What does a country need to do to make a success of the euro? The European Commission and the European Central Bank would say the recipe is simple: Cut your budget deficit, slash wages, keep taxes competitive, boost your exports, and live with austerity.
There is just one problem: Ireland has been following precisely that formula and it hasn't done much good. The government is being squeezed at a time when the cost of bank bailouts is soaring. Blame it on the banks.
If there is one country that proves what a mess the single currency has become, it isn't Greece, or even Spain or Portugal. It's Ireland. When countries break the rules and get into trouble, it isn't that surprising. But if they stick to the rulebook and still run into as many problems, it suggests there is something wrong with the system itself.
Last week, there was a stark reminder that Ireland is still a long way from market redemption, almost two years after the credit crunch burst the real-estate and asset bubble.
Credit rater Standard & Poor's lowered its grading on Irish debt by one level to AA-, stressing the heavy cost of rescuing a banking system struggling to cope with the collapse of the property market. S&P estimates the cost of recapitalising the banks will be about 50 billion euros (Dh231 billion). That's almost a third of the economy.
Ireland now has its lowest rating since 1995. Irish bonds plunged on the news. The spread over German bunds widened to a record.
It isn't hard to understand why the decision was made. Ireland ran a budget deficit of 14.3 per cent of gross domestic product last year, the largest of any euro-area country. The gap will narrow to about 11 per cent this year, according to European Commission forecasts.
There is a mountain of debt building up and the economy remains in a terrible state. Over the past two years, it has shrunk about 10 per cent, one of the worst recessions in the developed world. There isn't much sign of a bounce back, either. The Irish central bank predicts the economy will expand 0.8 per cent this year, a figure it revised up from the 0.5 per cent contraction it forecast in April.
Maybe it will, and maybe it won't. Either way, it is a weak revival for what used to be one of the fastest-growing countries in Europe.
And yet, Ireland has been exemplary in its austerity drive. Public-sector salaries have fallen by an average of 13 per cent. Taxes have been raised where necessary, but not in a way that will hurt business. The Irish have been willing to tighten their belts and adjust to hard times. There was no sign of the street riots, political protests that took place in Greece.
Ireland is doing exactly what it has been told it should be doing. There ought to be some reward for all that effort. But there is very little sign of it.
