Irish banks began booking major losses in 2008, and within two years these financial institutions had bankrupted the Irish state, thanks to Dublin's disastrous promise to keep bank creditors whole. By November 2010, when Ireland requested a bailout from the EU and the International Monetary Fund, the country was already an international poster-child for how not to solve a banking crisis. Ireland's government-debt troubles are the result of its banking collapse, not the other way around.

This history is worth revisiting as...