However the basic outline which emerged appears to be that the main Irish banks convinced the Irish Government (and perhaps themselves) that they had a liquidity rather than an insolvency problem, and thus that all that was needed was a Government guarantee to restore "confidence". Brian Lenihan even boasted that it would be the cheapest bank guarantee of all time as the banks had to pay a substantial levy in return for the guarantee.

The main mistake that was made, presumably also at the behest of the Irish banks, was that the guarantee was extended from depositors to bondholders, and this is where the huge costs have arisen. However even that mistake might have been academic, becuase Merkel/the Troika then insisted that all banks be covered - even those loke the Anglo-Irish Bank which was never covered by the bank guarantee and which was never more than a developer/speculator bank with no retail presence.

The populist fearmongering about the ATM's not working simply could not have applied to Anglo Irish, and so why it wasn't simply liquidated is beyond me - and problem exclusively down to Merkel/ECB pressure, with the ECB threatening to withhold all funding for the mainstream banks - which would have caused an immediate banking meltdown.

So the argument runs - the politicians were misled/panicked by the Irish banks - who lived in a delusional world of soft landings for property prices - and then had to "take one for the team" in the shape of heading off a broader Euro area crisis that a bank collapse in Ireland might have caused. However Merkel et al have shown virtually no gratitude for Irish taxpayers being made liable for her banks poor lending decisions, and there is some sense of betrayal by some of the politicians involved.

The only logic I have seen adduced for making Irish taxpayers liable for the losses of private lending institutions is that the Irish bank regulator was asleep on the job and should have stopped this from happening. However much of the frenzy of speculation involved banks lending to each other on the back of property deals in Canary Warf and elsewhere outside Ireland which may not even have been within the Irish bank regulators remit. You cannot have the EU encouraging light touch regulations and a single market for financial transactions if there isn't then also some semblance of EU regulation of that market. Given these transactions involved both lenders and borrowers, where were the German, French and British bank regulators?

The bottom line is that in a single market for financial services, the notion of an "Irish" bank rapidly disappears, and the location of the HQ is somewhat incidental. So the bigger failure, I would argue, was not actually the bank guarantee (stupid as it was), but a much greater failure of European single market regulation and co-responsibility. Given that Spain is now being put through a process almost identical to Ireland, it appears that few lessons have been learned from the Irish experience. So long as the ECB won't allow banks to fail within Europe, someone has to pick up the tab, and in a single market, that can only be the ECB or some EU wide bank resolution mechanism and fund.

So its easy to blame inexperienced Irish politicians with hindsight (Brian Lenihan was a lawyer and there were NO ECONOMISTS employed by the Irish Department of Finance), but given that there were few precedents at the time, no European rescue mechanisms in place at that time, and given that few lessons have been learned by others in the meantime, perhaps their culpability was not as great as it seemed in the immediate aftermath of the bank guarantee. Some involved still argue they had no choice at the time if they were to avert an almost immediate and total melt-down of the Irish banking system, and Ireland, t that stage, had too much invested in the system to risk calling the ECB's bluff.  If the ECB persists in its policy of not allowing banks to fail, the issue of the bank guarantee becomes almost academic.

Index of Frank's Diaries