Bill Janeway objects to this parable of Ireland and Iceland for two reasons (personal communication, November 4, 2012). First, it underplays the systemic risk generated by failing banks in larger economies. Second, as well as bail or fail, there is a third option, which can be thought of as “bail, reform, and then send to jail.” Both objections are valid. But, as to the first, while the costs of austerity are massive, real, and lasting, the costs of systemic risk are, if there is always a bailout, hypothetical. To assume that the disease is always worse than the cure gives banks a license to extort taxpayers.

Mark Blyth, Austerity, loc. 1139