NOW, more than ever, is a time for cool heads, but unfortunately there was precious little of that last week. The measured assessment of Ireland's situation by Ajai Chopra was a mini oasis of calm amidst the hysteria that dominated last week's debate.

The danger is that as the general election gets closer, the hysteria is going to get ratcheted up even further. We know Fine Gael and Labour are going to form the next government. But the divvy-up of cabinet seats has yet to be decided. And there are worrying signs both parties are looking to outdo each other in the anger stakes.

Describing Ireland as "banjaxed" may make for good headlines, but it's hardly what the country needs to hear from the government-in-waiting. Nor does it help public confidence when both main opposition parties try to claim that the interest rate being charged to Ireland is higher than paid by Greece when they know full well that three-year money as accessed by the Greeks is far cheaper than the longer term funding secured by Ireland.

Eamon Gilmore's angry insistence that he will not be bound by the terms of the agreement with the EU/IMF will certainly be a crowd-pleaser. But it is the most pointless piece of political posturing since Fianna Fáil's opposition to the Anglo-Irish Agreement in the mid-1980s. The government in which he will soon be Tánaiste will have to be bound by it.

In the current climate, there are obvious short-term political benefits to the opposition's approach. But Fine Gael and Labour are in serious danger of creating unrealistic expectations that they have no hope of satisfying when they come to power.

The reality is that the deal reached with the EU/IMF was as good as could have been achieved. We were all out of options – the whole world knew it. The idea, which has been put forward in recent days, that we should have told the IMF and, more particularly, our European allies, to get stuffed is astonishingly naïve.

The European Central Bank has been propping up the Irish banks for some time now with emergency liquidity to the tune of tens of billions of euro. The merest hint from the ECB that Ireland's intransigence might cause this to change means our goose was cooked. So let's get real.

It is understandable that people wanted bondholders – particularly the €4bn worth of unguaranteed senior debt holders in Anglo-Irish – to share the pain. But once the ECB vetoed that move, for fear of contagion across the entire euro-region, that was a clear non-runner.

But that hasn't stopped the calls for the government to revoke the full guarantee of the banking system, convert bondholders into equity holders and – even more dramatically – restructure the national debt and default.

Nobody can say for definite that matters won't reach a stage where Ireland – along with a number of other peripheral Euro countries – won't be forced to default. But to do so now unilaterally would be an extraordinary gamble with limitless potential downsides.

The highly respected Financial Times columnist Wolfgang Munchau made the sovereign default argument in an article in the Irish Times last week. But his forecast as to what would happen once we did that was less than reassuring. "A default would cause havoc, no doubt, and would cut Ireland off from the capital markets for a while. But I would suspect that the shock would only be temporary," he wrote.

That's great, so. Just as the real economy looks like it has finally stabilised – with exports and manufacturing increasing, unemployment edging down, the exchequer returns stabilised and even consumer confidence no longer dropping – we adopt a policy measure that will create "havoc". But don't worry, the suspicion is that being locked out of the capital markets will only be temporary. Munchau went on to argue that "even Argentina was able to gain funding from investors a few years after its default".

The reality is that Argentina defaulted in 2001 – setting the terms of its restructuring in 2005 – and nearly a decade on, the only international loan it has received is from Hugo Chavez's Venezuela at 11% interest. It has relied largely on domestic savings to fund government spending, which is not an option in Ireland.

That hardly sounds like the model we want to follow. If you think the current credit crunch is bad, just imagine what it would be like if the Irish sovereign and our banks are shut out of international finance. Bank loan books would have to be reduced to the size of domestic deposits and that's making the very optimistic assumption that there would be no fleeing of depositors in the event of a default and a revoking of our bank guarantee.

In the piece, Munchau argued the government should assess its solvency on the basis of an estimate of nominal economic growth "of no more than 1% per year for the rest of the decade".

If we do end up with nominal growth of just 1% a year then we definitely will be screwed. But, given how the Irish economy's fate is so tied to global growth, presumably all the other peripheral Eurozone nations will be screwed too.

If we are to end up defaulting, surely it would be preferable to do so collectively with a number of our euro allies than for little Ireland to be the only guinea pig in what would be a hugely risky economic experiment where nobody has a clue what will happen apart from utter "havoc" being created? For now at least, there is little choice but to go with the EU/IMF plan. If Patrick Honohan is right – and there are no more black holes in the banks – and if the economy can grow close to the rates set out in the plan, then our interest payments (which will account for between 25-28% of total tax revenue) should be just about manageable.

Of course, they are two pretty big 'ifs' and it would be stupid to believe other-wise.

But there is no potential solution to the current crisis – however alluring it might seem – that doesn't involve a whole raft of what ifs and maybes. We're long past the point of doing the right thing. It's now about taking the least wrong option.

scoleman@tribune.ie