20090630 angela merkel 18
German Chancellor Angela Merkel walks past German and EU flags as she arrives for a statement on the ruling of the German Federal Constitutional Court with regards to the EU's Lisbon Treaty, at the chancellery in Berlin. - 


Tess Vigeland: Share prices fell sharply in Europe today as investors branded the Irish bailout a failure. The massive loan package from the IMF and the European Union was designed to shore up Ireland's banking system and restore confidence in the Euro. But it seems to be doing the opposite.

German Chancellor Angela Merkel didn't help matters. She said the Euro is facing what she called "an extraordinarily serious situation."

From the European Desk in London, Marketplace's Stephen Beard reports.

Stephen Beard: Angela Merkel's alarm is understandable, as Europe's most powerful economy, Germany, is expected to lend the lion's share of any bailout. Stefan Schneider is chief economnist at Deutsche Bank in Frankfurt. He says many Germans -- including Merkel -- thought it was bad enough having to bail out Greece.

Stefan Schneider: Everyone thought that this is basically the line in the sand and now markets will calm down. And this expectation has basically proved wrong. And I guess that's part of the worry politicians currently express.

Now the Irish are in trouble and need a further $100 billion. And that doesn't look like the end of it. Investors are betting that Portugal will need a bailout next. And then perhaps Spain, with the fourth largest economy in Eurozone. That, says economist Simon Tilford, would be the nightmare scenario.

Simon Tilford: It's hard to see the other member states being able to provide enough to support Spain if it enters a very serious crisis. Which it could very well do. It shares many of the same characteristcs as the smaller economies that have found themselves in trouble.

The costs of insuring against default by the Spanish government went up today. This continuing loss of trust in more and more of the Euro member states is undermining confidence in the Euro itself.

Gideon Rachman: There are many people now who are preopared to say that this is an experiment, really, that isn't working out well. And that will eventually end.

Gideon Rachman, chief foreign affairs commentator at the Financial Times, thinks the Euro will eventually break up because German taxpayers will rebel.

Rachman: I think the German voters feel they were kind of sold a false prospectus. They told this would be a stable currency and under no circumstances would they have to bail out poorer countries within the EU even if they ran in to financial trouble.

He admits that the cost of pulling out of the Euro would be horrendous for Germany, both politically and financially. German banks have lent hundreds of billions of dollars to other countries in the Eurozone. And those debts might well become unpayable. But the costs of staying with the Euro in its present form are rising, and German patience seems to be wearing thin.

In London, this is Stephen Beard for Marketplace.