Yesterday afternoon, Ireland finalized terms of a bailout valued at 85 billion euros, from the ECB, the IMF, a government pension fund, and several European states. (Details here.) So far, the bailout is NOT having a calming effect on Europe’s capital markets.

Credit spreads on so-called “peripheral” European sovereigns are blowing out this morning, and government bonds of Portugal and Spain are falling sharply. Italy managed to tap the credit markets earlier today, but the interest rate was high and the subscription level was disappointing.

This can’t keep up. If investors continue to dial up the interest rates they charge Europe’s governments, there’s little chance of a sustained recovery. And that makes European states even less credit-worthy.

The Germans are in good shape. Switzerland and the Scandinavian states are in decent shape. The UK is on the fence. Everyone else, possibly including even the French, could be looking into the barrel of a gun.