A critical difference says Krugman is that Iceland retained its own currency and was able to devalue -- an idea that may become a reality for Ireland at some point he says “ the earlier Ireland-Nevada comparison shows, the United States works as a currency union in large part precisely because it is also a transfer union, in which states that haven’t gone bust support those that have. And it’s hard to see how the euro can work unless Europe finds a way to accomplish something similar” he notes.
The only way back says Krugman is for a currency union where every country in the euro is responsible for other countries debts as well However he says Germany has given no indication it would accept such a system based on Eurobonds.
He says judging by the harsh interest rates Ireland faces in order to repay its debts it doesn’t look likely such a system will be put in place.
“Call it the curse of the single currency” he concludes.