European Sovereign Debt Crisis

Marktets have been weak today, partially because of the European sovereign debt crisis caused by Ireland's banks: Today's Financial Times has a nice graphs giving you an idea of the size of the problem:

Germany is in a real dilemma: Since its banks are loaded with Irish bank debt, banks will lobby hard for government protection, while hard working citizen will loath paying for it.

I have also found a Morgan Stanley Report as of November 22, 2010 (Morgan Stanley Strategy Forum) going into the details of the crisis:

Global Economics by Joachim Fels:

"The support package for Ireland that was agreed in principle last night won’t mark the end of the European sovereign debt crisis; it just opens a new chapter. Our view all along had been that Greece was only the beginning and that the sovereign debt crisis would work its way through the periphery and eventually into the core of Europe. Also, when the big European rescue fund, the EFSF, was created in the spring, we said that governments’ hopes that it would never be used would be disappointed. Last night, the European finance ministers decided to activate the fund."

 Moreover he mentions 3 uncertainties:

1. The European help for Ireland will increase the banks' solvency but the ability to repay the Irish government debt is still in doubt.
2. What happens when the rescue fund expires in 3 years? Should bond holders contribute as well? This would downgrade government bonds!
3. The rescue fund is importing the debt crisis from peripheral Europe to core Europe (core Europe is guaranteeing  debts of peripheral Europe).