Krugman has also written a number of nice columns comparing Ireland and Iceland. They're worth reading if you're ever going through his archive. I think part of the problem is that Ireland (or Greece, or Spain, or Italy) aren't really sovereign countries anymore. The EU can bully them into pursuing whatever strategy they want. Having a currency is right up their with having a military when it comes to your own national interest. The Euro has been good for banks and pretty much bad for everyone else, except maybe wealthy American tourists who found it annoying to change currency every time they got on a train.
IMO that's the main crux of the problem. Countries are bending over backwards to balance the books of banks. The public would feel pain if banks took major losses and some went under; however, they are experiencing more pain, and more protracted pain, by trying to keep the banks solvent. From one perspective, Greece isn't really insolvent, the banks that loaned to Greece or to finacers of Greece might be insolvent. Greece is a country, not a business.I think part of the problem is that Ireland (or Greece, or Spain, or Italy) aren't really sovereign countries anymore.
Though it is the business of Greece to keep its populace solvent, which according to some ideologues means its businesses. I do agree with you , in part. There is a higher up-front cost to doing what Iceland did, but arguably a better long term. But can the same thing happen when you're a part of an economic union like the EU? Greece's decisions, for better or worse (most likely worse), have to happen in the context of the EU. Reforming the EU would be an entirely different discussion, though.
It seems that being a part of the EU has resulted in Greece digging deeper before it stopped. Fiscal policy is a key part of a nation's soveignty. I think that is the critical flaw in the Euro. I can't imagine the disaster that would follow if states in the US didn't have to balance their budgets every year.But can the same thing happen when you're a part of an economic union like the EU?