latest round of stress tests revealed that Irish banks continue to bleed money

 latest round of stress tests revealed that Irish banks continue to bleed money. Fresh losses and write-downs at the country's biggest banks led the central bank to call last week for €24 billion in capital injections. This could bring the total cost to Irish taxpayers of propping up the banks to €70 billion, or more than half of its GDP. As for the owners of Irish bank debt, their losses still amount to . . . zero.

Irish lawmakers promised this would be their fifth and final attempt to find the bottom of their country's banking crisis. Count us among the unconvinced. As the banks' losses deepen and Dublin's credibility withers, now is an apt time to rethink the foundations of the European Union's Irish-rescue strategy, one that is now effectively premised on sinking one country so that tough political choices may be avoided in another.

Irish leaders face today the same basic choice that they have since the crisis began: accept massive bailout borrowing to keep their banks' creditors whole, or share the burden by demanding that those bondholders give up a portion of their returns on Irish debt. The new Fine Gael government won office this year by promising the latter, but that prospect was nowhere to be found in last week's announcements.

To date the EU has insisted that haircuts for bondholders would have a dangerous ripple effect because of the extent to which Irish debt is held by banks elsewhere in Europe. That exposure is indeed huge: The latest figures from the Bank for International Settlements show that euro-zone banks had $285.7 billion in claims on Ireland as of September 2010. Burning these creditors would inevitably cause pain, not least in France and Germany, whose banks hold the bulk of the euro-zone exposure to Ireland according to the BIS.

But pain in German banks ought to be Germany's responsibility to mollify, not Ireland's. If losses on Irish debt would cause German banks to require recapitalization, then German taxpayers should pony up to fill the gap, and likewise across the euro-zone core countries. The threat of "contagion," that favorite bugbear of officials at the EU and the International Monetary Fund, is a reason to spread cleanup responsibility around, not to plug it up at the edges.

No such luck for Irish taxpayers, even if the Emerald Isle isn't exactly blameless here, either. A decade of bad lending by Irish banks laid extensive kindling for the eventual fire. Dublin fumbled too, when it extended a state guarantee to bank creditors and turned a bank solvency problem into a national solvency problem. But what is now being sold as Ireland's contribution to systemic stability is in fact a dodge, a way for German and French leaders to avoid owning up to their own banks' bad decisions in lending to Irish institutions in the first place.

Is it still possible to change course? In many circles, some form of debt restructuring is beginning to look inevitable. Der Spiegel reported this week that the IMF is now "privately pushing" Greece in that direction. Explaining its downgrade of Irish debt last Friday, Standard and Poor's said that restructuring may be a prerequisite for periphery governments if they eventually wish to borrow from the European Stability Mechanism, which replaces the current loan facility in 2013.

Our hope is that it won't take two years for European officials to do what markets already think needs to be done. Bond yields will remain high as long as investors are expecting to take haircuts, making all of that bailout lending even harder to pay back. But the experience so far has made clear who rules Ireland and the rest of the euro-zone periphery today, and who in fact benefits most from a rescue plan that is meant to work toward the stability of all of Europe.