Instead of making the lenders who made idiotic loans in the first place take the financial pain of the losses they thoroughly deserved, the paid politicians bailed the banks out with public money and put the taxpayers on the hook to cover the losses. The pain was to be borne by the public, not by the idiot bankers who created the problem. The bought politicians explained this by saying that it was required "to restore confidence" in the Irish economy.
But since the spending cuts have caused a severe recession, the fabled "confidence" is not turning the economy around for some strange reason. Krugman's last line tells the story quite beautifully.
Ireland is now in its third year of austerity, and confidence just keeps draining away. And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.