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The Impact of Financial Sector Support on the Public Finances in Ireland and the EU

Rónán Hickey, Linda Kane and Diarmaid Smyth
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Rónán Hickey: Central Bank of Ireland
Linda Kane: Central Bank of Ireland
Diarmaid Smyth: Central Bank of Ireland

No 12/EL/17, Economic Letters from Central Bank of Ireland

Abstract: Drawing on a pan-European database, this Letter takes a comprehensive look at the direct impact that financial sector support measures had on the fiscal position in Ireland from 2008 to 2016. At end-2016, it is estimated that these support measures added approximately €58 billion (21 per cent of GDP and 31 per cent of GNI*) to the stock of gross government debt, a figure which vastly exceeds the impact of the crisis in the EU. The final cost of the support on the public finances will depend on how various banking positions are unwound and the cumulative cost of servicing the related borrowing. Securing the best possible return on remaining banking investments and managing the transition to lower and more sustainable levels of public debt will remain a key challenge going forward.

Date: 2017-10
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