In order to save its banking sector, Ireland ran up a budget deficit amounting to 30% of its economic output in 2010. In the same year, Germany added almost € billion to its public deficit as a consequence of supporting the banking system. Obviously, saving banks puts a lot of strain on public finances.
And this brings us to the other side of the vicious circle. When public finances run into difficulties, the banks are put under strain. Fiscal distress is particularly problematic for those banks that hold government bonds.