Summary of the Irish Whiskey situation: Government banking guarantees overwhelmed state finances

Summary of the Irish situation.  The biggest nail in the Irish coffin was the guarantees by the government of Ireland to the banking system.  Via Europa:
From late 2007, investor confidence in Ireland's property sector evaporated amid concerns about oversupply and a price bubble. This left Ireland facing the twin problems of a sharp decline in cyclical construction-related revenues and the sudden appearance of very large losses in the domestic banking system. The global financial crisis and the severe worldwide recession which it caused exacerbated the problems. From 2008, policies to address budgetary and financial stability concerns included fiscal consolidation as well as a range of banking support measures such as guarantees, capital injections and regulatory reforms.

However, by 2010 GDP had fallen from peak by an estimated 17% in nominal terms and the underlying government deficit had increased to over 11%. Unemployment ratcheted upwards. By the autumn of 2010 the loss of investor confidence in Ireland triggered a vicious cycle. Deposit outflows from the banking sector accelerated and the cost of government borrowing reached

unsustainable highs. As financing costs increased and renewed banking losses were revealed, investors were increasingly concerned about the capacity of the government to deal with the dual challenge of a large fiscal deficit and the state's commitment to finance the growing cost of supporting a severely damaged banking sector. The credibility and thus the effectiveness of the government guarantees in the banking sector faded. More outflows and increasing borrowing costs further damaged confidence.

These challenges led the Irish authorities to request external help on 21 November 2010. A programme of €85bn financial assistance was agreed at staff level with the European Commission and the IMF, in liaison with the ECB; and approved by the ECOFIN Council and the IMF Board in December 2010. The programme provides for up to €50bn in fiscal needs and up to €35bn in banking support measures between 2011 and the end of 2013.

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