Ireland’s decision to apply for an emergency aid package from its partners means that two of the eurozone’s 16 member states – the other being Greece – have required rescue in the space of seven months.
The first is whether the Irish bail-out will ease pressure in the bond markets on Portugal, the eurozone’s next weakest link, and obviate the need for a third rescue operation.
The Greek rescue package ended up costing eurozone governments and the International Monetary Fund €110bn, a sum that Lorenzo Bini Smaghi, the Italian member of the European Central Bank’s governing council, says could have been lower if only Europe’s political leaders had shown greater decisiveness.
The writing was probably on the wall at the end of September, when the government in Dublin revised up its exposure to domestic banks and said the cost of recapitalisation would be €46bn, or 28 per cent of GDP, instead of €33bn as first estimated.
But the final nail in Ireland’s coffin was hammered in by Ms Merkel and Nicolas Sarkozy, France’s president, when they announced at a meeting in the French seaside resort of Deauville on October 18 that future rescues of eurozone states should involve losses for private bondholders.
Portugal is not Greece, and it is not Ireland either: its banks are in better condition, and it has not excelled in the Greek fashion at the publication of grossly misleading financial data and spectacularly incompetent management of the public finances. But these are distinctions that financial markets may not be in the mood to keep in mind as the crisis of the euro enters its next phase.