Advocates of extend-and-pretend would insist forever after that it was Merkel and Sarkozy who tipped Ireland over the edge, that Trichet was right, that this was Europe’s “Lehman moment”: an unforced, politically motivated error. But, as in the case of Lehman, political and technical judgments were mingled. Given its gigantic budget deficit and the expiry of the 2008 guarantee for its banks, Ireland was heading into rough waters in any case, with or without Deauville. Spreads on Irish government debt were already surging before Merkel and Sarkozy’s surprise announcement. Deauville did not
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The question at the time was whether it was the nature of the guantee
