Look at the latest Credit Default Swap spreads for European sovereigns (these are the data from yesterday’s close). As we’ve discussed here before, CDS are not a perfect measure of default probability but they tell you where things are going – and changes within an asset class (like European sovereigns) are often informative.

European CDS have been relatively stable – albeit at dangerously high levels – for the past month or so. But now Ireland has moved up sharply (the green line in the chart). We’ve covered Ireland’s problems here before (banking, fiscal and – big time – real estate); type “Ireland” into our Search box for more.

My point today is simple: a key warning sign just moved from orange to red.

The G7 ministers of finance and central bank governors need to focus on this problem during their discussions today and tomorrow. What is the strategy for Ireland? Does the European Union come in to help? Is this a job for the IMF?

Just don’t, please, tell me more about the “basic principles” of financial reform (and similar nostrums in the draft communique) unless and until you have addressed the Irish Problem. And don’t tell me, “the Irish have to sort this out for themselves.” Eventually, the world always comes to help; check your notes on Iceland. It’s much better and much cheaper to come in early and decisively – of course, the Irish will have to do some painful things, but we really can help (or, if we can’t, this will be a long dark winter for the eurozone).

We need a plan of action for Ireland, and we need it now. What we don’t need is another Iceland-type situation.