Equality before the law is sacred. So a default or partial default has to treat all bond-holders of the Irish state the same way.

This conclusion does not follow from that premise.

Repudiating the bank guarantee is no more a violation of the principle of equality before the law than issuing that guarantee - of the private debts of a subset of private companies (I didn't see any guarantee of Irish manufacturing firms' debts, even though that would have lowered their cost of funding, which would have provided a real economic benefit).

I mentioned the 100 billion owned by Irish banks to the ECB. That is not a hedgefund. Nor even really foreign.

It shouldn't act like a hedge fund, and it shouldn't act like a foreign entity.

Yet it does.

If it didn't behave like a foreign hedge fund, there would be no real need to default on it. If it behaved like a proper central bank, it would keep rolling over that position indefinitely, because that's what central banks do with sovereign debt positions as a matter of course.

And the considerable sums that the Irish governments already put in the banks is a fact too.

No. They're a promise. Unless ECB reserves have been moved from the Irish reserve account to the bank's reserve account, no transaction has taken place which cannot be undone by legislative fiat.

I think that is offered here is a illusion. Bankruptcy without the pains of bankruptcy.

The macroeconomics of sovereign states is funny that way. Sometimes the ordinary citizen really can avoid the pain by shafting obviously evil people like Goldman Sachs or Deutche Bank. Sometimes they can't, of course. Greece will feel pain, to a greater or lesser extent (default means less pain than Austerity^TM, but there will be pain). Ireland, with its strong trade surplus, does not need to feel pain. The pain is a political choice.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.