Having been a bit tough on the FT yesterday morning, I would like to echo commenter DOMC in drawing attention to a very good article by David Oakley (see here; related piece here). While our attention has naturally been on the Ireland-specific aspects of negotiations over the crisis-resolution mechanisms, the Grand Bargain on the ESM is probably far more significant for our creditworthiness.
David Oakley notes that market conditions are improving for Italy and Spain. This is consistent with the idea of a self-fulfilling equilibrium: if you look like your will need a bailout no one wants to lend to you (and get caught up in a later “bail-in”), and so you end up losing market access and forced into a bailout. This is what seems to be happening to Portugal at the moment; Italy and Spain have been able to stay out of the critical region — at least for now. A problem for Ireland is that improving your fundamentals looks less effective once already in the bailout mechanisms. Can it make sense to have this “black hole” (potentially) spreading from the periphery? Hardly a Grand Bargain.