I doubt the banks have any remaining cash flow before the bailout (hence the bailout), so they are not going to pay gov't that 7% of GDP for the guarantee. It will obviously be underpriced.

And it will not prevent the collapse of interbank/securitized/bond funding for these banks anyway (nobody in their right mind would trust the gov't to live up to its promise, at least among the educated global finance guys). This leaves the irish banks with their sole depositors as funding, when the irish GDP has already started contracting. Recession will accelerate, house prices fall further, Irish household will default en masse, and the banks will default on tens of B€.

Irish gov't will be left holding a bag that could end up just as big as the GDP, itself down around 100 B€, a couple of years down the road. Lucky, the public debt is presently just 25% of GDP, but still, it's a commitment to make it over 100% almost overnight.

Puzzle #1: how long will it take for the Irish "mass affluent" market segment to realize this and move it's saving to any other bank in the eurozone ?

Puzzle #2: faced with the prospect of 100 B€ or more of capital flight (and more losses for the banks it guaranteed), how long do you think Ireland can remain in the EMU/have free capital flows ?

Absent some quick explosion from the Spanish Cajas (a very bad situation that keeps developing pretty much under the radar), I think we have winner here: I introduce to you the leading country in the race to the currency bottom and to fall out of the euro ... Ireland !

Pierre