After bailouts to Ireland, Greece, Portugal there seems to be an idea that the eu has to provide a bailout, and it's up to the insolvent country to decide what bailout conditions are acceptable
This manifests in cyprus as protesters targetting anger at Angela Merkel and Germany. In our own case we had similar anti german anger.
In reality there's no obligation on eu or eurozone members to bail out another member state. An insolvent member state has some negotiating weight which is what the other member states stand to lose economically by the insolvency + whatever political goodwill exists.
Economic losses to other member states are made up of outstanding ecb liquidity, holdings of that sates bonds, outstanding deposits in that state + outstanding target2 imbalances. Also the probable loss of exports to that state
We dont really know what a member state will lose by defaulting. In Irelands case there was a lengthy debate about whether we'd be better off defaulting or getting bailed out. Defaulting was never really considered by the govt so the answer is we dont know if that's better. We may be about to find out and whatever happens will probably serve as an example for a future italian re-election
So given that we're going to be contributors to future bailouts rather than recipients, what conditions do we want to put on the recipient before we pony up the cash ?
- Do we want the bailout be repaid or are we ok to make a gift to the other country ?
- Do we insist the country changes whatever got it into trouvle so we dont need to bail them out again a few years down the road ?