So far the market is pretty unimpressed by the Irish bailout. Sure the euro did its perfunctory jump, but it’s already come off, and the moves in Irish yields and equities is uninspired, to say the least.The market is right to be very sceptical.
There are three (actually three and a half) reasons the bailout will fail. Let’s just count up from the bottom:
0.5) There’s actually no deal yet… just a framework for coming up with a deal that needs to be worked out and agreed to by all sorts of parties both in and outside the country.
1) It’s not enough. Felix Salmon does a pretty good job arguing that the numbers sub-100 billion EUR still isn’t big enough.
2) Austerity is a lousy way to get to deficit reductions. Remember, austerity is what Ireland has been trying for years. Suddenly it will work now, and get the deficit to 3% of GDP? Please.
3) It’s still fundamentally based on this idea of preventing panic by promising support as necessary. And yet already Portuguese CDS are wider. This idea gets nobody excited.