A dam that appeared to be shielding western European countries from the woes of weaker neighbours appears to have been breached this morning as the strongest European countries hit six month highs on yields for 10-year government bonds, in a sign that contagion is finally spreading after the certainty of a widely-trailed Portuguese bailout emerges.

The admirable resilience of core and stronger peripheral European countries to Portuguese and Irish woes in recent weeks has not gone unnoticed, but this morning seems to have been a watershed in the trend towards the transfer of risk to the strongest countries. Now they too will have to pay for additional bailouts.