Question: (Global Crisis) In 2010 there was a risk that the state of Ireland was at risk of going broke because it had poured too much money into its insolvent banks to try to keep them alive, but already incomes had fallen massively and public services were being cut harshly too. Describe the trade-offs involved in the various options:
(a) increasing austerity (raising taxes and cutting spending) even more to keep the banks alive;
(b) letting the State default on its external debt to keep the banks alive and limit austerity;
(c) allow the banks to fail to save the State's creditworthiness and limit austerity.
Consider the problem from a purely Irish national interest perspective first. Now think of an EU level perspective: how is your analysis of who should foot the bill affected by the fact that many of the Irish bank creditors were foreign (many in the EU), and that many of the risks of financial damage were due to contagion to other (principally EU) foreign countries.