“What will be the end of this sorry saga?”

With tensions rising across Europe, Irish Life and Permanent suspended trading earlier today amid speculation that it would have to sell its profitable pensions and investments business, Irish Life, and its fund management business, Irish Life Investment Managers, after the publication of the bank stress test results tomorrow.

That publication is also expected to result in further nationalisation of the Irish banking sector with the banks expected to need “as much as 30bn euros ($42bn; £26bn) in additional capital”.

The BBC’s Robert Peston, still everyone’s hero, is having a “small panic attack” at the almost unbelievably large numbers involved.

No financial institution or bank will lend to them. Ireland’s banks can’t borrow from anyone except the Irish people (who, poor souls, have nowhere much else to put their deposits). But even if they wanted to, Irish households could not possibly put money into the banks fast enough to allow those banks to repay all the institutions – such as German banks – which lent far too much to Ireland’s banks in the boom years.

So when these wholesale lenders to Ireland’s banks have been demanding their money back (as they have been in a run that has been huge and inexorable), the money has come from the European Central Bank and the Central Bank of Ireland – or, indirectly, from the taxpayers of Ireland and the eurozone.

To prevent Irish banks toppling over one after another, the European Central Bank has lent 117bn euros to them and the Central Bank of Ireland has lent them a further 71bn euros. So that’s 188bn euros of loans from the eurozone’s taxpayers to Ireland’s banks – which makes the 67.5bn euros lent directly by the eurozone and IMF to the Irish government look like peanuts.

And a further 20bn euros of bank bonds – another form of bank debt – is still guaranteed by the Irish state through the Eligible Guarantee Scheme.

So that is 208bn euros of taxpayer loans to Ireland’s banks – equivalent to a remarkable 154% of GDP.

To ask the inevitable dumb question, what on earth went so spectacularly wrong?

Well, it’s a bit late to asking that now…  But you should read his answer.  And the Irish Times’ Arthur Beesley adds

European reluctance to contemplate burning senior bondholders is grounded in deep anxiety that such burden-sharing would undermine confidence in other weakened euro zone lenders, whose investors presumed heretofore that they would not be touched.

While the EU Commission is taking steps to introduce future burden-sharing measures, its plan is still embryonic.

In the backdrop lies Dublin’s growing reliance on emergency European Central Bank (ECB) support and the bank’s resistance to anything which might destabilise euro-zone markets.

Even though a succession of Irish ministers insist burden-sharing remains on the table as they seek to ease the weight of the bailout, such declarations come as the Government tries to negotiate better rescue terms with the ECB, the commission and the IMF.

The Government’s position is not at all strong, so repeated claims that the situation is now so grave as to merit pursuing senior bonds serves to emphasise the requirement for something else to ease the pain. Important here is the stance of Ireland’s euro-zone sponsors, which have a clear interest in not doing anything which might further threaten already shaky markets. With senior bond default a no-fly zone thus far in the crisis, there is nothing to suggest a rethink is imminent.

In addition, fresh electoral pressure on German chancellor Angela Merkel greatly diminishes her room for manoeuvre. The chancellor would be blamed if contagion from Irish banks dislodged any German lenders.

And how is the collective mood now?