Don’t be so sure that the European Union’s emergency aid package for Ireland will stop the spread of debt concerns to other euro zone countries. In fact, it may accelerate it.
After Greece was bailed out of its own debt troubles this year, the various European government officials all voiced confidence that the stabilization programs put in place would probably not need to be drawn down. Just the existence of the programs—the expression of the will of European government’s to stabilize the markets—would be enough to stabilize markets. Indeed, the Eurocrats insisted that the point of constructing the bailout programs was to avoid ever having to use them.
That didn’t work out. At the time, many of us insistently recalled Hank Paulson’s famous bazooka. He reckoned that if you had a pistol in your pocket you might have to use it. But if you had a bazooka, you’d never have to. The bazooka theory, it turns out, is most notable for its ability to persist in the minds of bureaucrats despite never having made an appearance on earth. Maybe we should call it the Unicorn Bazooka Theory.
Now we’ve got Eurogroup chairman Jean-Claude Juncker saying that the move to rescue Ireland displays the resolve of Europe’s member states to safeguard the continent’s financial stability. He predicts other countries should be spared Ireland's problems, in part because the Europeans have shown that Greece wasn’t a one-off. They’ve got resolve. Unity. A bailout fund.
In other words, they’ve got the bazooka.
The financial markets pretty much laughed at this hubris today. We’d laugh too, if there weren’t so many real lives and fortunes at stake.
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