It was a bitterly cold morning back in January when thousands of Dell workers gathered in Raheen, County Limerick, Ireland, to hear their fate. They knew the news would be bad - there had been rumours of closure for almost two years - but they did not know how bad. It was devastating: 1,900 of the 3,000 workers would lose their jobs, Dell announced, because it was moving its production facility to Lodz in Poland. It was the start of one of the grimmest weeks the Irish economy has ever endured.
Dell's decision was swiftly followed by the collapse into receivership of Waterford Wedgwood, owner of the iconic Waterford Crystal brand, and by the nationalisation of Anglo Irish Bank, the lender that had fuelled so much of the country's property boom. Amid the corporate gloom came confirmation of Ireland's economic implosion: the official exchequer figures released that week revealed that the collapse in tax revenues in 2008 had been the worst on record, while unemployment was rising at a terrifying rate.
Year-on-year, the numbers of people out of work had risen by more than 70%, with 2,000 jobs lost each week. By the end of this year, an economy that boasted full employment just two years earlier faces unemployment rates of at least 11%, and government finances that had been in surplus are heading for the biggest percentage deficit in the European Union.
Each month since January, the projections have grown steadily more pessimistic. By the beginning of May, both the European Commission and Ireland's Economic and Social Research Institute (ESRI), the country's leading economic thinktank, predicted that unemployment would reach at least 16% in 2010 and that the Irish economy would contract by as much as 9% this year.
The collapse of government finances has gathered pace, the gap between its income and expenditure growing remorselessly. This year, it will have to borrow EUR20bn in the international money markets to pay the costs of running the country, a funding gap that two budgets in six months have failed to close.
The speed and scale of economic collapse have been staggering. In 1989, when Michael Dell first considered a production facility in Limerick, his company was five years old and Ireland was emerging from a decade of recession.
The 1980s had been truly miserable. At the start of the decade, Charles Haughey, the then taoiseach, had told the Irish people that 'as a community we are living way beyond our means'. Ireland teetered close to bankruptcy, its finances destroyed by profligate government borrowing, economic collapse, political failure and social decay. Unemployment would peak at almost 20%, and with 30,000 leaving each year, emigration was robbing the country of youth and talent. It was a country without hope, its governments short-lived and its reputation measured by the atrocities of the conflict in Northern Ireland.
Corporate success was limited to a tiny clutch of entrepreneurs: Tony Ryan, founder of Guinness Peat Aviation and Ryanair; Michael Smurfit, a paper packaging tycoon who was cutting an acquisitive swathe through the US, and Tony O'Reilly, the chief executive of Heinz and owner of newspapers and exploration companies in Ireland.
They were the exceptions in an otherwise drab and risk-averse business world, their success an anomaly rather than a call to arms for Irish entrepreneurs. Ireland, too, had failed to capitalise on its membership of the EEC. There had to be a change of direction, and it came near the end of the decade, when government, employers, trade unions and farmers came together to forge an agreement they hoped would lay the foundations for economic recovery. The 1987 social partnership agreement was the first in a series of deals that grew ever more grandiose in their scope, but the original deal had modest aims: to achieve wage moderation and industrial peace.
The reality of its achievements has been overstated, but social partnership created the illusion, at least, that Ireland was serious about sorting out its economy. It was an essential first step for a country desperate to prove its credentials to foreign multinationals, particularly US companies, who wanted to tap into the emerging force of the European economy.
Ireland decided to sell itself aggressively, and its weapons of choice were low corporate tax rates married to straightforward cash inducements for every job created. As a location, Ireland had advantages that suited US investors. Its workers spoke English, were well educated and relatively low-cost. Ireland gave access to the European market, but was close to the US east coast. Its time zone was deemed particularly conducive to enhanced productivity on both sides of the Atlantic: by the time the US was awake, Ireland had done a day's work.
Michael Dell was impressed. 'What attracted us? A well-educated workforce - and good universities close by,' he said in 1997. 'Ireland has an industrial and tax policy which is consistently very supportive of businesses, independent of which political party is in power. I believe this is because there are enough people who remember the very bad times to de-politicise economic development. (Ireland also has) very good transportation and logistics and a good location - easy to move products to major markets in Europe quickly... They're competitive, hungry and know how to win. The talent in Ireland has proved to be a wonderful resource for us.'
Dell was not alone. While he was establishing his company in Limerick, Intel was breaking ground 120 miles away in what would become Ireland's Silicon Valley - Leixlip on the outskirts of Dublin - where it now employs 5,000 people. Other giants of the US computer industry - Apple, Microsoft and Google - followed, but as Ireland left behind the dark days of the 1980s it still needed far more than a wage deal and a few foreign companies to break the cycle of decades of depression.
The real spur for economic lift-off came in 1992, during the European currency crisis, when Ireland decided to devalue the punt by 20%. At a stroke, its international competitiveness surged, its exporters started to boom and Irish productivity raced up the international league table, eclipsing that of the US before the decade was out. And as the effects of the devaluation started to flag, the countdown to the introduction of the euro started in earnest. Irish interest rates would no longer reflect the needs of the Irish economy but would fall into step with lower German interest rates.
Cheap credit and a cheap currency were economic rocket fuel, and the Celtic Tiger was born. Ireland's image was transformed as its economic growth ticked higher each year. Between 1993 and 1998, Ireland's GDP increased by 45%, with annual rates of growth approaching 10%, while unemployment tumbled from 15% to 6%. The effect on the country was spectacular, as consumer spending coursed through the economy: house prices, stagnant for five years, started to climb; car sales increased year-on-year and shopping malls appeared on the outskirts of Ireland's newly vibrant cities.
Side by side with economic growth, however, came profound social and political change. In Northern Ireland, 30 years of vicious terrorist conflict started to tip towards resolution. In the republic, the Catholic Church was in retreat, its former dominance destroyed by emerging child-abuse scandals and cover-ups.
Divisive referenda on abortion had started a questioning of the role of the church in Irish society, and the changing mood was confirmed when Ireland voted narrowly in favour of divorce in a 1995 referendum. Emigration, the scourge of previous generations, was being replaced by a steady increase in immigrants, some from Africa and Europe, but many returning home after years working in the UK or US.
The breaking down of the old Ireland was not confined to the crumbling of the Catholic Church's authority. Politically, too, corruption was being uncovered and, instead of being buried again, it was being subjected to the public scrutiny of Tribunals of Inquiry.
The sense of change was ever-present as Irish culture joined the renaissance: from U2 to Enya, Seamus Heaney to Roddy Doyle, Riverdance to Neil Jordan, Liam Neeson to Gabriel Byrne, Ireland had the world at its feet. It was a young, cool, European country - a poster boy for the European Union. In 1991, Dublin was a capital of culture and even its soccer team, with Jack Charlton at the helm, spread the optimism by reaching the finals of both the 1990 and 1994 World Cup.
The cooler Ireland became, the easier it was to attract foreign investment: added to the attractions of a 12.5% corporate tax rate, impending euro membership and a young, educated workforce was the indefinable attraction of a country that seemed to have it all. Writing in the New York Times in 1997, Thomas Friedman, the Pulitzer prize-winning author, marvelled that 'the country that for hundreds of years was best known for emigration, tragic poets, famines, civil wars and leprechauns today has a per capita GDP higher than that of Germany, France and Britain. How Ireland went from the sick man of Europe to the rich man in less than a generation is an amazing story. It tells you a lot about Europe today: all the innovation is happening on the periphery by those countries embracing globalisation in their own ways... while those following the French-German social model are suffering high unemployment and low growth.'
In Ireland, the political debate became polarised and 'Boston or Berlin?' became the metaphor for policies that favoured either free-market capitalism or European social democracy - and the disciples of the free market were in the ascendancy.
Ireland had become a European country that Americans could understand: culturally aligned, successful and entrepreneurial. For companies like Google, keen to attract the brightest young talent, locating in Europe's coolest capital could only make sense.
The burgeoning success of the computer industry was matched by growth in pharmaceuticals and biosciences. Catholic Ireland became the location of choice for Pfizer, exporter-in-chief of Viagra, the drug that boosts flagging male potency. More importantly, the influx of foreign firms transformed Ireland's export profile: food and agricultural products, once the mainstay of a rural economy, were swiftly replaced by drugs, software and services, thanks to the emergence of the International Financial Services Centre in Dublin's regenerated docklands.
The transformation throughout the 1990s had been tangible: Ireland's workforce had doubled to two million, its economy had more than doubled in size and the government's finances had turned full circle from deficit to surplus. Alongside the foreign investors were Ireland's own new breed of entrepreneurs: Ryanair, now run with evangelical zeal by Michael O'Leary, was revolutionis-ing European air travel with its ferociously aggressive low fares; Dermot Desmond, JP McManus and John Magnier were striding through the world of high finance, Sean Quinn was making billions from cement, and Derek Quinlan was building an investment portfolio that would allow him to outbid oil sheiks for the Savoy in 2004.
Social partnership remained in place, but its impact on wage moderation had become non-existent: the market, not the social partners, dictated wage rates, and Irish wages rose substantially as the economy reached full employment. The government did not see the danger.
'My philosophy,' said Charlie McCreevy, Ireland's finance minister from 1997 until 2004 and since then an EC commissioner, 'is to spend it when I have it.'
Encouraged by Bertie Ahern, who became Taoiseach in 1997, McCreevy went on a spending binge. From 1997 to 2008, investment in Ireland's creaking health service quintupled, and on education it tripled. Public-sector employment soared, and in the same period the public-sector pay bill doubled from EUR10bn to EUR20bn as McCreevy agreed massive pay increases for public servants to benchmark their salaries with the private sector. Social partnership, conceived to moderate wage increases, had become the monster that inflated them.
Ahern avoided confrontation wherever possible. His style was consensual - an approach that played a significant part in copperfastening the peace process in Northern Ireland - but it was anathema to good government.
The proceeds of Ireland's economic success were frittered away on public-sector wages and poorly conceived infrastructure projects that were completed behind schedule and spectacularly over budget. Ireland's Comptroller and Auditor General estimated that EUR7bn had been overspent on road projects, yet for all that spending, there is not a single motorway connecting any of the republic's major cities with Dublin. According to ESRI, wage increases for the public sector mean the average public-sector worker now earns 20% more than their private-sector counterpart, as well as enjoying job security and a state-guaranteed pension linked to final salary.
Competitiveness was eroded and productivity slipped, making Ireland exceedingly vulnerable to external shocks and sharp eastern European competitors. Dell's decision to move 1,900 jobs to Poland, and Waterford Crystal's collapse, signalled an end to two levels of manufacturing that Ireland could no longer afford: a high-cost, high-skills, labour-intensive glass manufacture, and low-cost, low-skills computer assembly.
But the first blip in the Celtic Tiger's ascent came well before Dell's decision to go Polish. The bursting of the internet bubble at the turn of the century put the brakes on Ireland's heady economic progress of the previous five years, with GDP growth slowing to just 2% in 2001 - a fall so sharp that it briefly felt like a recession. As soon as economists and politicians began fretting about the end of the boom, growth spurted. That, economists say, was the false dawn: 2001 marked the real end of the Tiger years; what followed was a boom of a different kind.
The property boom had its genesis in real demand - workers needed homes, and the new rich needed holiday homes. The construction industry raced to build houses - and roads for a government out to splash the cash. The number of new homes peaked at 95,000 in 2006, double the number built in 1997. Prices kept rising, with average houses costing 350% more in 2006 than in 1997.
The property boom, and the spectacular price rises, prompted an orgy of buying. From 2004 to 2008, banks threw money at housing, with almost EUR50bn advanced in mortgages. Simultaneously, the banks were throwing billions at property developers who were desperate to acquire landbanks and to fund housing estates. The price of agricultural land soared as farmers sought to farm sites rather than crops, with the price of an acre of unzoned land rising from EUR5,000 to EUR35,000 in rural Ireland in seven years. The property frenzy was not restricted to the domestic market, and it consumed all investment. More than EUR10bn of Irish money flowed into the UK in the first five years of the new century, funded by Ireland's steadily rising indebtedness.
The crash, when it came last year, was brutal. A year of stagnating prices had given rise to false hope that Ireland could engineer a soft landing for its property market, but the international financial implosion caused the hardest of falls and Ireland's banks have been left naked. Anglo Irish, the most aggressive lender of the past 20 years as it metamorphosed from tiny credit house to one of Europe's most profitable banks, collapsed into nationalisation at the start of this year. Ireland's two largest banks, Allied Irish Bank and Bank of Ireland, teeter close to nationalisation.
The Irish government believes it will have to buy nearly EUR80bn of debts from the banks to cleanse their balance sheets, but the writedowns of those loans will cause such destruction to the bank's capital ratios that majority state ownership is deemed inevitable.
Ireland's banks have been undone not by toxic derivatives but by the pricking of a property bubble that had caused madness to inflict a nation's psyche. The fallout will be painful and long-lasting, with Ireland's recession forecast to be deeper and longer than any other in Europe. Its troubles have prompted an outburst of Schadenfreude: in April, Paul Krugman, the Nobel economics laureate, wrote a piece for the New York Times under the headline 'Erin Go Broke', in which he said that the worst-case scenario for America would be to become an Ireland.
Yet Ireland's gains during the Tiger years have not been eradicated. It remains a world leader in the pharmaceutical, biosciences and computer industries, still has a young and educated workforce, still speaks English and still has low corporation taxes. Critically, too, it has shown flexibility in the face of crisis: wages have been cut sharply in the private sector without a murmur, and even in the public sector a government levy has pared the wage bill by 4%. Even more critically, it retains the entrepreneurial culture that came with the Tiger: Ireland is still closer to Boston than Berlin.
The immediate challenges are political: the Irish government, now led by Brian Cowen, must cut its spending. Its first responses to the crisis have focused on raising revenue through tax increases, but that is a stopgap solution to a problem that can only be addressed by sharp cuts in spending, and which risks making the recession worse by further deflating an already weak economy. Cowen must also push through the Lisbon Treaty, rejected last year in the only European referendum on it. That rejection was portrayed outside Ireland as a rejection of Europe, but it was not: a confluence of factors brought about the defeat of the treaty, but Ireland remains stoutly pro-European.
The greatest threats to Irish recovery are within its own power to resolve: wage costs must fall further, its infrastructure must improve and the government must introduce more competition into the provision of services (a recent survey of foreign companies in Ireland showed that half would no longer choose Ireland as a location because of the high cost of doing business and the poor infrastructure).
The ending of the boom has brought with it a savage hangover. Home-owners who bought in the past five years face negative equity for many more. The queues at the dole offices resemble scenes from the 1980s, but this time there is the phenomenon of middle-class unemployment, with lawyers, architects and engineers thrown on the scrapheap and unable to leave because the traditional safety valve of emigration has been closed off by global recession.
The voices of the political Left, silent through the boom, are heard again, hailing the collapse of capitalism, while others salute the new austerity and claim that it gives Ireland a chance to reclaim a soul it sacrificed to the god of materialism.
Before long, the Catholic Church may perhaps feel strong enough to raise its head above the pulpit again, but it will never reclaim the old Ireland. The changes of the past 20 years are profound and permanent, socially and economically. The parallels with the 1980s, of high unemployment and devastated government finances and even a return to bloody violence in Northern Ireland, may sound neat, but they miss the central points: Ireland is now a successful country with a modern economy and a culture of achievement. Recession will wound, but it will not kill the new Ireland.