So, how’s that bailout thing working?

Ireland Gets $113 Billion Aid as Bondholders Win Bailout-Payment Reprieve

By James G. Neuger and Simon Kennedy, Bloomberg News

Nov 29, 2010 11:42 AM ET

“The notion that a rescue package for Ireland would create a firewall and stop the fear of contagion is clearly discredited,” said Preston Keat, director of research at Eurasia Group, a political consultancy, in London. “Portugal and Spain are already facing pressures in the markets.”

…

Germany, which built the euro on the principle of budgetary rigor, unleashed the latest phase of the crisis by demanding a “permanent” system as of 2013 that would enable fiscally troubled countries to restructure their debts and cut the value of bond holdings.

The German push ran into criticism from policy makers elsewhere, who called it mistimed, and from European Central Bank President Jean-Claude Trichet, who warned it would unsettle bondholders. Merkel, who has faced domestic criticism for aiding EU neighbors, yesterday backed away from the pitch for an automatic penalty, agreeing to give the International Monetary Fund a role in determining losses on a case-by-case basis.

Bank bondholders escape again as a protected species of capitalism

JOHN McMANUS, The Irish Times

Monday, November 29, 2010

FOR A brief moment on Friday, it looked as though for the first time in Europe’s handling of the financial crisis the holders of senior bank bonds were going to join the rest of us in the world of moral hazard.

But it now seems that the issue of the senior bond holders in the Irish banks being asked to participate in the fourth bailout of these institutions was effectively shelved on Saturday.

…

The speed with which even the mere suggestion of burden sharing with Irish bank senior bond holders sent the market into paroxysms indicates that they know the day of reckoning is coming.

…

The authorities may have blinked first, but a process may have been set in train that will see the abandonment of the position that senior bond holders in European banks are a protected species.

Markets Remain Focused on Debt Crisis

By THE ASSOCIATED PRESS

Published: November 30, 2010

“Ireland’s bailout package has clearly failed to stop the rot in euro zone markets and if anything it has focused attention on other countries in the periphery especially Portugal but also to Spain, Belgian and Italian government debt,” an analyst at Crédit Agricole, Mitul Kotecha, said.

…

At the heart of the problem is that the austerity measures these countries need to take to reduce their deficits threaten to backfire by weakening economic growth and hurting state revenues. That is what’s happening in Greece, which has been able to drastically cut its spending but is struggling to raise tax income as economic and corporate activity wilts.

Just as badly as predicted.