The rescue package cobbled together by the EU is partly meant to appease the bond markets, but more trouble is brewing in Europe with a host of countries queuing up for their handouts.
All eyes on bond markets after Ireland bailout
Bill Clinton, a former US president, was one of the key architects of the Irish peace deal, known as the Good Friday Agreement. The emerald isle is going to need more than his help now.
The rescue package cobbled together is in part aimed at appeasing something he feared more than anything else: the bond markets. One of his chief advisers, James Carville, was quoted as saying: "I used to think that if there was reincarnation, I wanted to come back as the president or the pope. But now I would like to come back as the bond market. You can intimidate everybody."
Everything the Europeans and the IMF are doing is intended either to calm the markets, or to overwhelm them. Every phrase they utter about Europeans standing together, or the fundamental strength of the euro, is intended at one main target: the US$80 trillion (Dh293.83tn) bond market. How it will react is key.
"If we now find the right answer to the Irish problem, then the chances are great that there will be no contagion effects," Wolfgang Schaeuble, the German finance minister, told ZDF television. But why did Europeans rally round to such an extent?
After all, however likeable the Irish may be, there are fewer than 5 million of them in the republic. Cut them adrift and the euro would probably strengthen, rather than weaken. But figures just released from the Bank for International Settlements offer a clue. Ireland's three biggest creditors are Germany, in hock to €109 billion (Dh548.26bn), Britain at €100bn and France with €40bn. This is more than Ireland's domestic creditors are owed. It is not only the Irish that are being bailed out, but the bankers in Europe.
American presidents and their advisers may fear the bond markets, but it appears that Europe's leaders fear banking bosses even more. This is a repeat of what happened at the beginning of the year, when Greece ran on to the rocks. First the rest of the continent tried to cut them adrift. Germans joked that if the Greeks wanted to raise some money they should sell some of their islands. Then they looked through the books and realised that if Greece defaulted, Europe's banks would lose a lot of money, so Greece was forced to accept a lifeline in May.
Six months down the line and the same thing is happening again. It does not take a genius, nor even a bond trader, to figure out that any of the so-called PIIGS- Portugal, Italy, Ireland, Greece or Spain that have not yet been affected - is going to be next. There are bound to be more threats of sovereign restructuring. This is all part of an elaborate game that first turned private debt into public debt, for example Ireland's troubled banks were effectively nationalised by the Irish government. As the Irish government has run out of money, that debt has now been "absorbed" by the EU. What's next?
"I think it means Portugal is next [to request help]," Filipe Garcia, an economist at Informacao de Mercados Financeiros Consultants in the Portuguese city of Porto, told Reuters.
"I don't know if it will happen before the end of the year or after, but it's almost inevitable now," he said. "I think we've probably passed the tipping point of what is sustainable in terms of paying interest rates on debt."
If markets turn on Portugal, Spain may be next after that.
"If Portugal is forced to take a bailout then they'll turn their attention to Spain and I don't know what the government will do," said Pedro Schwartz, an economist at San Pablo University in Madrid.
Notes from the Underground is a blog aimed at readers at the Chicago Mercantile Exchange. Its author warns: "Watch the European sovereign spreads tomorrow to see what the market truly believes. Saint Patrick may have rid Ireland of snakes but they evidently were able to swim to the continent's dry land."
Europhiles are doing their best to stand up for the single currency. Bill Emmott, writing in yesterday's Times, said "the euro had nothing to do with Ireland's property boom and bust". Blaming it is "wishful thinking, blended with schadenfreude".
It is funny that Mr Emmott uses a German word that means pleasure at other people's misfortune, for ultimately this all comes back to Germany. The answer as to how to deal with this debt is simple. Europe's Central Bank should just follow the lead of the US Federal Reserve and launch a grand bout of "quantitative easing", in other words, start printing money. This is what all the PIIGS need. But Germany, which still feels fear whenever the word "inflation" is uttered will countenance no such thing. In its mind's eye is the dread of having to take a wheelbarrow full of currency to buy a loaf of bread.
Yet again the folly of harnessing economies moving at different speeds to the same continent-wide interest rate has been exposed. How the markets react is yet to be seen, but we can be sure of one thing: the bond markets may be momentarily appeased, but they are not satisfied.