Ireland To Get Bailed Out

Now it’s Ireland’s turn for a bailout. This is a tough one since Ireland had been the shining star of the benefits of European economic integration. Sure, we all kinda knew that Greece was a mess, but Ireland? They were supposed to be the good student doing it right.

European Union officials, who had been pushing Ireland to accept help, quickly agreed to the request late Sunday, committing a staggering amount of funds to an ailing member for the second time in six months.

The total amount of the package was not announced, but several officials said it would be €80 billion to €90 billion, or $109 billion to $123 billion. Last spring, Europe disbursed €110 billion to Greece to save it from bankruptcy.

What happened is that Ireland, like many countries, bailed out its banks two years ago. The problem was that Irish banks were in much bigger trouble than everyone thought, and now the bailouters need a bailout. The reason it’s taken so long between 2008 and today is that only now have investors wised up and started to dump Irish bonds. Up until two weeks ago, the Irish government was telling us that nothing was wrong. The lesson is that markets, for all their noise, are more honest than governments.

Now there are worries that Spain and Portugal are next. The Prime Minister of Luxembourg, Jean-Claude Juncker, said “Speculative actions against Portugal and Spain are not justified, though it can’t be excluded.” Hate to break this to you, Jean-Claude, but if they can’t be excluded, they are by a certain measure, justified. For reasons unclear, Mr. Juncker is a big-time muckety muck in European affairs.

There’s an odd perception/reality game in these situations. If people think Ireland will be bailed out, the yield spreads on Irish debt will narrow and that will greatly help the country’s fiscal situation. If the EU had elected to “Bear Stearnsify” Ireland, well…things would be very different right now.

Posted by on November 22nd, 2010 at 8:54 am


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