As the Deputy is aware, the day-to-day management of the debt is handled by the National Treasury Management Agency, NTMA, and, as such, it is on its advice that the Government relies regarding the operation of our debt funding.
The cost of raising long-term debt in the capital markets can be measured in relative terms compared to other countries. This is known as the "spread". In the case of Ireland, its cost of borrowing can be measured against the relative borrowing costs of other states, for example, Germany, The Netherlands, Portugal or Greece. The spread to Germany is the benchmark measure and it is observed by comparing the yields on bonds of similar maturity.
The recent turbulence in financial markets has been severe and this has been reflected in bond spreads. Only time and an historical perspective will allow a true analysis of the causes and, more important, the relative weight that should be ascribed to the different factors. As international difficulties have evolved over the past few months, all small and non-core sovereign issuers, such as Ireland, have experienced widening spreads. Liquidity has been a major factor. Most investors have focused on German Government debt as it is considered the most liquid investment. This means German bonds can be readily accessed and traded, and also that there is a liquid futures market in German Government bonds to manage the associated market risks. However, while spreads have widened against Germany, absolute yields have remained low or even decreased, depending on the timeframe, because of the extent to which German yields have fallen.
Ireland's economic success has resulted in a relatively low ratio of debt to GDP and also a low absolute level of debt. We have not been a frequent issuer of bonds which reflects both the relative size of the economy and the healthy state of the public finances for the past decade. These positive factors have had the effect of contributing to liquidity difficulties for Ireland in the current market.
There are a number of other factors in addition to liquidity that influence borrowing costs. These include the state of the public finances, the borrowing required and competition for funding in the sovereign debt markets. It is not possible to state the extent to which each of these factors will affect the spread in the future.
The strategy underpinning budget 2009 is designed with the clear intention of restoring balance to the public finances over the medium-term cycle while having reference to the overall economic climate. In doing so, the Government seeks to restore the current budget to surplus and to limit the level of borrowing required as order and stability return to the Exchequer finances.