Bailouts make things worse?

As the investigative reports in the Wall Street Journal this week make clear, this same type of fear of contagion (expressed, according the the WSJ story, very strongly by Jean-Claude Trichet during the past two years) is why a restructuring of Greek sovereign debt has been kicked down the road so many of times. Instead of reducing the role of bailouts as occurred for emerging markets around the time of Argentina, the role of bailouts in European policy has increased and this has made policy even less predictable. As the prospects of bailout increased, the political incentives to take action to reduce deficits and debt decreased as evidence in Italy over the past year and made the crisis much worse.  Economics One

Why would this happen? Bureaucrats can choose to stay within the current communication channels, it is an institutional block, it allows them to ignore reality until the last month.