Next time you hear a Labour politician arguing that the markets are punishing Ireland despite its austerity drive (and therefore Britain should not rush to cut its own deficit) you might kindly point out that, because of the horrors at Anglo Irish and elsewhere, you can certainly argue that there hasn't actually been an Irish austerity drive:
In a statement, Mr. Lenihan conceded that the bank bailout would have an immediate and dire effect on Ireland’s budget deficit, pushing it up to an extraordinary 32 percent of G.D.P. Taking out the bank costs, Ireland’s deficit is expected to be around 11 percent, despite two years of an austerity drive.
The inability of the government to get full control of its public finances is likely to remain an acute point of concern for investors, especially now that the government says it will not be raising funds in the market over the next two months.
“We have spent two years cutting deficits and we still do not have things under control,” said Constantin Gurdgiev, a professor of finance at Trinity College in Dublin. “We already have a solvency crisis, now we are setting ourselves up for a liquidity crisis.”
Ireland has, alas, no good options. But the Anglo bill alone looks like coming in at something like 40 billion euros. Current policy may be desperate and may not work but I'm not sure any alternative policy would have helped much either. No matter what Ed Balls or Paul Krugman say.