stood at €84bn ([broken link removed]). Given the budget deficit and additional bank recapitalisation needed, I think that at that time you quickly got to a €150bn projection which sent bond yields up over 10%.
Even at a reduced rate of about 5% this would cost €7.5bn in interest alone, which on revenue of just under €40bn is far too much. In my opinion interest payments in excess of 10% of revenue are not sustainable.
Given the history of government projections I would be inclined to say that the national debt will top out at closer to €250bn. If revenue by some miracle went back up to €50bn (without adversely affecting the economy), 10% interest payment would be €5bn, at 5% interest that would be a debt level of €100bn. Going from €250bn to €100bn would be about a 60% default. This would actually coincide with defaults in Argentina and Russia, which were actually closer to 70%.