The Irish government struggles with the effects of a deep recession

THE difference between Ireland and Iceland, so the current joke goes, is one letter and six months. A Dublin economist responds that the real difference lies in a four-letter word: euro. Ireland is in, and Iceland is not. A former European commissioner from Ireland, Peter Sutherland, thinks that Europe’s single currency has kept Ireland afloat. Even so, GDP is expected to contract by 5% and the unemployment rate to rise to over 9% this year. And Ireland is bracing itself for a credit downgrade on its sovereign debt.

Much will depend on how the rating agencies judge the latest efforts by the prime minister, Brian Cowen, to stabilise the public finances. On February 3rd he made a poor start, before recovering. After weeks of talks, he failed to win trade union support for his budget cuts. Yet hours later he imposed the measures the unions had rejected, including a pension levy on public-service workers. His unilateral action signalled the end of two decades of social partnership, based on a consensus approach to wage bargaining between government, employers and unions. ...