Is Ireland the new Greece? We ask the question not merely out of fellow feeling for European citizens living in those two countries, but out of concern for what the latest Irish crisis means for the United Kingdom's economic prospects over the next five years. Just as the Greek debt crisis that coincided with our general election was said by Nick Clegg and Vince Cable to persuade them of the need for early and deep spending cuts, so the new cataclysm to hit the Irish economy is alleged to make the opposite case. Ed Balls, still nominally Labour's education spokesman, says that it supports his contention that the coalition government's planned spending cuts risk plunging Britain into a double-dip recession.
This is the central argument of British politics, and it should be the question to which the Conservative Party conference in Birmingham this week is devoted. Last week's new bailout of Irish banks dramatised the extent to which Ireland's austerity programme, which began earlier than any other in Europe, seems to have driven the Irish economy deeper into a spiral of contraction, unemployment, bad debt and further government borrowing. So is Mr Balls right?
Ireland differs from the UK. Although much has been made of the overdependence of the UK economy on financial services, it has not been as exposed to unsafe banks as the Irish economy. The Irish situation now looks almost Icelandic in scale. One of Ireland's peculiarities has been that the problems of its banks have not been transparent. Last week's bad news came as a shock some 18 months after the full extent of the disaster in UK banking was exposed. UK banks have recently passed the stress tests designed to ensure that they could withstand another recession. Thus, whereas the Irish taxpayer has lost alarming sums of money in Irish banks, the UK taxpayer has probably made a net profit so far from nationalising our banks.
The Irish economy is more open and more dependent on foreign investment than ours, and the Irish government is more dependent on foreigners to lend it money. Which means that Ireland is more vulnerable to a loss of confidence of international opinion.
That said, the Irish experience certainly illustrates the danger of the classic debt-deflation cycle that can drag an entire country down. The danger for the UK economy may not be so much that of a double-dip recession as of a long period of stagnation. The Independent on Sunday agrees with Ed Miliband who said, in his first big speech as Labour leader last Tuesday: "I believe strongly that we need to reduce the deficit," but that "what we should not do as a country is make a bad situation worse by embarking on deficit reduction at a pace and in a way that endangers our recovery."
The balance of opinion among economists is that George Osborne, the Chancellor, is overdoing it in trying to eliminate the deficit altogether in five years. Hoping that printing money (known in polite circles as quantitative easing, of which the Bank of England is expected to announce more next month) will promote economic activity in the absence of public spending may be, to use Keynes's old phrase, like pushing on a string. We understand that there might be elements of political calculation in Mr Osborne's Budget plans, in that he may hope to be able to ease off the brakes in time for the run-up to the next election. But, given the precarious balance of risk on which the economy is currently teetering, this seems to be putting a finger on the scales on the wrong side.
As Mr Osborne, Mr Balls and Chris Huhne, one of two qualified economists serving as Liberal Democrat Cabinet ministers, have all accepted in different ways, it is a delicate judgement that changes from month to month. As it happens, last week's Irish horror story does not affect that judgement, but Mr Balls – although he would perhaps go too far the other way – is right to say that the coalition government has currently got the judgement wrong, putting jobs and long-term economic prospects unnecessarily in jeopardy.
So Ireland is of limited value as a laboratory-style experiment to demonstrate the dangers of zealous austerity, but it serves as a vivid reminder of how easy it is for an economy to be tipped into a negative spiral of debt and stagflation.
David Cameron should this week heed the anxieties of those who fear that his Chancellor's axe-wielding machismo is for political purposes rather than being, as his conference slogan has it, "in the national interest".