First there was the credit crunch, then the credit crisis, then the credit quake. Now for the government and buyers of Irish sovereign debt, it may be best to start using the phrase finanzkrise, which is used by Germans to describe the current global upheaval.

Last week, this newspaper reported that the IMF does not believe a bailout programme is needed for Ireland, but if Ireland's 2009 budget deficit (which could hit 12%) overwhelms the exchequer later this year or in early 2010, any rescue programme is likely to come from the Continent, via France and Germany, rather than from the west, as in Washington, home to the IMF.

Is Kathleen Ní Houlihan about to be replaced by Mother Merkel, as the German chancellor is often described by her opponents?

"There are worse names to be called. Whatever you call it, I think the people want a government head who acts both decisively and sensibly,'' Merkel, Germany's new fiscal mutti, said recently. But what would a German bailout mean or represent?

If a eurozone-wide rescue fund of some kind is set up, as many in the bond market predicted last week, it would obviously mark a nadir for the management of Ireland's public finances. After avoiding an IMF intervention in the 1980s, Ireland would endure a moment of national humiliation by having to call in outside funding to solve its fiscal ills, which are in part self-generated.

European monetary union involves a no-bailout clause, ironically inserted on the insistence of the German finance department, but this restriction is economic in nature, not political. If senior European politicians such as Angela Merkel and Nicolas Sarkozy want to reshape the eurozone in a way that provides some kind of lifeline to smaller peripheral eco­n­omies like ours, they will do it.

But that, of course, hinges on whether Ireland will need any 'assistance' at all. It can keep borrowing. So far Ireland, by offering attractive bond premiums, has managed to get its bond auctions away and it has commercial paper as a back-up if the bond market seizes up for a time.

Some German bond auctions have failed this year and there is gloomy talk of a bond "buyers' strike", but so far there is no evidence that any eurozone member is going to default on their debts, despite hysterical commentary from some observers who have just recently discovered the credit default swap market.

European monetary union is a political project first and an economic one second. If individual members like Greece, Ireland or Spain are ejected or allowed to leave voluntarily, the political project unravels. The whole purpose of the European Union project effectively disappears too.

Despite being shy about its origins and its ultimate destination, EU enthusiasts still want it to be a counterweight to the US and Asia – a counterweight, not only in political and diplomatic terms, but also in economic terms.

Against that background, last week's comments by German finance minister Peer Steinbrueck that Germany will show its "ability to act'' if smaller economies get into trouble was revealing. His remarks, plus an upbeat assessment of the eurozone's ability to hang together from Goldman Sachs, pushed the euro to its biggest intra-day gain since the end of last year. Goldman Sachs said investors should buy euro because the EU will bail out weaker members if they get into fiscal trouble.

UBS was even more forthcoming on the current disposition of the Germans: "Germany is finally waking up to the reality that if they want to preserve that project which is the euro, then they'll have to open up their own purse strings and help their neighbours".

While the debate about a German backstop for the likes of Ireland and Greece continues to preoccupy currency traders and fixed income desks, the actual chances of a Franco-German bailout are not that important in one key respect. As one Irish economist said to me last week: "It's not that the Germans are going to extend assistance if needed, it's that they are saying they will extend assistance if needed. That is the real story here."

Steven Bell, chief global economist at GLC, the London-based hedge fund manager, last week agreed with this perspective. He said from a German perspective it was "too risky not to do anything" if Greece, Ireland or a Spain got into trouble. He said the public comments of German politicians were more about making sure problems "won't emerge".

He reminded everyone that the no bailout clause in the original European monetary union architecture was put there to send a none-too-subtle signal to the heavily indebted Italians: don't depend on getting assistance episodically from your richer neighbours. Bell said the credit default swap market – which effectively involves insuring bond debt of individual economies – was highly speculative and often mispriced risk.

That may be true, but widening bond spreads are also telling the same story – Ireland's credit worthiness is plunging – and this has effectively forced the German authorities to come out and becalm the bond markets which have started to think the unthinkable – a bond default by an Ireland or a Greece.

More soothing noises will be needed from the Eidgen-össisches Finanzdepartement (German finance de­partment) to put a floor under bond issues by Ireland and others later this year.

Put options on euro also indicate that the currency is set to strengthen against dollar and yen in the period ahead, with the Germany's willingness to loosen the purse strings, either through a bailout programme or an internal stimulus plan, seen as a key driver.

Ireland's exporters may not want a strengthening euro, but if the currency is strengthening because of a market view that peripheral economies will not be allowed go it alone, it puts a slightly different complexion on things. But a German assistance programme could have serious drawbacks – austere spending cuts and a possible end to corporation tax at 12.5% are among the possibilities.

Meanwhile the IMF is here in April for a standard country visit, but the government might still want to keep its business cards in case it ever needs them.