Ireland might be only the beginning…

Is the EU going to bail out Ireland? And is this just the tip of the iceberg?

“The island doesn’t count for much” in the decisions that lie ahead, reckons Der Standard. And the Viennese daily understands “Dublin’s scepticism” at the prospect of giving up some measure of its financial autonomy. “The thing is, for the continental rescue party, the basic problem isn’t Ireland. The Irish economy, like the Greek, is far too small to drag the eurozone down into the depths. But like Greece again, Ireland and its banks owe lots of money to eurozone and UK banks: €138bn to German banks alone,” points out the Viennese daily, and warning of a domino effect that could hit the 4th-biggest euro economy: Spain.

“So is Spain next?” asks El Mundo. The Madrid-based paper reports that Spain, “teetering on the brink of collapse, has been issued a warning by the EU”. The European Commission fears “the Irish situation could affect Spain if it doesn’t demonstrate its credibility to the markets”. The government “has made little headway on the structural reforms pledged” back in May, and time is running out, says El Mundo. Among other things, Madrid needs to reform the pension system and the savings banks merger process, which is a major financial problem for the Spanish economy and an “urgent imperative” according to the governor of the Bank of Spain.

Next door in Portugal, Diário de Notíciasreports that “the government is refusing to ask for help, even if the Irish do”. But “up in Brussels”, relays fellow Portuguese daily Público, “some people are conceding that a collective aid package for both countries is inevitable”.

How did it come to this? In Les Echos’ estimation, Europe is paying the price for the way it handled the Greek crisis in the spring, when it “ruled out any restructuring of a member state’s debt” and flung together “a scheme to gain time and calm the markets”. But “the financial markets only calmed down for a few months, and the ‘peripheral’ eurozone countries – Greece, Ireland and Portugal – will soon find they’ve run out of time to refinance on acceptable terms”, foresees the French business daily.

Right now, “how is Ireland to sink its deficit from 32% of GDP to 3% by 2014?” wonders the paper. “One day or another, the excess debt is bound to lead to a default on payments or wholesale restructuring – which is something Europe has been denying till now.” Hence the urgent call to “get out of denial” and “set up an ‘orderly’ restructuring mechanism for the most vulnerable countries’ debts: to put it in brass tacks, the maturities need to be spread out and the creditors need to make concessions”.

In the eyes of the Frankfurter Allgemeine Zeitung, Ireland is but the latest stake in an ongoing “poker game”. And Berlin is torn between the markets and the taxpayers now that Angela Merkel has presented her plan to give permanent form (from 2013) to the current rescue apparatus. The chancellor aims to get private creditors, particularly banks and investment funds, to share the burden of national bailouts. “The government just couldn’t keep bailing out banks with taxpayers’ money without holding the banks accountable for their own unwise investments,” explains the FAZ, hastening to add that the chancellor actually did her part in getting the markets worked up by reaffirming the German position at the summit in Seoul. According to one banker interviewed by the paper, some investors assumed this rescue mechanism would be propping up Ireland and Portugal.