The different adjustment paths of Ireland and Iceland are classic examples of devaluation versus deflation.
Iceland and Ireland experienced similar economic illnesses prior to their respective crises […]
In stark contrast to the Icelandic situation, however, the Irish economy has become stuck in a debt-deflation spiral.
[…] fiscal austerity without a large currency devaluation is like committing economic suicide – without a cheapened currency to re-create nominal growth, fiscal austerity can only serve to crush aggregate demand and precipitate an economic downward spiral. The sad reality is that unlike Iceland, Ireland does not have the option of devaluing its own currency, implying that further harsh economic adjustment is likely.