Externally that would still be seen as default.Quit negotiating with the EU and the IMF. The fact that anyone is doing it at all implies that the Irish people are contemplating assuming a debt that will destroy them and their country for generations. If all you are worried about is the interest rate, you are already accepting destruction.
The better solution is to negate the debt in a legal, lawful way without an actual "default."Everyone needs to remember Article 27 of the Constitution. Assuming this kind of debt for generations meets the criteria to require a vote by the Irish people. And if you read the article, you will realize that it takes fewer votes to put this issue to popular vote than it does for a vote of no confidence. All it takes is a majority in the Seanead and one-third of the Dail, and then the Irish people themselves get to decide if they are willing to beggar themselves, their children, and their grandchildren in order for foreign bond holders not to lose money on an investment in their portfolio.
I find it hard to imagine how anyone could put together an argument that this would be a good thing for Ireland.
The spin right now is that Ireland "must" assume the debt. That is a lie.
Ireland has two ways to get out of from under this debt: (1) the usual way that other countries do - simply default; and (2) a perfectly legal and lawful way provided by Article 27 of the Constitution.
The constitutional path is something that Ireland has that no other country has. If the referendum is worded in such a way that not only do the Irish people say no to assuming the debt but that they also deny that those who incurred this debt on their behalf had authority to do so, that would be a determination that the debt was unlawful and would legally nullify the whole thing.
Those foreign bond holders knew that Ireland was a constitutional republic when they bought those bonds. They knew that they were taking a risk, like all investors do when they put their money at risk in making an investment. They knew that, if it came to the point where the money had to be paid by the Irish government, the Irish people had constitutional right to say no. That was a business risk that they assumed, so they should be required to accept the consequences like all investors have to do when one of their investments goes bad.
The Irish have a Constitution that offers them a clean and lawful way out of this mess. They need to use it before it is too late.
Externally that would still be seen as default.
Refusing to assume the obligations of the banks - even with zero interest - is the main objective, which can be achieved two ways: (1) a lawful, legal way through an Article 27 referendum, which puts the refusal to accept the obligation as a business risk assumed by the bond holders when they purchased the bonds or (2) a simple default the way other countries do it.
The end result is the same, of course, but the end result is all that matters. The economists are clear that default is Ireland's best - and perhaps only - option. Doing it now before the Irish economy is damaged further by onerous tax burdens in the 4 year budget and while the Irish government still has some financial reserves would be best for everyone.
However, I basically agree with your second point. If everything associated with the banking guarantee could be wiped away, there is no financial crisis for Ireland. The remainder of the government debt is manageable.
Paul Krugman has a very interesting and informative opinion piece on Ireland that is worth reading
As a Nobel Laurate his views as an economist on Ireland's economic problems are worthy of consideration. Have a look at what he has to say.