There’s a global financial crisis joke which goes, What’s the difference between Iceland and Ireland?  The answer: One consonant, and about six months.

Having been in Ireland during some of August, as the government tried to set up its “bad bank”, the National Assets Management Agency (NAMA), on what appeared to be extremely favourable terms to bank shareholders amid the collapse of one of the country’s biggest property developers, Liam Carroll’s Zoe Group, the joke looks alarmingly close to the truth.

August unemployment in the Republic was running at 12%, almost twice as high as in the North, and even allowing for measurement differences it was a clear sign that the good times have gone. Ireland’s deflation rate is now the highest of any rich country.

As the Bank-of-Ireland-economist-turned-writer/broadcaster David McWilliams has observed, the so-called “Celtic Tiger” was built on easy credit, cheap oil, and ready sources of migrant labour. The easy credit has gone, the cheap oil can no longer be taken for granted, and migrant workers are less willing to move to weak economies. The collapse of the property bubble has been swift; the value of commercial property has fallen 50-60% from its peak. I was told that on the Inishowen peninsula, in the north of Donegal, three-fifths of the houses were empty, built speculatively as holiday or second homes against demand that is no longer there.

NAMA leaves quite a lot to be desired, and without going into the small print, it fairly clearly buys the toxic assets at over-valued prices at the taxpayers’ expense. At time of writing, the Greens, the junior partners in the governing coalition, may still scupper the proposals. The Irish Independent’s resident grumpy old columnist, Kevin Myers, even suggested that such corruption was endemic to the political history of Ireland’s ruling Fianna Fail party:

The honest folk of NAMA are, in effect, being assembled to rescue our rapacious developer-class, the shady ruffians who were such generous contributors to Fianna Fail over the years. And naturally. For modern Ireland is the diseased polity that Sean Lemass created out of de Valera’s failed state. He conjured a new speculator class into existence, on the quid pro quo that it would then subsidise his party, as meanwhile the state protected it.

David McWilliams, for his part, wondered why the government wanted to prop up banks or developers when they could buy cheap land from them instead.

With so much prime land now available to the State for a song, the obvious thing is for the State to profit from the bankers’ and developers’ stupidity and greed by buying the land for next to nothing and then putting it to public use. In almost every banking disaster we have seen in the past two decades, the obvious thing to do is let banks go. The State guarantees deposits, transfers these deposits to a new bank and the economy starts again. From the Swedish crisis of the early 1990s to the Asian Tiger collapse and the USA today, banks go bust and the countries recover.

Brendan Keenan, writing in the Irish Independent’s business section, observed that even if the Irish government hits its improbably optimistic budget targets, it will still have one of the largest proportions of public expenditure as a share of the overall economy. Cuts seem inevitable, since the country is almost completely dependent, economically, on the goodwill of the international bond markets, which worry about the share of public expenditure in an economy.

There are some hard lessons here. In the ’80s and ’90s Ireland sucked in inward investment (much from the US) from companies looking for a base in the European Union with low-cost skilled labour. The English language was an advantage. But low wages are only ever a temporary advantage (they increase rapidly on the back of economic success) and Ireland now has some of the highest wages in Europe (and highest living costs as well). And as English continues to spread as the language of business, having native speakers may be less of an advantage.

Historically, Ireland has exported its skilled workers through migration. The view on RTE’s O’Gorman programme (he talks to members of the public, in this case at a social welfare office in Cork) was that the depth of the current recession worldwide meant this was not an option this time. One commentator suggested that Ireland should concentrate on its traditional strengths, of food and tourism. They won’t bring back the boom years, but at least both should be sustainable in the medium-to-long term, as food security becomes more important and energy costs make tourism increasingly short-distance. And the well-educated workforce will continue to be an asset, especially if the government, or the state of the world economy, can persuade them to stay at home.