Last Wednesday the international television crews gathered in a long row down Merrion Street with cameras pointed at the ornate gates of Government Buildings. They had come to marvel at how the Irish economic miracle had crashed so spectacularly, leaving citizens to bear another €15bn worth of austerity over the next four years. By this weekend, as the IMF-EU prepared to reveal the bill for their multi-billion-euro loans, there were clear signs that the camera crews would be soon taking up positions outside the exchequer in Lisbon.

The Irish crisis and scepticism about Lisbon's austerity budget helped push key Portuguese government interest rates deeper into bailout territory. The cost for Lisbon to borrow for three years settled at 5.3%, above the 5% rate that Greece had in May signed on to pay for its bailout money up to 2013. Portugal's cost of borrowing for ten years rose to an unsustainable 7.1%, the level Irish bonds reached a few months ago in anticipation of our slide into the bailout. If the sovereign debt markets were to be believed, Portugal will soon be joining Ireland in the bailout gang of three. Only Spain would then remain as the last bulwark against the break-up of the euro. The cost of Spanish government borrowing for three years also rose steeply last week to touch 3.9% which, though still below the 5% rate in the relegation zone, was the highest market rate Spain has faced since the dangerous weeks following the collapse of Lehman Brothers over two years ago.

After the Greek crisis last May, the European Commission set up its so-called safety net to plan for the contingency that sovereign bond markets would stop lending to more eurozone states. Many believed then that the bailout fund would inevitably be used. Worse, Germany, spooked by Greece's debts, recast its policy so as to affirm it would protect its citizens against the debts of outlying eurozone states by contemplating a default on Greek, Irish and Portuguese sovereign debts. Like Ireland, it will make it even more difficult for Portugal to avoid tapping the expensive bailout cash too.

Back home there was no sign that sovereign debt markets were expecting to loosen Ireland's lockout, even after several years of austerity. The four-year austerity plan, ludicrously named 'The National Recovery Plan', instead showed that the state and the banks will likely require emergency funding from the IMF and Europe for many years to come. The government crashed the sovereign state by loading it with private banking debts. Defaulting on senior bank debt is no longer enough to rescue the sovereign any time in the next few years.

The four-year austerity document should be read as a redundant document. There was no reason for the government to frighten its citizens more when the IMF bailiffs were already in town.

The plan was drawn up at a time when the Irish authorities were still pleading with the sovereign bond markets to continue lending money to the state. Trying to stress the point that the IMF had no hand in its writing, finance minister Brian Lenihan inadvertently admitted that the four-year plan was meant to serve another purpose. He told journalists that the government decided in early October to devise a 'National Recovery Plan' that would be "focused on rebuilding confidence in the economy". The four-year plan was therefore written to help Merrion Street officials make their case to the sovereign bond markets.

Every year the government is obliged to present a four-year plan and it is called the Stability and Growth Pact forecasts, which appear at the back of the December budget book. In early October, Ireland still had a bond market to appeal to. The recovery plan can therefore be read as a very detailed manifesto, or plea, to the sovereign markets that was devised in October when a dip in bond interest rates teased that the drama of the previous month over refinancing the Irish banks might have passed.

Presenting a four-year austerity package last week was a bizarre way to rebuild confidence in the economy. Governments do not usually attempt to lure investment by advertising on evening news shows across the US and Europe that their state finances are bust and that austerity will continue for the next four years. The plan makes sense only if it was prepared at a time when there was still a slim chance that Ireland could plead with the debt markets. By last week the four-year austerity plan was redundant as regards its original purpose. It was instead used to advertise to the EU/IMF that the formerly sovereign government and opposition party politicians of the republic could be trusted to agree to the terms and conditions of the loans to keep the state running.

It may also have served as a message from the EC to the government in Spain (where a national unemployment rate of 21% masks regional jobless rates as high as 25% in Andalucia and other administrative areas) that life will be even tougher if it goes anywhere near the bailout pot.

The markets remained unconvinced about Greece and Ireland. The debt insurance markets, through trading credit default swaps on sovereign bonds, believe Greece has a 55% chance of defaulting on its debt some time in the next few years, according to CMA Datavision, which polls over 1,200 users of the insurance debt markets.

Most senior economists in Europe say Greece will inevitably default on its sovereign debt because its stock of sovereign debt will soon tower over the annual worth of its economy. Some senior commentators in London believe a Greek default as early as next year will signal the break-up of the euro. For Ireland, CMA predicts this weekend a 40% chance of Dublin defaulting on its sovereign debt – the third-highest probability, after Greece and Venezuela, of any state in the world. It comes as the already sky-high cost of holding senior debt in Allied Irish Banks became even costlier.

The unfortunate message was that the government has left it far too late to contemplate burning the senior bondholders in the banks. The state's outstanding stock of debt, the new costs of recapitalising the banks, the additional service costs of paying for the EU/IMF loans and covering the possibly unsecured loans advanced to fund three banks by the Central Bank of Ireland, may already be too much for the state's slender €34bn base of annual tax revenues to support. The government may have left it too late to convince existing holders of sovereign debt that it will have enough taxes in the future to ensure they get their money back this side of a default.