The earlier downgrades may blunt the effect of Moody's move, according to an unnamed banker quoted by Dow Jones Newswires. "Most investors use the majority rating, and since Ireland is already double-A at Fitch and S&P, Moody's decision doesn't really change anything," the banker said.

Bailing out Ireland's banks could cost as much as 25 billion euros, or about $35.1 billion, S&P said, The Irish Times reported.

That doesn't seem like much next to the $700 billion in capital injections the U.S. government is providing to financial institutions here. But Ireland's economy is much, much smaller -- its gross domestic product in 2008 was just $273.3 billion in 2008, according to the World Bank, compared to $14.3 trillion for the United States.

Part of the cost of Ireland's bailout is the so-called "bad bank" that will assume $124 billion in toxic real estate assets from the country's financial institutions.

Some of Europe's smallest countries have been hit the hardest by the decline in the world economy. The collapse of Iceland's financial sector was "the biggest banking failure in history relative to the size of an economy," The Economist reported last year. The Baltic states of Estonia, Latvia and Lithuania have also be ravaged.