Why Angela Merkel Wants Ireland to Take a Bailout

Ireland insists it doesn’t need a bailout from the European Union, but today, the EU is all but insisting Ireland take one anyway.

Let’s review how Ireland got where it is today: The Irish government went on a spending binge starting in the 1990s. Housing prices tripled in just 10 years. When the bubble burst, the banks got in trouble and government revenue cratered.

“Even an austerity movement after that is not going to help them with a decline in economic activity,” we told Canada’s National Post in a piece about the failure of stimulus throughout the Western world. “The problems were already inherent in the prosperity.”

So here’s where we stand now: German Chancellor Angela Merkel – the leader who’s taken a stand for fiscal probity through all the euro-nonsense of the last year – is among those pushing hardest for Ireland to take a bailout.

From what we can piece together, her reasoning appears to be thus: She’s keen on a plan to fix the situation once and for all by sticking future sovereign debt losses on the people who bought that sovereign debt, rather than German taxpayers. (Makes sense so far.)

But as long as there’s uncertainty about Ireland, it’s harder for Merkel to convince other European leaders to buy in. So she wants the Irish to take a bailout…courtesy of German taxpayers (among others).

Our mind wanders to George W. Bush saying of the 2008 bank bailouts, “I’ve abandoned free-market principles to save the free-market system.” European Union finance ministers meet tomorrow in Brussels. Stay tuned.

Addison Wiggin
for The Daily Reckoning

The Daily Reckoning