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A reeling bond market has EU members pushing for Ireland bailout

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Stephen Kinsella, an economist at the University of Limerick, says bending to a full loan bailout is “more than likely going to happen,” but warns that could drive yields even higher in the short term, as investors fret that the terms of a bailout will require current investors to to lose some of their principal. "A potential bailout would cause spreads to explode and make the state – and state-owned banks – unable to borrow,” he says.

The pressure on Ireland mounted today, with European Central Bank member Miguel Angel Fernandez Ordonez telling reporters in Madrid that “the situation in the markets in recent weeks has been very negative due… to the lack of a final decision by Ireland.”

Housing bubble

Unlike Greece, which stunned markets when it admitted its economic statistics were fabricated and had been concealing the fact that it was nearly insolvent – Ireland’s problem comes from bad bank loans associated with a housing bubble. Ireland has been forthrightly repaying its debt for two years in full public view and has pumped $47 billion of taxpayer money into the Anglo-Irish bank since 2009, even as it instituted terrific budget cuts.

Next year federal spending is slated to fall by $8 billion, and by $12 billion by 2014. The crisis has raised the Irish deficit to 32 percent of GDP.

Irish finance ministry officials reiterated today that no “application” has been made to tap the eurozone stability fund created May 9 in the wake of the Greek crisis: "The Irish government continues its work on the four-year budgetary plan and budget for 2011. Ireland is fully funded till well into 2011," a spokesman told the Associated Press.

But the issue for Germany, which has exerted significant influence in the crisis, and for France, is whether Ireland can actually finance its debt until next July, as it has said.

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