Hamish McRae: Fear can concentrate the mind – and bring on a 'yes' vote

In Ireland there is anger and despair – but with some resolution mixed in

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So Ireland will vote yes on Friday. Almost any other outcome, given the polling results, is just about inconceivable, and the Lisbon treaty will move a further step towards ratification.

It is possible that the Czech Republic or Poland may delay ratification further but from a British perspective, the balance of probability is now that the treaty will be law before the next general election. It has after all been passed through our parliament, albeit without the promised referendum. Quite what the next government will do about that remains to be seen.

But that it is to look at the matter through the prism of British politics, of which there is rather a lot about at the moment. From an Irish perspective or indeed that of any small member of the European Union, it is all rather different. It is question of to what extent small countries gain or lose by membership, to what extent their economies are dependent on the EU, and accordingly to what extent they dare twist the tail of the tiger.

Some 15 months ago, when Ireland voted no on what was essentially the same treaty, the global boom had just reached its peak. There were rumbles of distant thunder, of course, but the storm had yet to break. The Irish economy had been the most successful in Europe for a decade and a half, transforming the poorest country in Western Europe into one of its richest. For the first time in the history of these islands Ireland was richer, per head of population, than Britain. At current exchange rates it still is.

For those of us who know Ireland – I was brought up there and am hugely grateful for the perspective that gave me of the world – it was a wonderful story. It showed that if you get the fundamental economics right and have a well-educated and hard-working labour force, a country can turn decades of failure into a success that wows the world.

Everyone wanted to know how the secrets of the "Celtic Tiger". Was it low company taxation? Was it Irish education? Was it subsidies from other European Union taxpayers? Was it mostly luck? There can be no definitive answer yet. There were elements of all those features. What is indisputable is that things got out of hand. In particular there was a real estate boom. Borrowings shot up to finance it. Dublin land prices headed towards New York levels.

Then came the bust. This year the Irish economy seems set to contract by something like eight per cent, double the decline in the UK, with only an anaemic recovery predicted for 2010. This has led to the usual mixture of anger and despair, but with some resolution mixed in.

It would have been much better had the country used the good years to build up an even stronger fiscal position, and better still if it had managed to avoid the excesses of the credit boom. But Ireland has been in good company, and if you view this from the perspective of the position at the beginning of the 1990s, the progress overall is massive, despite this setback. But slumps come to an end, just as booms do.

While the Irish economy will initially recover more slowly than the UK's, and is unlikely to get back to the heady seven-to-eight per cent annual growth rates it reached at the peak, the fundamental factors that made it a successful competitor and an attractive investment opportunity remain. I am pretty confident that come another five years, Ireland will be back.

What the slump has done though is to knock the country's self-confidence, and hence led to a change of mood towards the Lisbon treaty. Michael O'Leary, not someone noted for his lack of self-belief, said that a no vote would ruin the economy. "If we vote no," the Ryanair chief said, "the cost of borrowing will rise significantly. We will lose an EU commissioner because we go back to the Nice Treaty, and we will lose a veto on direct taxation."

Whether Mr O'Leary is right or wrong is irrelevant. If that is what he thinks, a lot of other people are going to think the same. You may take the view that there was nothing wrong with the present EU arrangements, but for many people, indeed for many of the smaller countries of Europe, this is not the time to rock the boat.

There is a paradox here. This treaty is about politics, not economics. It is about re-fashioning Europe's political arrangements, not about improving the workings of the single market or extending the reach of the euro. But if Poland and the Czech Republic sign up soon the reason for this display of unity will principally be the fear that there are economic costs to being signed-up members of Europe's awkward squad.

h.mcrae@independent.co.uk

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