Markets like bailouts

  Markets like liquidity. More money means more money to spend. So markets make a natural assumption that government bailouts make it easier for liquidity to become available. If the bailout were to be paid by taxes, then that would be a different matter since that does not create new liquidity. That is just a transfer of money. More spending on A only means less spending on B.

 Thus when liquidity is provided by deficit spending, that means the money does not come from taxes, instead, it comes from thin air. And that the total money supply is expected to be increased in some way. Austerity measures on the other hand are not good for the economy. Austerity measures are maybe necessary in order to repay one's creditor. But austerity measures defeats the purpose of having a bailout altogether. By accepting a bailout, but then forced to apply austerity measures. Ireland is still in debt. Simply trading one creditor with another creditor. Thus nothing has improved.

  Bailout increases the money supply, but austerity measures only further reduces it. There is no net gain to the monetary system. Whenever money is created from thin air, the markets become excited. It creates an opportunity to make new money, not simply old money. Thus austerity is not all that exciting.