"Doubtful it stood, as two spent swimmers that do cling together, a nd choke their art ."
The Greek bailout was supposed to be an isolated case, a test of the EU's ability to quarantine an infected member, preventing it from spreading "debt contagion."
But that was before Ireland failed. Ireland was the poster child for how to conduct a successful austerity program. Unlike the Greeks, who were considered profligate spendthrifts, the Irish did everything their creditors asked. The people sacrificed to pay for the excesses of their banks, but still the effort failed. Ireland was the second domino to fall to an IMF/EU bailout. On December 17, Moody's Investors Service rewarded it for voting to accept the "rescue" package with a five-notch credit downgrade , from AA2 to BAA1, with warnings that further downgrades could follow.
Spain is rumored to be the next domino poised to fall. If it falls, it could bring down the EU.
A Design Flaw in the Euro Scheme?
Richard Douthwaite is co-founder of an Irish-based economic think tank called FEASTA (the Foundation for the Economics of Sustainability). He reports that the collective deficit of eurozone countries was a very acceptable 1.9% in 2008. It shot up to 6.3%, exceeding the cap imposed on EU members (3% of GDP), only in 2009. This spike was not due to a sudden surge in government spending. It was due to the global financial crisis, which shrank the money supply globally. Douthwaite writes:
[A] shrinking money supply means shrinking business profits simply because there is less money available to appear in corporate accounts at the end of the year. This means less tax is paid.