Page last updated at 18:26 GMT, Wednesday, 20 May 2009 19:26 UK

Will the Celtic tiger roar again?

By Gordon Brewer
BBC Scotland Newsnight

Ireland - Euro election signs
Ireland is closely linked to the European Union

You don't have to look far for bad news in Ireland these days.

On the way in from the airport, the radio in the taxi announced one of the Irish banks was cutting a third of its staff.

Today's newspapers were mulling over the resignation of the governor of the Bank of Ireland (a private bank, incidentally, more the Bank of Scotland than the Bank of England).

By the time I reached the genteel elegance of City Hall, word was out of a report by the accountancy firm Ernst and Young which claims that the Irish economy is now in a depression, not just a recession.

Now we can argue about definitions of depression (the report uses an accepted rule of thumb of a fall in output of 10%) and no-one is arguing Ireland is now in the same dire straits as America in the 1930s. Nonetheless, the situation here is, to put it mildly, serious.

The housing market has collapsed, factories are closing, the government is in such a dire fiscal position it has to raise taxes and cut spending in the middle of a recession and you get the impression the authorities are casting around for anything they can think of to help matters.

The government has just announced it will try to pay all of its bills within 15 days, pour encourager les autres.

Dull performer

So these are testing times for this former star member of the so-called "arc of prosperity".

Will the Irish economy bounce back so we can indulge in another round of clichés about the Celtic Tiger?

Will it be thrust back decades so that, for example, emigration will rise again?

Or, more prosaically, will it turn out the largely rural Irish economy of a quarter of a century ago was playing catch-up with the rest of Europe and is now destined to be a comfortable if dull performer pretty much on a par with everyone else?

We'll be discussing all that in a special edition of Newsnight Scotland from Dublin.

But, of course, Ireland is facing another economic test, one much more closely linked to the European Union.

Because it is part of the eurozone, Ireland, unlike the UK, can't devalue its currency to try to ward off the worst of the slump.

Turkey sign
Chickening out of Europe? An official advertisement for the Euro elections

Does that place it at a disadvantage? Or does it mean that Ireland will be forced to make changes in things like employment and public spending which may be painful in the short term, but will stand it in good stead in a few years time?

Oh, and another thing. The fate of the European Union rests in Irish hands.

Unlike Britain, Ireland held a referendum on the Lisbon Treaty and the people rejected it - despite its having the support of the main political parties.

The attitude in Brussels seems to be that the Irish will just have to keep voting until they get the answer right and there will probably be another referendum in the autumn.

But winning it will be no easy matter for a government here which is not noticeably more popular than its counterpart in Britain.

We'll be asking the parties how they intend to win over their public.

Newsnight Scotland live from the Guinness Storehouse in Dublin, 2300 BST on BBC2 Scotland.

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