With the government finances so stretched, the additional burden of recapitalizing the banks has reduced fiscal headroom and contributed to the concern of the financial markets. Still, as I have been reminding foreign observers that this recapitalization burden is often over-stated as a contributor to the required fiscal adjustment.
Indeed, the interest cost of servicing the notes injected to recapitalize the banks only accounts for about one-tenth of the fiscal adjustment now in prospect over the next four years. I will not rehearse here the details of the scale on which capital has been injected into the banks with which members of the Committee will be fully aware.