Ireland did everything right, according to the bankers of the world. They slashed wages, services, and public employment. After two years of sacrifice what do they have to show for it?
Wages have fallen and unemployment is around 13%. That much was expected. What wasn't expected is that the markets would punish the nation for crushing the domestic economy because of the austerity measures.
"We do not really see how Ireland is going to be able to ’hold on’ without EFSF help," one euro zone source with knowledge of the talks said.
"Obviously since this implies a pretty tough programme for the government and to some extent a loss of sovereignty, they want to think twice..." the source said.
In other words, things are going to get even harder for Ireland. What will Ireland get in return? The ability to go even deeper into debt.
Pressure is being put on the Irish government. They are literally on the clock to accept more draconian restrictions.
An increasingly isolated Irish government was coming under mounting pressure tonight to seek an EU or International Monetary Fund bailout within 24 hours amid fears that contagion from its crippled banking sector might spread through the weaker eurozone countries.
The fear is that the sovereign debt crisis, which has already taken down the Greek government, will spread from Ireland and cripple Portugal.
In fact, Portugal is already on the ropes.
Contagion has already pushed Portugal to the brink, pushing yields on 10-year bonds to the danger level above 6.5pc. Finance minister Fernado Teixeira dos Santos said the country was at the mercy of global forces and may be forced to call for help.
After Portugal there is only Spain and Italy, large countries in which bailouts simply won't work. At that point we are looking at a collapse of the Euro in its present form. Some are drawing parallels to the Great Depression.
"Does the ECB understand the concept of contagion?" asked Jacques Cailloux, chief Europe economist at RBS. Three EMU countries have already been shut out of the capital markets, and footloose foreign creditors hold €2 trillion of debt securities issued by Spain, Portugal, Ireland and Greece.
The bailout that Ireland is being pushed to is not a solution. The euro bailout track record, as exemplified by Greece, is one of failure.
Six months after Athens received €110bn (£93bn) in emergency loans from EU nations and the International Monetary Fund to prop up its near-bankrupt economy, Eurostat revealed that Greece's budget deficit reached 15.4% of GDP last year, substantially higher than its previous estimate of 13.6%.
In April, Eurostat had estimated the debt-to-GDP ratio would reach 115.1%. The revised data meant that Greece's debt ratio has eclipsed those of every other EU state, officials said. By the end of 2010, its debt is projected to account for 126.8% of GDP.
Greece's debt is expected to hit 144% of GDP despite extreme austerity measures.
How did this happen? It wasn't because of public employees being paid too much, or pension costs, or public health care, even though these are the only places the government is looking to cut.
It happened because of the bailout of the banks.
The new figures, along with the money already injected into other banks and a possible further capital increase for Irish Nationwide Building Society, could see the total cost of the industry bailout hit as much as €50 billion...
The extra cash for the banking system means the deficit in 2010 will soar to around 32% of gross domestic product, compared to a previous estimate of 12%.
The government decided that the creditors to the banks had to be taken care of at all costs, even at the expense of the middle class and the economy of Ireland in general.
When the crisis hit the Irish government did exactly what the global bankers told them they had to do. If they did so then everything would be all right. It turns out the global bankers were lying.
"Ireland has been doing 'all the right things' policy-wise," says Jan Randolph of IHS Global Insight.
"The tale of Ireland is the banks getting too big and taking on risks and leaving the taxpayers with the bill," Randolph said. "It's a huge moral hazard, and it's no way to run a financial system."
Only in politics would this be some sort of brilliant insight.
Banks caused this problem. Instead of reforming the banking system and making sure it never happened again, the governments of the world decided to bail out the people who caused the problem (the bankers) while making the people who didn't cause the problem pay for it (the taxpayers).
Then everyone acts surprised when this "solution" doesn't work. So what is the next step? Why more of the same, of course.
This latest bailout that is being forced on the Irish taxpayers is for - the banks...again.
Ireland signaled on Monday its banks, not the state, could need help with funding...
Irish Prime Minister Brian Cowen, whose parliamentary majority is on a knife-edge as he wrestles with the worst economic crisis in a generation, said high borrowing costs were making it hard for banks to support an economic recovery.
Newsflash: The banks aren't supporting an economic recovery. Period. First of all there isn't an economic recovery, and secondly, you are bailing out the banks, not the other way around.
America should watch these events in Europe very carefully because we are likely to see similar events unfold in our muni bond market.
So not only are we seeing minor Euro countries going bankrupt (with massive street protests), but other minor Euro countries are balking at bailing them out.
The Euro currency is under tremendous pressure right now. That's why the dollar is rising. I don't think the Euro can continue in its present form.
[Update #2: It seems that there is a gigantic game of chicken being played regarding the Greek bailout. The International Monetary Fund (IMF)and the European Financial Stability Facility (EFSF) is on one side, and the Greek people are on the other.
I pointed out above how the Greek budget is a mess, and Austria is balking at sending them any more money. Well, this is rapidly coming to a head.
Carl B. Weinberg, chief economist at High Frequency Economics, pointed out in a Tuesday commentary that Greece has 14 days to obtain clearance for the next tranche of its bridge financing loan from the International Monetary Fund (IMF)and the European Financial Stability Facility (EFSF). If it fails to do so by Nov. 30, repercussions will be huge—not just for Greece but for the global financial system, said Weinberg.
The problem is that Greece must comply with the fiscal adjustment program imposed on it by the IMF: "six quantified targets that include a ceiling on public expenditures, a floor on tax revenues and a target for its cash balance for the quarter," according to his report. Weinberg said Greece has already reported that its tax collections have fallen short and because of that, according to the agreement, it could be denied access to the 6.5 billion euros ($8.8 billion) it is otherwise scheduled to receive at the end of November. Without this money, "we predict that the government of Greece will run out of cash within 60 days . . . Athens will have to . . . suspend payments of interest and principal on its national debt."
That, according to Weinberg, "would be a catastrophe of historic proportions."
Of course the reason that tax collections have fallen short is because the economy has been crushed from the austerity. Greece is trapped in a debt cycle.
The article goes on to point out that the Irish banks have been getting one quarter of all the support loans from the ECB. That is amazing when you consider that this is above and beyond the coming bailout that is being talked about.