As Ireland Taps Funds, Europe's Bailout Tab Looks Set to Soar

The European Central Bank, eurozone nations, and the International Monetary Fund (IMF) created a bailout fund of $955 billion in May to aid regional nations which might face funding issues. Whether that fund will be large enough to handle all Europe's financial woes is about to be tested.

Greece has already received $150 billion from the EU pool. Word is that Ireland will soon accept billions in international aid, according toThe Sunday Times of London. The Irish government admitted that although it has capital to operate within its budget until the middle of next year, the rates that it will have to pay on future sovereign debt are too high for the country to afford. The Sunday Times puts the bailout tab at $164 billion, although on a Sunday morning radio interview, Ireland's finance minister said it would not exceed $100 billion, according to the Associated Press.

There has been a great deal of speculation that Portugal and Spain will need bailouts as well. There is no way to tell exactly what each may require in aid. Portugal's ten year bond yields are near 7%, which means its debt service on any future paper it might issue is probably too high for it to afford. Fernando Teixeira dos Santos, the Portuguese Finance Minister recently told Dow Jones,"The risk is high because we are not facing only a national or country problem." In other word's all weak nations in the region are under pressure as they try to raise capital. Portugal's debt was downgraded in March by Fitch. The government expects GDP growth of only .2% next year. And Portugal's debt-to-GDP ratio is about 80%.

Consider this: Portugal's GDP is about the same size as Ireland's. If it needed capital at the same level as Ireland and Greece, the hit to the EU bailout fund could total $500 billion among the three nations. And the bailout process is only six months old.

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It is nearly impossible for outsiders to guess what a bailout of Spain might take in dollar terms. Its debt-to-GDP ratio looks better than Greece and Ireland, but its economy is barely growing at all. Unemployment is 20% -- a huge drag on social services costs that is likely to continue to put pressure on real estate prices. Spain's GDP is about six times Ireland's.

The last consideration in assessing any need for future bailouts within the eurozone is contagion. Fear of the need for bailouts increases the interest rates that countries in the region must pay. Each bailout adds to anxiety about whether there will be another. Portugal and Spain may find that the interest rates that they pay in the global capital markets are simply too great to sustain as they borrow to cover their deficits. The argument these nations make is that their austerity programs will shrink deficits. But low GDP growth rates may lower their tax collection sums as well.

The bailout process in Europe is not over. And it's not even clear anymore that the nearly $1 trillion bailout fund will be enough to cover the ultimate tab.