Eurozone finance ministers are taking a hard look at Ireland, the latest member to come under intense bond market pressure. DW's Bernd Riegert believes Ireland should accept aid - fast.
The longer you wait, the more costly it gets. In view of its rampant national debt and heavily indebted banks, Ireland will have to accept help from the EU and the International Monetary Fund (IMF). It is only a matter of days, maybe hours. The EU finance ministers' plans are ready, but Ireland has so far steadfastly resisted applying for a state bailout. This is a case of misplaced pride on the part of the country's stricken Prime Minister, Brian Cowen. The former Celtic tiger is about to be skinned. Cowen did not want to take responsibility for such action in front of his shaken voters. He also fears the strict conditions that loans entail. Ireland would probably have to raise its extremely low corporate taxes and aggravate the economic crisis further still.
Every day of hesitation forces the cost of loans on the financial markets to skyrocket, while share prices drop. Ireland's finance minister has finally admitted that the problems seem to have become too big for the small country. The crisis does not only affect Ireland, it affects all of Europe. After all, the European Central Bank has tirelessly been pumping money into the Irish budget, where it buys government bonds.
Avoid a chain reaction
Ireland is as good as bankrupt and the EU's larger member states, including Britain that does not have the euro as its currency, will have to help the nation in order to protect their own interests. Ireland is indebted for the most part to Britain, Germany, the US and France. An Irish insolvency would hit the banks in Europe: For instance Germany's state-run HRE bank. It is clearly in Europe's own interest to save Ireland - the sooner, the better.
A chain reaction might still be averted, although Portugal and possibly Spain also stand on the edge of a precipice. That is what European Council President Herman Van Rompuy must have had in mind when he said that the 16 states of the eurozone and the entire EU are fighting for survival.
It is alarming that the financial markets are reacting with a drop in the price of government bonds to Chancellor Angela Merkel's remarks that private investors should share the costs of state insolvencies after 2013. Debtors want to make money, but they don't want to carry the risks, and that has to stop. However, financial markets and investors currently still have the upper hand. They act and politics is forced to react by using taxpayers' money to buy time for bankrupt states. In essence, that is what the bailout is: a safety net. Whether this structure will manage to stabilize the European currency and the financial system remains to be seen.
We are in the midst of a huge experiment. In the case of Greece, 110 billion euros ($150 billion) were pledged and about 40 billion have been paid. The next installment can't be made because the country hasn't completely fulfilled its obligations. The next crisis is already on the horizon. The safety net is beginning to tear.
Bernd Riegert is the head of DW’s Europe department (db)
Editor: Rob Turner