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So the dollar and Swiss Franc are strengthening as I write, as are German bunds (the equivalent of our Treasury gilts) and gold. These are worrying times and the markets are rightly nervous.

Nobody I know who follows these matters closely believes the Irish bail out will solve the European debt crisis. If anything it has merely underlined how precarious things are. The European Union has a E750 billion stabilisation fund at its disposal to help members drowning in debt. When it was created in May (after the Greek bail out) we were told its very existence would calm markets and mean it might never be used.

That theory was brutally mugged by events coming out of Dublin when it applied for help to the stabilisation fund. Now the fear is that if the sovereign debt contagion hits Spain or even Italy the fund just won't be big enough. Meanwhile Greek bonds are trading at record yields (despite its bail out), borrowing costs for Madrid are still high and the cost of insuring Portuguese debt continues to rise. The Irish bail out doesn't mark the end of the sovereign debt crisis -- just the end of the beginning.

Chancellor George Osborne, who has his cheque book out for Dublin, will soon be under pressure to write more cheques for other countries. Not being in the Eurozone doesn't seem to be isolating us from this crisis; but at least British sovereign debt and sterling are not in the firing line.

The coalition will claim that's because the markets are content with its fiscal consolidation plan. It might be right: it is now clear to me that, whoever won our , in the light of current events our budget deficit would have had to be savaged by far more than any of the politicians told us in the campaign.

Just consider the market pressure we'd currently be under if an incoming government had blithely proceeded to preside over the size of deficit being projected during the election.

Events in Dublin show that sovereign debt has severe consequences for incumbent politicians. Early next year, if not sooner, there will be an election in Ireland and the ruling Fianna Fail coalition will be swept from power to be replaced, everybody in Dublin tells me, by a Fine Gael/Labour coalition, with Fine Gael's Enda Kenny the new Prime Minister.

Don't expect that prospect to calm the markets -- though by then they'll be concentrating more on Lisbon, Madrid and Rome than Dublin.

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So Ireland has been forced to accept a bail out after all.

Last week this blog predicted it could be as much as E100 billion -- and it doesn't look as if it will be far short of that. The money from two funds, the and Britain (which will also chip in a bilateral loan) will be used first to rescue Ireland's bust banks and then clean up Dublin's stretched public finances.

Britain's contribution -- around £7 billion -- will be controversial in the country even if there's a consensus behind it across the parties in Westminster. But the https://www.bankofengland.co.uk/reckons British banks hold £83 billion in Irish bank debt, £50 billion of it with RBS alone. That's quite an exposure and gives Britain quite an incentive to keep Ireland's banks afloat.

I had a bit of a spat with Ken Clarke on Radio 5 live last night. He denied that Ireland's membership of the euro had anything to do with its current predicament (he also insisted he'd never said Britain should join the euro, which was news to me). I suspect most economists will think he's in denial.

The euro did not cause Ireland's woes but it sure exacerbated them because the ability to borrow very cheaply in a strong currency allowed Irish banks to go on a much bigger borrowing binge than if its currency had still been the punt.

Moreover, the fact that Dublin no longer controls its own currency, interest rates or money supply means all the pain of readjustment has to fall on fiscal policy, which is very painful indeed.

So I doubt many people would agree with Mr Clarke that the euro was irrelevant. But Tory Eurosceptics who think the Irish crisis another nail in the euro coffin are likely to be disappointed. Though euro-membership almost certainly makes readjustment more painful for countries like Ireland and Greece, leaving monetary union is not a realistic escape route.

Just consider what would happen if Ireland returned to the punt. The punt would inevitably slide dramatically against the euro and other major currencies. But all its debt -- which it already can't pay -- would remain denominated in the euro. So it would need to convert punts into euros to repay those debts -- and a weak punt would make that euro-debt an even greater burden than it already is -- and it's already unbearable. The same would be true if the went back to the drachma.

For these reasons the euro is likely to survive, albeit covered in copious amounts of sticking plaster. But I'd add one caveat: if the bond markets now turn not just on Portugal but on Spain and (whisper it) too ... then the EU stability funds could not cope and the Eurozone really would be in an existential crisis -- and all bets would be off.

The markets already have in their sights and I expect a bail out will have to be arranged for Lisbon too. But the real tests are and Italy, because of their size. Last week Spain issued a big chunk of public debt with no problem and the markets are not yet focused on Italy.

But both could easily become the story this winter. Keep your eye on Madrid and Rome.

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But Ireland, effectively bankrupt, has reversed that process: like a reluctant bride, it is waving away those (the EU, IMF and even Britain) that want to rescue it from its penury.

There are old Irish demons at work here: Ireland fought long and hard for its independence and any bailout would come with stringent strings that would infringe its sovereignty for the foreseeable future. I suspect that's a price it will shortly have to pay nevertheless.

At the heart of the Irish crisis is its banking crisis. In terms of public borrowing, Ireland is pretty well funded until next summer, assuming it can make the planned drastic cuts in public spending.

These eye-watering 8% yields the bond markets are demanding to buy Irish debt are actually only in the secondary market.

Dublin is not actually paying these yields at the moment since it got away the debt it needs for now before the current crisis developed. But they do reflect the fact that markets now give Irish debt a junk bond status.

But that is not the cause of the current crisis.

That goes back to the autumn of 2008 when the Irish government, in a desperate attempt to shore up confidence in its collapsing banking system, guaranteed all the debts of all Irish banks -- which amounted to many times the country's whole annual GDP -- not just ordinary folk whose deposits were with Irish banks but huge investors, including other banks in the UK and Europe, which held billions in Irish banks' bonds.

The markets now seriously doubt Ireland has the means to pay off its sovereign debt AND the debts of its banks as they fall due.

That is why London, Brussels and Washington (the IMF) is privately urging Dublin to go for a bailout, which I understand could be as much as 100 billion euros.

It would be seen as a bailout of the Irish. In reality it would be another bailout of the European banking system. Major European banks -- including our own RBS and Lloyds -- hold billions in Irish bank bonds.

If the Irish banks, even backed by the Irish government can't pay these debts, then we will be heading for another European banking crisis. In bailing out the Irish the rest of Europe hopes to save its own skin too.

Q&A: Republic of Ireland finances

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