Hamish McRae: Don't give up on the Celtic Tiger just yet

It will be a close-run thing but Ireland should make it. The scale of the support the country has had to marshal to cover its banking system's debts will strain its finances but it should grow solidly through the next phase of the global economic cycle, cover its debts and give a rising standard of living to its people.

The scale of the bad debts of the Irish banks, in particular those of Anglo-Irish Bank, are huge and unlike in the UK, it is unlikely the government will be able to claw back most of that debt by selling bank stock back to the public. (Currently the UK taxpayer is roughly square on its bank investments.) But the calculation that this pushes the Irish budget deficit from a dreadful 12 per cent of GDP up to an unthinkable 32 per cent is misleading.

Even in a worst case the additional debts will be spread over many years. Ireland has so far been successful at finding buyers for its national debt and has large cash reserves. It is true that gross national debt at the end of this year will be 100 per cent of GDP. But if you allow for the cash balances and national pension fund assets, net debt will be about 70 per cent of GDP, not much higher than that of the UK at 62 per cent. Looking ahead, Irish debts will be towards the top end of the global scale. But debt will probably be lower than that of Italy and certainly lower Japan's. In any case debts were close to 100 per cent of GDP in the early 1990s, when Ireland's long economic boom began.

So while it is possible that Ireland may have to seek support from the European Union and it may need to reschedule its debts, the balance of probability is that it will scramble through. The key will be growth. The immediate signs are mixed, for after a strong first quarter, the economy did fall back in the second. But domestic consumption is rising at last, with car sales double the level of the trough of September a year ago; exports are up; and new orders are now only about 7 per cent below the peak of 2007, a much better performance than the rest of the eurozone.

So the core economy is on the mend. The turnabout is achingly slow and maintaining political support for a policy that punishes ordinary people for past speculative excess will be hard to sustain. But compared with the situation of Ireland in the early 1990s, or indeed in the 1960s, when the country had a GDP per head of only two-thirds of the UK, the potential for growth is quite positive. The scars of the property crash will remain for many years but the core qualities that created the "Celtic Tiger" are still there – the skilled workforce, the attractive corporate tax rates and so on – so as global growth picks up, the Irish economy will benefit alongside the rest of us.