So Iceland had a bigger financial crisis, did more austerity, and had higher interest rates than Ireland, but has still managed to recover more. How is that possible? Well, it's not just that Iceland let its banks go bust, while Ireland bailed its out. Reality is a little more complicated. It's true that Ireland ran up a lot of debt guaranteeing its banks, but it's also true that it restructured that debt in 2013 in a way that effectively cut 40 percent of it. That's a quiet default, or at least half of one.
No, the biggest difference between the two is that Iceland has its own currency and Ireland has the euro.