EU Bailout Frenzy

Everyone’s needing a bailout these days.

Countries within the European Union are certainly no exception. First it was Greece and now Ireland is needing a favor too. The cash-strapped state has had its bonds given junk status:

Ireland’s banks were hit with downgrades Friday — one to junk bond status — as speculation mounted that an EU-IMF bailout of Ireland could require senior bondholders to help cover the massive losses…

The New York-based Standard & Poor’s credit ratings agency said it was lowering Anglo Irish Bank six notches to a junk-bond B grade. It also cut the ratings on Bank of Ireland one notch to BBB+, and downgraded both Allied Irish Banks and Irish Life & Permanent one notch to BBB.

But here comes rescue from the EU. From Bloomberg:

European governments sought to quell the market turmoil menacing the euro, handing Ireland an 85 billion-euro ($113 billion) aid package and diluting proposals to force bondholders to bear some cost of future bailouts.

European finance chiefs ended crisis talks in Brussels yesterday by endorsing a Franco-German compromise on post-2013 rescues that means investors won’t automatically take losses to share the cost with taxpayers as German Chancellor Angela Merkel initially proposed to the consternation of bond traders.

If this were only an issue isolated in Greece and Ireland there would not be too much to worry about. Soon enough there will be talks of Portugal, Spain, and Italy needing a bailout as well, but can Germany and the rest of Europe support being the financier for every failed socialist experiment before they all find their bonds labeled as junk?