After Greece came Ireland, which received a $113 billion loan from the European Union in December 2010 after months of Irish officials insisting that a bailout was not necessary. Hand-in-hand with the bailout – targeted at propping up several Irish banks that had engaged in risky lending and ended up holding $90 billion in bad loans – came what many said was the country’s harshest budget ever. It included $8 billion in spending cuts.
EU officials struggled to decide what would be worse: not bailing out Ireland and perhaps undermining the financial stability of other European governments and large banks holding Ireland’s debt, or bailing out the investors who created the bad debt with their cash. The latter, EU officials worried, would encourage risky financial behavior in the future. In the end, the desire to prevent the crisis from spreading won out.